Plexus (PLXS 58.22) is an electronic manufacturing services company catering to the healthcare/life sciences, industrial/commercial, networking/communications, and defense/security/aerospace sectors. After Wednesday's close, Plexus reported its fiscal second quarter results. They were mixed. The fiscal third quarter guidance was not. It was disappointing in terms of the outlook for revenue and earnings per share.
That guidance is the main reason why shares of PLXS are trading 12% lower in pre-market action.
Briefly, Plexus reported revenues of $604 million for its fiscal second quarter, which was short of its prior guidance range of $620 million to $650 million, and diluted earnings per share of $0.84, which exceeded its guidance range of $0.71 to $0.79.
Weaker than expected sales within its Communications sector led to the top-line shortfall, although Plexus was able to offset that disappointment in part with productivity improvements and a favorable product mix.
The company's gross margin jumped 200 basis points year-over-year to 10.6% and its adjusted operating margin expanded 130 basis points to 5.4%. Plexus also achieved a 16.8% return on invested capital versus 11.6% in the prior-year period.
Those positive developments aside, investors have responded coolly to the company's acknowledgment that end-market weakness within its Communications sector, which accounted for 32% of second quarter revenue, is expected to continue in the fiscal third quarter. In addition, Plexus is making a forecast adjustment with a large Industrial/Commercial customer. Those two developments, it was said, are going to offset "meaningful growth within the remainder of our business."
In fiscal 2016, General Electric (GE), Micron Technology (MU), and ARRIS Group (ARRS) were Plexus's three largest customers, accounting for 11.0%, 10.4%, and 10.1% of total revenues, respectively.
Plexus is guiding third quarter revenue in the range of $595 million to $625 million, which is roughly 9% below analysts' average expectation at the high end of that range. GAAP diluted EPS, meanwhile, is projected to be between $0.68 and $0.76.
The EPS guidance takes into account the expectation that the third quarter operating margin will be at the high end of the company's target range of 4.8% to 5.2%; nonetheless, the EPS guidance still fell short of analysts' average expectation.