Plexus Corporation ( PLXS)

F4Q2010 Earnings Call Transcript

October 28, 2010 8:30 am ET

Executives

Angelo Ninivaggi – VP, Corporate Compliance Officer, General Counsel and Secretary

Ginger Jones – VP and CFO

Dean Foate – President and CEO

Todd Kelsey – SVP, Global Customer Services

Analysts

Reik Read – Robert W. Baird

Rahul Chadha – Credit Suisse

Sherri Scribner – Deutsche Bank

Joe Wittine – Longbow Research

Sean Hannan – Needham & Company

Brian Alexander – Raymond James

Ryan Jones – RBC Capital Markets

Lou Miscioscia – Collin Stewart

Jim Suva – Citi

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Plexus Corp. conference call regarding its fourth fiscal quarter 2010 earnings announcement. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open the conference call for questions. This conference call is scheduled to last approximately one hour.

I would now like to turn the call over to Mr. Angelo Ninivaggi, Plexus’ Vice President, General Counsel and Secretary. Angelo, you may now begin your conference.

Angelo Ninivaggi

Thank you. Good morning all and thank you for joining us this morning.

Before we begin, I would like to establish that statements made during this conference call that are not historical in nature, such as statements in the future tense and statements including believe, expect, intend, plan, anticipate and similar terms and concepts are forward-looking statements.

Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statements. For a list of major factors that could cause actual results to differ materially from those projected, please refer to the company’s periodic SEC filings, particularly the risk factors in our Form 10-K filings for the fiscal year ended October 3rd, 2009 and the Safe Harbor and Fair Disclosure statement in yesterday’s press release.

The company provides non-GAAP supplemental information. For example, our call today may refer to earnings or earnings per share, EPS, excluding restructuring costs or other unusual items. Non-GAAP financial data is provided to facilitate meaningful period-to-period comparisons of underlying operational performance by eliminating infrequent or unusual charges. Similar non-GAAP financial measures including return on invested capital are used for internal management assessments because such measures provide additional insight into ongoing financial performance. For a full reconciliation of non-GAAP supplemental information, please refer to yesterday’s press release and our periodic SEC filings.

Joining me this morning are Dean Foate, President and Chief Executive Officer; Ginger Jones, Vice President and Chief Financial Officer; Todd Kelsey, Senior Vice President of Global Customer Services; and Michael Buseman, Senior Vice President of Global Manufacturing Operations.

Let me now turn the call over to Dean Foate. Dean?

Dean Foate

Thank you, Angelo, and good morning everyone. Last night we reported results for our fourth fiscal quarter of 2010. Revenues were $556 million, up 3.6% sequentially with EPS of $0.65. Both revenue and earnings exceeded the higher end of our guidance range. We are pleased to deliver a strong quarter bringing a close to a really wonderful year.

Fiscal 2010 was an excellent year for Plexus with organic revenue growth of 25%, driving full year revenue above $2 billion, a significant and exciting milestone for the company. We grew revenues in all of our market sectors with the lone exception being our smallest sector, Defense, Security, and Aerospace.

We grew revenues in all regions, the Americas, EMEA, and Asia-Pacific. The APAC region experienced exceptional growth, and in combination with your facility in Mexico shifted the company’s revenue mix in favor of low-cost regions for the first time. Our engineering solutions group contributed meaningfully to our financial performance, delivering highly valued solutions to our customers and exciting new products into manufacturing.

Importantly, our teams are disciplined and consistently focused not just on growth, but on delivering profitable revenue growth. As a consequence, we delivered full year EPS of $2.19, an 87% improvement over the prior year, while improving our return on invested capital performance to 19.5%. We remain committed to ROIC as a key variable and compensation incentive metric for the company. One of our enduring financial goals is to deliver ROIC at least 500 basis points above our weighted average cost of capital, a fundamental delivering economic profit and shareholder value.

Turning now to some additional insight into our sector [ph] performance by market sector and our current expectations for early fiscal 2011. Our Wireline/Networking sector was down 1% in Q4, in line with our expectations when we established guidance for the quarter. While we experienced growth with the majority of our significant customers in this sector, and market challenges with a couple of customers held this sector to overall lackluster performance.

Our Wireline/Networking sector, our biggest sector, grew a robust 18% in fiscal 2010. Looking ahead to Q1, we currently expect our Wireline/Networking sector to grow in the mid-single digit percentage range, although the performance among the top 10 customers is a mixed bag and ups and downs.

Our Wireless Infrastructure sector grew approximately 5% in Q4, a weaker performance than the 10% growth we had anticipated, as a couple of customers experienced weaker than anticipated end market demand. While a smaller and volatile sector in our overall portfolio, our Wireless Infrastructure sector grew 43% in fiscal 2010. In Q1, our Wireless Infrastructure revenues are expected to decline about 10% as the wind down production of this Cisco Starent program.

As previously disclosed, Cisco acquired Starent earlier in the calendar year, and informed us early on that they intend to consolidate the Starent program into one of their preferred EMS partners. As we communicated earlier, we had modeled an aggressive ramp down of the Starent business in fiscal 2011 forecast. The latest plan is even more aggressive as we currently anticipate largely completing the Starent transition during fiscal Q1.

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