Plexus Corp. (PLXS) Q1 2026 Earnings Call Transcript
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Overview
The earnings call highlights strong financial performance, with robust growth in key sectors and optimistic guidance. New program ramps and emerging market momentum in Aerospace and Defense, alongside automation and AI initiatives, enhance operational efficiency. Despite some uncertainties in component lead times and vague management responses, the overall sentiment is positive, supported by a high ROIC and effective cash cycle management. Given the market cap, the stock is expected to react positively, likely in the 2% to 8% range.
Key Financial Performance
Revenue Revenue of $1.07 billion met the midpoint of guidance range, representing a robust 10% increase year-over-year. The increase was driven by significant expansion in Healthcare/Life Sciences and Aerospace and Defense market sectors, associated with multiple program ramps and stronger-than-anticipated demand from semicap and energy.
Non-GAAP EPS Non-GAAP EPS of $1.78 met the high end of guidance range, reflecting very strong operating performance despite significant near-term investments in additional capacity, program ramps, and technology.
Aerospace and Defense Revenue Revenue increased 3% sequentially in the fiscal first quarter, slightly below expectation due to customer end-of-year inventory management. Fiscal 2026 revenue growth for this sector is expected to exceed the 9% to 12% goal, supported by new program ramps, strong defense subsector growth, and modest growth in commercial aerospace subsector.
Healthcare/Life Sciences Revenue Revenue increased 10% sequentially, aligned with expectations of a high single to low double-digit increase. Fiscal 2026 revenue growth for this sector is anticipated to exceed the 9% to 12% goal, supported by ongoing and new program ramps and improved end market demand across therapeutics and monitoring subsectors.
Industrial Sector Revenue Revenue declined 8% sequentially, in line with forecast. Fiscal 2026 revenue growth for this sector is expected to approach the 9% to 12% growth goal, supported by new program ramps and robust growth in semicap subsector, offsetting demand softness in other subsectors.
Gross Margin Gross margin of 9.9% was consistent with guidance and the last quarter, despite a slight margin impact from the opening of a new Malaysia facility.
Selling and Administrative Expense (SG&A) SG&A expense of $51.7 million met guidance and was consistent with the last quarter. As a percentage of revenue, SG&A sequentially declined due to revenue leverage.
Non-GAAP Operating Margin Non-GAAP operating margin of 5.8% met guidance, reflecting strong operational performance.
Cash Flow Cash from operations consumed approximately $16 million to support significant program ramps planned this year. Capital expenditures were $35 million, resulting in a cash outflow of approximately $51 million.
Return on Invested Capital (ROIC) ROIC of 13.2% was 420 basis points above the weighted average cost of capital, indicating strong performance to begin fiscal 2026.
Cash Cycle Cash cycle at the end of the fiscal first quarter was 69 days, 6 days higher than the last quarter, primarily due to a 6-day increase in inventory days tied to investments for anticipated revenue growth.
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Operating Highlights
Revenue Growth: Plexus achieved strong year-over-year revenue growth, with revenue of $1.07 billion in Q1 2026, a 10% increase year-over-year. The company anticipates meeting or exceeding its 9%-12% revenue growth goal for fiscal 2026.
New Manufacturing Programs: Secured 22 new manufacturing programs worth $283 million in annualized revenue, including a record $220 million from the Aerospace and Defense sector.
Aerospace and Defense: Achieved record quarterly wins of $220 million in annualized revenue. Strong growth in commercial space and defense subsectors, with new disruptive technology partnerships.
Healthcare/Life Sciences: Revenue increased 10% sequentially in Q1 2026. Secured $40 million in new program wins, including next-generation imaging products.
Industrial Sector: Revenue declined 8% sequentially but is expected to grow in Q2 2026 due to demand strength in semicap and industrial equipment subsectors. Secured $23 million in new program wins.
Operational Efficiency: Focused on achieving a 6% non-GAAP operating margin for fiscal 2026. Investments in talent, technology, and facilities are ongoing to support growth and efficiency.
Cash Flow: Forecasting approximately $100 million in free cash flow for fiscal 2026 despite increased working capital investments.
Sustainability Initiatives: Partnered with TNB in Malaysia to source 100% renewable electricity for its largest global campus, significantly reducing emissions.
Global Recognition: Penang, Malaysia team recognized as one of HR Asia's Best Companies to Work For, along with awards for sustainability and tech empowerment.
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Risk or Challenges
Revenue Growth: The company anticipates meeting or exceeding the high end of its 9% to 12% revenue growth goal for fiscal 2026. However, this requires significant investments in working capital, which has already increased the cash cycle by 6 days.
Operating Margin: The company is targeting a 6% non-GAAP operating margin but faces headwinds from seasonal compensation cost increases, increased variable compensation expenses, and growth and efficiency investments.
Cash Flow: Despite forecasting $100 million in free cash flow for fiscal 2026, the company experienced a cash outflow of $51 million in the fiscal first quarter due to program ramp investments and capital expenditures.
Inventory Management: Inventory days increased by 6 days in the fiscal first quarter, driven by investments to support anticipated revenue growth, which could strain cash flow if not managed effectively.
Capital Expenditures: Capital spending for fiscal 2026 is now expected to be $100 million to $120 million, higher than previously estimated, which could impact free cash flow.
Aerospace and Defense Sector: Revenue growth in this sector is expected to exceed the 9% to 12% goal, but the sector faces challenges related to customer end-of-year inventory management and the need for new program ramps.
Healthcare/Life Sciences Sector: While revenue growth is expected to exceed the 9% to 12% goal, the sector faces challenges in maintaining growth momentum, with flat to low single-digit sequential growth expected in the fiscal second quarter.
Industrial Sector: The sector faces demand softness in certain subsectors, although this is offset by robust growth in the semicap and industrial equipment subsectors.
Operational Efficiency: The company is investing in operational efficiency initiatives to offset cost increases, but these investments may take time to yield significant benefits.
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Guidance & Outlook
Revenue Growth: Plexus anticipates meeting or exceeding the high end of its 9% to 12% revenue growth goal for fiscal 2026, driven by strong market demand, program ramps, and market share gains. For Q2 2026, revenue is guided at $1.11 billion to $1.15 billion, representing 6% sequential and 15% year-over-year growth at the midpoint.
Operating Margin: The company aims to achieve a 6% non-GAAP operating margin for fiscal 2026, supported by operational efficiency initiatives and revenue growth. For Q2 2026, non-GAAP operating margin is guided at 5.6% to 6.0%.
Free Cash Flow: Despite increased investments in working capital, Plexus forecasts approximately $100 million in free cash flow for fiscal 2026.
Capital Expenditures: Capital spending for fiscal 2026 is expected to be in the range of $100 million to $120 million, slightly higher than previous estimates, to support revenue growth.
Market Sector Performance: The Aerospace and Defense sector is expected to exceed the 9% to 12% growth goal for fiscal 2026, driven by new program ramps and strong demand. The Healthcare/Life Sciences sector is also anticipated to surpass the 9% to 12% growth target, supported by program ramps and improved demand. The Industrial sector is projected to approach the 9% to 12% growth goal, with robust growth in the semicap subsector offsetting softness in other areas.
Operational Efficiency: Plexus plans to leverage operational efficiency initiatives to offset seasonal cost increases and support margin expansion.
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Shareholder Return Plan
Share Repurchase Program: For the fiscal first quarter, we acquired approximately 153,000 shares of our stock for $22.4 million. At the end of the quarter, we had approximately $63 million remaining on the current repurchase authorization.
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Key Q&A
Q:What has changed in the last 3 to 6 months that has led to strong performance and outlook?
A:The strong performance is attributed to a combination of strong program wins, larger program ramps, and improving end markets. Healthcare and Industrial sectors, particularly semicap, are seeing significant demand improvement. Aerospace and Defense are also improving, though not fully benefiting from Boeing's increased volumes yet.
Q:How long does it take for semicap equipment demand to translate into revenue?
A:Demand increases typically show up within a quarter to two quarters, depending on material pipeline readiness. Capital or footprint expansions take a year or more, but there is ample capacity currently.
Q:What is driving Aerospace and Defense demand, and are there emerging areas of momentum?
A:Demand is driven by new program ramps across subsectors, with strength in traditional defense and modest growth in commercial aerospace. Emerging areas like drones and commercial space are gaining momentum, with recent substantial wins and disruptive technology programs expected to drive future growth.
Q:What is the impact of the new Malaysia facility on gross margins, and what is the outlook?
A:The Malaysia facility had a minimal impact on Q1 gross margins (less than 10 basis points). It is expected to break even in Q2 and approach corporate average margins in the second half of the year. The Thailand facility is expected to improve margins by 25-30 basis points in fiscal 2026.
Q:Are increasing lead times for components affecting program ramps or working capital investments?
A:Lead times for some commodities, like semiconductors and printed circuit boards, are increasing. The company is mitigating risks by prepositioning inventory, extending PO coverage, and leveraging improved inventory management systems.
Q:Is there a need for new capacity additions to support growth?
A:The current footprint can support up to $6 billion in revenue, with significant available capacity in all regions. Efficiency improvements, such as AutoStore systems and optimized machine utilization, are enhancing asset utilization and avoiding the need for new capacity.
Q:What is the outlook for semicap growth and non-semicap industrial markets?
A:Semicap growth is expected to be strong, with the company confident in outgrowing the market. Non-semicap industrial markets show enthusiasm in energy infrastructure, data center technologies, and other subsectors, though communications demand remains muted.
Q:What are the company's automation and AI initiatives, and their financial benefits?
A:Automation initiatives include deploying robots for material handling and optimizing floor layouts, reducing labor and improving efficiency. AI is used for work order management, standard work time optimization, and speeding up the quoting process. These initiatives benefit margins, reduce capital spending, and improve revenue potential.
Q:What is the expected impact of seasonal bonus pay on Q2 margins?
A:Seasonal bonus pay is expected to create a 50-60 basis point headwind on Q2 margins, which will be offset by productivity improvements, revenue growth, and better fixed cost leverage.
Q:What is the tax rate outlook for fiscal 2026?
A:The tax rate is expected to remain in the 16-18% range, with an increase from fiscal 2025 due to global minimum tax implementation.
Q:Is the new robotics program win in Industrial from a new customer?
A:No, the customer is not new. The win represents an expansion into the EMEA region, with further opportunities in the pipeline.
Q:What is the status of the delayed Aerospace and Defense program?
A:The delayed program is now on track, with its impact expected over the next few quarters. It will positively affect A&D results but is not a significant driver for overall revenue.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about the magnitude of seasonal bonus pay's impact on Q2 margins, only stating it as a 50-60 basis point headwind without further details. Additionally, the commentary on semicap growth rates was vague, emphasizing early days and uncertainty rather than providing specific projections.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Aerospace Defense
Award
Defense manufacturing
Defense market
Defense sector
HR Asia
Kelsey
Life Sciences
Neenah Wisconsin
Oradea Romania
Plexus momentum
Sciences market
Slide midpoint
capability
electricity
end goal
equipment subsector
expertise
funnel Aerospace
funnel opportunity
gain market
imaging product
industry solution
location
opportunity Aerospace
outlook program
partner
potential end
sector funnel
sector goal
sector outlook
security
semicap subsector
single digit
subsector program
subsectors sector
therapeutic
win Aerospace
PLXS Transcript
Plexus Corp. (PLXS) Q1 2026 Earnings Call Transcript
Positive1-29
The earnings call highlights strong financial performance, with robust growth in key sectors and optimistic guidance. New program ramps and emerging market momentum in Aerospace and Defense, alongside automation and AI initiatives, enhance operational efficiency. Despite some uncertainties in component lead times and vague management responses, the overall sentiment is positive, supported by a high ROIC and effective cash cycle management. Given the market cap, the stock is expected to react positively, likely in the 2% to 8% range.
Plexus Corp. (PLXS) Q4 2025 Earnings Call Transcript
Unknown10-23
The earnings call shows a mixed picture. While there is confidence in growth, particularly in the Healthcare and Defense sectors, there are concerns over flat revenue in key areas like Industrial and Aerospace. The Q&A reveals uncertainty in the aerospace sector and reliance on future program ramps. Despite positive guidance and strategic investments, the flat revenue and minor delays temper expectations, leading to a neutral outlook.
Plexus Corp. (PLXS) Q3 2025 Earnings Call Transcript
Neutral7-24
Earnings call transcript: Plexus Q4 2024 beats guidance, stock dips
Positive1-22
The earnings call reveals strong financial performance, with record cash flow and debt reduction. Despite some uncertainties, such as the Boeing contract and supply chain challenges, guidance remains optimistic with expected growth in key sectors. The new share repurchase program further boosts shareholder confidence. The company's market cap suggests moderate volatility, aligning with a positive stock price movement prediction of 2% to 8%.
PLXS Slides
PLXS Report
Frequently Asked Questions
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