Plexus Corp. PLXS reported first quarter fiscal 2016 results. Quarterly adjusted earnings of 47 cents per share beat the Zacks Consensus Estimate of 44 cents. However, earnings declined nearly 35% from the year-ago figure of 72 cents.

Revenues

Revenues of $617 million came ahead of the Zacks Consensus Estimate of $609 million but declined 7.2% year over year. Nonetheless, the figure was within the company’s guided range of $600 million - $625 million.

Revenues from the Networking/Communications sector (25% of total revenue) plummeted 33% year over year to $157 million.

Healthcare/Life Sciences (31%) revenues decreased 2.5% from the year-ago quarter to $191 million.

However, Industrial/Commercial (28%) surged 16.9% year over year to $173 million.

Defense/Security/Aerospace segment (16%) revenues also increased 10.3% on a year-over-year basis to $96 million.

During the quarter, the company won 34 programs for which it anticipates approximately $179 million in annualized revenues once production commences.

Region-wise, the company’s revenues from Americas and Asia-Pacific declined 9% and 10%, respectively on a year-over-year basis. Nonetheless, Plexus’ revenues from Europe, Middle East, and Africa regions increased nearly 50% over the prior-year quarter.

Margins

Plexus reported adjusted operating profit of $23 million in the quarter, down 24% year over year. Adjusted operating margin declined 90 basis points year over year to 3.7%.

Balance Sheet & Cash Flow

Plexus exited the quarter with cash & cash equivalents worth $354.7 million compared with $357.1 million as on fiscal 2015-end. The company had long-term debt and capital lease obligations of about $259 million.

The company generated $21.3 million in cash flow from operations in the quarter and used $11.8 million for capital investment, resulting in positive free cash flow of $9.5 million.

Outlook

For the second quarter of fiscal 2016, revenues are projected in the range of $600 million - $630 million. Adjusted earnings are projected within 47 to 55 cents per share.

In addition, the company stated that its business can be impacted in the near term owing to the ongoing closure of its two lower-margin facilities. However, management expects the business to stabilize during the second half of fiscal 2016.

Our Take

We believe new program wins along with global expansion will drive growth over the long term. Additionally, the consolidation of the company’s production facilities in low-cost areas is expected to boost margins, going forward.

However, a mature electronic manufacturing services market and intense competition from the likes of Jabil Circuit JBL, Celestical Inc. CLS and Flextronics FLEX remain headwinds. Additionally, the company expects weakness in the Networking/Communications market to impact the business in the near term.

Currently, Plexus has a Zacks Rank #3 (Hold).

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