Plexus Corp. Reports Operating Results (10-K)
Plexus Corp. has a market cap of $779.8 million; its shares were traded at around $22.47 with a P/E ratio of 9.3 and P/S ratio of 338. Plexus Corp. had an annual average earning growth of 21.1% over the past 10 years. GuruFocus rated Plexus Corp. the business predictability rank of 3-star.
Highlight of Business Operations:For fiscal 2011, gross profit increased $7.8 million compared to fiscal 2010 primarily due to increased net sales in all of our market sectors except networking/communications, driven by demand from new and existing customers across the majority of our market sectors, partially offset by unfavorable changes in customer mix, which together accounted for approximately $32.4 million of the net increase in gross profit. This increase was partially offset by an increase in fixed manufacturing costs due to increased headcount expenses to support revenue growth of approximately $15.5 million. Fixed costs also grew as a percentage of sales as a result of expansion in our APAC and EMEA regions as they ramped to capacity, as well as the underutilization of two AMER facilities, due to the disengagement of a significant customer and the slower ramp of a significant customer, increased depreciation expense of $5.5 million due to the expansions mentioned above, and the effect of the non-recurrence of a $3.2 million benefit in the first quarter of fiscal 2010 from a litigation settlement. These factors led to the reduction in gross margin from 10.3 percent for fiscal 2010 to 9.6 percent for fiscal 2011.
Operating income. For fiscal 2012, operating income increased $3.0 million compared to fiscal 2011. The operating income increase reflected the $5.2 million increase in gross profit described above, partially offset by a $2.2 million increase in selling and administrative expenses (“S&A”). The dollar increase in S&A is primarily due to a $1.5 million increase in stock-based compensation expense, $1.3 million of amortization expense resulting from an intangible asset related to the Kontron arrangement, and an increase in other personnel expenses. These increases were partially offset by approximately $2.4 million of recoveries of receivables previously at risk. As a result of the factors discussed above, for fiscal 2012 compared to fiscal 2011, operating margin remained at 4.5 percent.
For fiscal 2011, operating income increased $1.5 million compared to fiscal 2010. The operating income increase reflected the $7.8 million increase in gross profit described above, partially offset by a $6.3 million increase in S&A. The increase in S&A expenses was due to increased employee compensation and relocation expense of approximately $8.1 million as a result of higher headcount to support revenue growth, as well as higher stock-based compensation expense of approximately $1.1 million. These increases were partially offset by approximately $4.1 million of lower variable incentive compensation in fiscal 2011 as compared to fiscal 2010. The above factors led to a reduction of operating margin to 4.5 percent for fiscal 2011 from 4.9 percent for fiscal 2010.
Net sales for fiscal 2012 increased $47.3 million, or 4.4 percent, from fiscal 2011. This growth reflected incremental revenue from the Kontron arrangement of approximately $81.9 million as well as higher net sales to multiple customers across our market sectors. These increases were partially offset by decreased net sales from the previously announced disengagement of one customer in the networking/communications sector and a decline in end-market demand for the mix of products we produce for another customer in this sector as well for an industrial/commercial sector customer. Operating income decreased $16.2 million in fiscal 2012 as compared to fiscal 2011, primarily as a result of costs related to the addition of a fourth facility in Penang, Malaysia of approximately $5.9 million, increased expenses related to higher headcount to support capacity investments, transition costs for the Kontron arrangement and escalated pricing pressure.
Income Taxes – The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Accordingly, the Company does not currently provide for additional U.S. and foreign income taxes which would become payable upon repatriation of undistributed earnings of certain foreign subsidiaries. The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. In the fourth quarter of fiscal 2012, as a result of a reduction in forecasted near term profitability in the AMER region, we established a valuation allowance resulting in an additional tax provision of approximately $22.8 million, with an offset to other comprehensive income of $2.2 million, for a net additional allowance amount of $20.6 million.
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