Plexus Corp. (PLXS) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong revenue growth, improved operational efficiency, and optimistic sector performance, particularly in aerospace and defense. The Q&A session further supports this with insights into efficient capital management and robust market demand. Despite some uncertainties in long-term margin targets, the overall sentiment is positive, especially with the company's strategic initiatives and growth outlook. The market cap suggests moderate volatility, aligning with a positive prediction.
Key Financial Performance
Revenue Fiscal second quarter revenue of $1.164 billion, representing a robust 19% year-over-year increase. Growth was strong across all market sectors, with specific strength in aerospace and defense due to increasing demand for industry-leading solutions and support of disruptive technologies, and in semi-cap, where ongoing share gains amplified surging market demand.
Non-GAAP EPS Non-GAAP EPS of $2.05 exceeded guidance. This was supported by a robust 6% non-GAAP operating margin, while continuing heavy investments in program ramps, operational efficiency initiatives, and technologies.
Gross Margin Gross margin at 10.2%, at the top end of guidance, due to favorable mix of service offerings and fixed cost leverage. Productivity improvements from ongoing operational efficiency initiatives offset typical seasonal compensation cost increases.
Selling and Administrative Expense Selling and administrative expense of $57.3 million, slightly above guidance due to additional incentive compensation expense driven by robust revenue growth and strong ROIC performance. Expanded technology and automation investments also contributed.
Cash Flow Generated $28.5 million in cash from operations and spent $12.5 million on capital expenditures, resulting in $16 million of free cash flow, exceeding the forecast of breakeven to slight usage of cash. This was attributed to exceptional collection efforts and progress on working capital initiatives.
Return on Invested Capital (ROIC) Delivered a return on invested capital of 13.8%, which was 480 basis points above the weighted average cost of capital. Despite an increase in invested capital to support robust revenue growth, strong operational performance maintained healthy ROIC.
Cash Cycle Cash cycle at the end of the fiscal second quarter was 64 days, 5 days lower than last quarter. Improvements were due to exceptional collection efforts, progress on working capital initiatives, and timing of supplier payments.
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Operating Highlights
New Manufacturing Program Wins: Achieved a record $355 million in new manufacturing program wins across various market sectors, including aerospace, defense, surgical and imaging platforms, data center power solutions, and semiconductor capital equipment.
Program Ramps: Invested heavily in program ramps to support revenue growth and operational efficiency.
Market Share Gains: Experienced market share gains in aerospace and defense, semicap, and industrial sectors.
Revenue Growth: Fiscal second quarter revenue reached $1.164 billion, a 19% year-over-year increase. Fiscal third quarter revenue is projected to grow 20% year-over-year.
Sector-Specific Growth: Strong growth in aerospace and defense (19% sequential increase), healthcare/life sciences (1% sequential increase), and industrial sectors (12% sequential increase).
Operational Efficiency: Achieved non-GAAP operating margin of 6% in Q2, supported by productivity improvements and fixed cost leverage.
Cash Cycle Improvement: Improved cash cycle by 5 days sequentially, driven by better receivables collection and inventory management.
Sustainability Initiatives: Focused on advancing sustainability through innovation, recognized as a finalist for the 2026 Manufacturing Leadership Awards in AI vision and sustainability.
Long-Term Growth Strategy: Guiding mid-teens or greater revenue growth for fiscal 2026, supported by investments in technology, capabilities, and workforce.
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Risk or Challenges
Supply Chain Conditions: Tightening supply chain conditions were mentioned, which could impact operational efficiency and revenue growth.
Program Ramps and Capability Investments: The timing of program ramps and capability investments could affect gross margins and operational efficiency.
Incentive Compensation Costs: Higher incentive compensation costs due to robust revenue growth and financial returns could impact operating margins.
Working Capital Investments: Higher investments in working capital to support accelerating revenue growth could lead to cash flow challenges.
Interest Expense and Foreign Exchange: Higher interest expenses and foreign exchange fluctuations could negatively impact non-operating expenses.
Customer Advanced Payments: Reduction in days in advanced payments and net returns to customers could affect cash flow.
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Guidance & Outlook
Fiscal 2026 Revenue Growth: Plexus expects to deliver mid-teens or greater fiscal 2026 revenue growth, driven by numerous program ramps, ongoing market share gains, and improving end market demand.
Fiscal 2026 Operating Margin: The company anticipates a 6% or greater non-GAAP operating margin for fiscal 2026, supported by robust profitability and strong working capital efficiency.
Fiscal 2026 Market Sector Growth: Double-digit revenue growth is expected in each market sector, with particularly strong performance in aerospace and defense and industrial sectors, led by significant growth in the semicap subsector.
Fiscal 2026 Capital Expenditures: Capital expenditures are forecasted to range between $100 million and $120 million, with a focus on operational efficiency and increasing site revenue capacity.
Fiscal 2026 Free Cash Flow: Free cash flow is projected to be between $50 million and $75 million, supported by working capital efficiency and operational improvements.
Fiscal Q3 2026 Revenue Guidance: Revenue is guided to be between $1.2 billion and $1.25 billion, representing 5% sequential and 20% year-over-year growth at the midpoint.
Fiscal Q3 2026 Operating Margin: Non-GAAP operating margin is expected to range from 5.9% to 6.3%, demonstrating sequential improvement.
Fiscal Q3 2026 Cash Cycle: Cash cycle days are anticipated to range between 67 and 71 days, reflecting higher investments in working capital to support revenue growth.
Fiscal Q3 2026 Gross Margin: Gross margin is expected to be in the range of 9.9% to 10.2%, slightly below the previous quarter due to timing of program ramps and capability investments.
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Shareholder Return Plan
Share Repurchase: For the fiscal second quarter, we acquired approximately 109,000 shares of our stock for $20.6 million. At the end of the quarter, we had approximately $42 million remaining on the current repurchase authorization.
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Key Q&A
Q:How should we think about working capital investment longer term to support growth, including CapEx and new site investments?
A:Patrick Jermain stated that from a days perspective, they are in a good spot in the low to mid-60s range going forward, which should carry into fiscal '27. Revenue growth will require around 10% to 15% additional working capital dollars. David Abuhl added that they recently reconfirmed $100 million to $120 million of capital investment and improved throughput by 10%, avoiding $20 million in capital investments, which gives confidence in long-term growth.
Q:What are the trends in industrial, particularly in energy storage solutions and power supply?
A:Oliver Mihm highlighted excitement about customers in the energy infrastructure space, referencing regulatory compliance standards at their Boise facility for nuclear power control systems. He also mentioned growth in adjacencies like data centers, power management, thermal cooling, and AI at the edge, which align with their capabilities and value proposition.
Q:Can you provide insights into the operating margin structure and potential targets beyond fiscal '26?
A:Patrick Jermain explained that margin differences between market sectors are minimal, and ramping costs for new wins are offset by fixed cost leverage. They aim for a 6% or above target and see opportunities in automation and higher-margin services. Todd Kelsey added that improving margins and operational efficiency initiatives could lead to a new target, but no commitments were made yet.
Q:What are the supply chain conditions and their impact on program ramps and fiscal year guidance?
A:Todd Kelsey stated that supply chain realities are accounted for in forecasts, with no undue risk. Oliver Mihm detailed tightening in semiconductors, passives, memory, and raw PCB fabs, but proactive measures like AI tools and extended PO horizons mitigate risks. Upside exists if conditions improve.
Q:Do you anticipate needing additional greenfield capacity expansion due to demand strength?
A:David Abuhl stated that current capacity can service over $5 billion in annualized revenue, and they are focused on driving efficiency within existing sites. Incremental capacity can be added without substantial CapEx, and the situation is constantly reassessed.
Q:What is driving the exceptional strength in defense and semicap markets?
A:Todd Kelsey explained that significant share gains in semiconductor capital equipment and aerospace and defense, combined with strong market conditions, are driving growth. They expect growth to exceed market rates.
Q:How is operating leverage developing, and what is the expected drop-through on revenue growth?
A:David Abuhl stated that they typically see a 10% to 12% drop-through on revenue growth. Efficiency initiatives and investments in capabilities like cybersecurity maturity models balance leverage and enable future growth.
Q:What are the drivers of growth in the aerospace market, and how do new program wins influence future growth?
A:Oliver Mihm explained that defense and space growth is driven by new program wins and end market demand, while commercial aerospace growth is organic. Shawn Harrison added that recent wins will contribute to fiscal '27 and beyond, sustaining momentum.
Q:How is the Malaysia facility tracking in terms of margins?
A:Todd Kelsey stated that the Malaysia facility was slightly behind breakeven due to faster-than-expected revenue ramping and additional investments. However, it is on track to achieve strong profitability by the fiscal year-end.
Q:What is the outlook for growth in Healthcare and Life Sciences?
A:Oliver Mihm noted sequential growth in Q4 and strong historical wins contributing to sustained growth into fiscal '27.
Q:Have there been any changes in the competitive environment?
A:Oliver Mihm stated that there have been no significant changes in the competitive environment. They observed a slight uptick in large opportunity wins, reflecting their differentiation in the marketplace.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer or specific details regarding the long-term operating margin target beyond fiscal '26, stating that they are not ready to commit to a new target yet. Additionally, while discussing the competitive environment, the response was general and lacked specific examples or data to substantiate claims of differentiation.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CFO Plexus
Guadalajara Mexico
Kelso Scotland
Manufacturing
Mexico campus
NASDAQ
Plexus result
ROIC
Scotland site
anniversary
capability
celebration
center power
customer product
customer strength
decision
efficiency momentum
excellence factor
excess
finance
follow award
gain end
gratitude
industry
integrity
journey
mid teen
power solution
quality delivery
ramp demand
retirement partner
robotics
role
sector funnel
sector goal
semicap subsector
strength excellence
support technology
sustainability
trust
win product
PLXS Transcript
Plexus Corp. (PLXS) Q2 2026 Earnings Call Transcript
Positive4-30
The earnings call indicates strong revenue growth, improved operational efficiency, and optimistic sector performance, particularly in aerospace and defense. The Q&A session further supports this with insights into efficient capital management and robust market demand. Despite some uncertainties in long-term margin targets, the overall sentiment is positive, especially with the company's strategic initiatives and growth outlook. The market cap suggests moderate volatility, aligning with a positive prediction.
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
PLXS Slides
PLXS Report
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