PLEXUS CORP Q1 FY2025 earnings call

Management Statement and Operational Highlights

• The team's agility supported strong operating performance in Q1 2025, with fiscal first quarter revenue of $976 million meeting guidance. Non-GAAP operating margin was 6.0%, near the high end of guidance, and non-GAAP EPS was $1.73, exceeding guidance.
• Won 30 manufacturing programs worth $212 million annually when fully ramped, with strong contributions from Healthcare/Life Sciences and new growth opportunities in Aerospace/Defense and Industrial. Engineering Solutions team had a win total approaching a two-year high with diversified engineering opportunities.
• Committed to sustainable practices, including materiality assessment, innovative capabilities for sustainability, environmental efforts, and supplier intelligence. Recognized as an employer and partner of choice with various awards. Volunteer Time Off program led to donations to 24 global charities in Q1 2025.

Segment Performance

• Aerospace/Defense: Fiscal first quarter revenue decreased 13% sequentially. Wins for the quarter were $29 million. Expected high single-digit revenue growth in fiscal second quarter. Anticipates modest growth in fiscal 2025, with defense and space subsectors growing but near-term commercial aerospace production challenges offsetting.
• Healthcare/Life Sciences: Fiscal first quarter revenue down 10% sequentially. Wins of $130 million in the quarter. Expected high single-digit revenue growth in fiscal second quarter. Optimistic for growth in fiscal 2025 driven by program ramps and share gains.
• Industrial: Fiscal first quarter revenue decreased 2% sequentially. Wins for the quarter were $53 million. Expected high single-digit to low-double-digit revenue decline in fiscal second quarter. Anticipates growth in fiscal 2025 driven by semicap subsector, but broader industrial markets remain challenged.
• Funnel of Qualified Manufacturing Opportunities: Remains robust at $3.6 billion, a mid-single-digit sequential increase.

Guidance

• Fiscal second quarter revenue guided in the range of $960 million to $1.0 billion, non-GAAP operating margin 5.3% to 5.7%, and non-GAAP EPS $1.46 to $1.61.
• Forecasts fiscal 2025 free cash flow up to $100 million. Anticipates sequential revenue growth in the back half of fiscal 2025 with strong operating performance.
• Expects year-over-year growth in Aerospace/Defense albeit subdued, moderate growth in Healthcare/Life Sciences, and growth in Industrial driven by semicap. Anticipates meaningful EPS expansion in fiscal 2025 leveraging revenue growth, operating margin performance, and free cash flow deployment.

Risks

• Volatility in customer forecasts, particularly in Healthcare and Industrial sectors with some downward bias. Challenges in commercial aerospace production rates impacting Aerospace/Defense sector. Broader industrial market instability and soft demand affecting Industrial sector. Uncertainty around tariffs and their potential impact on costs and demand. Geopolitical and macroeconomic factors affecting regional performance, particularly Europe.

Question and Answer

• Q: Talk about Industrial segment, semicap strength and broader demand weakness. **A: Todd Kelsey mentioned semicap expected high-teens growth, Oliver Mihm noted broader industrial sub-sectors like communication, test measurement, etc., seeing softer demand but longer-term rectification expected.
• Q: Aerospace/Defense outlook, commercial aerospace impact. **A: Todd Kelsey said long-term prospects are great, but short-term production challenges in commercial aerospace dampen fiscal 2025 demand; Defense and Space sub-sectors showing growth.
• Q: Trends in Europe, profitability outlook. **A: Oliver Mihm said industrial softness in Europe is harder hit; Pat Jermain mentioned improved utilization, restructuring, and focus on profitability leading to better outlook.
• Q: Engineering Solutions and revenue visibility. **A: Oliver Mihm said sales cycle can be long, with manufacturing wins affecting later years like 2026 and beyond; Shawn Harrison added engineering wins often lead to manufacturing momentum in future years.
• Q: Cash flow improvement and working capital efficiencies. **A: Pat Jermain said Q1 cash flow improvement due to working capital efficiencies, with continued efforts to enhance free cash flow for fiscal 2025.