Plexus (PLXS) Q1 Earnings: Navigating Sector Headwinds with Strong Margins and Strategic Wins

Plexus Corp. (NASDAQ: PLXS) delivered a mixed but ultimately encouraging Q1 fiscal 2025 earnings report, balancing sector-specific softness with operational resilience. While revenue dipped slightly year-over-year, the company’s margin expansion, robust free cash flow, and a pipeline of new programs position it to weather current market challenges. Here’s what investors need to know.

Revenue Holds Steady Amid Sector Volatility

Plexus reported Q1 revenue of $976 million, matching its own guidance and just below the $983 million recorded in Q1 2024. The dip reflects broader industry headwinds:
- Healthcare/Life Sciences revenue fell 10% sequentially to $374 million (38% of total), as demand softened.
- Industrial revenue dropped 9% to $442 million (46% of total), with communications and automation subsectors lagging.
- Aerospace/Defense revenue declined 13% sequentially to $160 million (16%), partly due to commercial aerospace production delays.

Despite these pressures, Plexus’s non-GAAP operating margin rose to 6.0%, a 90 basis-point improvement year-over-year. This margin discipline, combined with a $27 million free cash flow (the best Q1 result in five years), underscores the company’s ability to optimize costs even as revenue growth slows.

Operational Strengths: New Programs and Capital Efficiency

The real story lies in Plexus’s long-term positioning. The company secured 30 new programs in Q1, representing $212 million in annualized revenue when fully ramped. These wins are skewed toward high-margin sectors:
- Healthcare/Life Sciences: 38% of new program value, a critical area for future growth.
- Aerospace/Defense: 16%, benefiting from long-term defense spending trends.
- Industrial: 46%, though this segment faces near-term softness.

CEO Todd Kelsey emphasized that these wins are “leading indicators” of future revenue. Meanwhile, CFO Patrick Jermain highlighted ROIC of 13.8%, 490 basis points above the cost of capital, signaling efficient use of invested funds.

Risks and Near-Term Outlook

The Q2 guidance offers a reality check. Revenue is projected between $960 million and $1.00 billion, with non-GAAP EPS of $1.46 to $1.61. The lower end of this range suggests caution around:
- Seasonal cost pressures: Higher input costs during Q2 are expected.
- Program ramp investments: Capital expenditures may temporarily squeeze margins.

The Industrial sector’s softness remains a concern, though management noted that Asia-Pacific revenue rose to 62% of total, suggesting geographic diversification is a strength.

Conclusion: A Solid Foundation for 2025

Plexus’s Q1 results reflect a company executing well in a tough environment. The $27 million free cash flow and margin improvements validate its operational discipline, while the $212 million in new program wins provide a clear path to future growth.

Investors should focus on two key metrics:
1. Free cash flow trajectory: The company aims for $100 million in 2025, up from $65 million in 2024.
2. Healthcare/Life Sciences recovery: This sector’s Q1 dip is a red flag, but if demand rebounds in Q2-Q3, it could propel earnings upside.

While near-term sector challenges are real, Plexus’s strong balance sheet ($317 million in cash) and disciplined capital allocation—such as the $50 million share buyback program—suggest it can navigate these headwinds. For long-term investors, the question is whether the new programs will offset current softness. The data so far says yes.

Final Take: Buy-the-dip opportunities may arise if near-term guidance worries weigh on the stock. But with a forward P/E of 22x (vs. 25x for peers like STI), Plexus looks fairly valued. The path to 2025 EPS growth hinges on execution—but the tools are in place.