Plexus Reaffirms at Investor Day - Analyst Blog

At the 2010 investor day, Plexus Corp. (PLXS), an engineering-focused EMS player and a leading provider of electronic manufacturing services (EMS) to original equipment manufacturers (OEMs), reaffirmed its outlook for the third quarter of fiscal 2010.

Plexus expects to meet its third-quarter guidance as given out during the second quarter conference call. Earnings per share are expected to be in the range of 54 cents – 60 cents, excluding restructuring charges but including 6 cents in stock-based compensation expense. This is more than double the 23 cents per share reported in the year-ago period.

Plexus expects revenue in the range of $520 – $545 million, up 8.5% quarter over quarter at the mid point, due to the ramp of new business and improving end-market demand. The guidance represents sequential and year-over-year revenue growth rates of 37% and 44%, respectively.

Plexus anticipates sequential revenue growth to continue in the fourth quarter of fiscal 2010. Full fiscal year 2010 organic revenue is expected to grow over 20% year over year. With growing revenues, the company plans to deliver its 20-10-5 financial model (20% ROIC target, 10% gross margin target and 5% operating margin target) in fiscal 2010.

For full year 2010, capital spending is expected to be in the range of $80 – $90 million, an increase from the previous estimate of $65 – $75 million due to increased investments in its global manufacturing foot pri nt, with additional capacity to be available later in fiscal 2011

Last Quarter Highlights

Plexus has experienced a rapid acceleration in revenue and profits. Plexus reported second-quarter 2010 earnings of 51 cents per share. The results beat the Zacks Consensus Estimate of 49 cents per share, but were in line with management’s guidance of 44 cents to 52 cents per share. Earnings per share were a huge increase from last year's 28 cents.

Sector performance was robust, as Plexus experienced sequential revenue growth in each of its sectors, leading to better-than-expected results for the quarter. Plexus experienced growth in all of its market sectors, both as a consequence of improving end-market conditions and production ramps of manufacturing programs won over the past few quarters. However, management did face some supply chain constraints in the quarter.

Zacks Consensus Estimate Revision

The current Zacks Consensus Estimate for the upcoming quarter (third-quarter 2010) is a profit of 58 cents per share, in line with the company’s expectations. The Zacks Consensus estimate for the full year 2010 is $2.12.

Plexus has seen no estimate revisions over the past 30 days. None of the 8 analysts following the stock has changed their earnings estimate in either direction. We see an absence of catalysts that could drive the shares higher in the near term.

However, in the last two months, estimates are up from 53 cents to the current 58 cents in the third quarter, as witnessed in the Magnitude section. This is illustrative of optimism at analysts, as new business traction gains ground.

Although management is expected to see some demand decline attributable to the weakness in the European market, we believe that the company's healthy pipeline of new program wins, including the recent win to produce The Coca-Cola Co.'s (KO) new beverage dispenser (Coca-Cola FreeStyle) will drive revenue growth in 2011.

We expect the company to report in line with the Zacks Consensus and maintain our Neutral rating on Plexus.
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