PLEXUS CORP (PLXS)·Q2 2025 Earnings Summary

Executive Summary

• Q2 FY25 delivered solid execution: revenue of $980.2M was in line, non‑GAAP operating margin reached 5.7% (top of guidance), and non‑GAAP EPS was $1.66, above guidance; free cash flow was $16.5M as cash‑cycle discipline held at 68 days .
• Versus Street: revenue was essentially in line at $980.17M vs $980.07M consensus*, while non‑GAAP EPS beat by $0.12 ($1.66 vs $1.54*) as gross margin reached 10.0% and non‑operating expense/tax were favorable .
• Q3 FY25 guidance implies continued strength: revenue $1.00–$1.04B, non‑GAAP operating margin 5.7–6.1%, non‑GAAP EPS $1.65–$1.80; CFO added granularity on gross margin (9.9–10.2%), S&A ($50–$51M), non‑op (~$4.5M), and tax (14–16%) .
• Catalysts: management sees a potential “6‑handle” operating margin as early as Q3, strengthening healthcare demand, robust semi‑cap wins, and secular outsourcing; tariff costs are passed through, and footprint/capacity enable agile rerouting if needed .

What Went Well and What Went Wrong

• What Went Well

  • Non‑GAAP EPS beat with margin quality: adj. operating margin 5.7% at guidance high end; EPS exceeded guidance on better gross margin, slightly lower non‑op expense, and a favorable tax rate .
  • Demand mix improved: healthcare/life sciences revenue rose 10% q/q; sequential A&D up 8%, offsetting commercial aero softness; semi‑cap remains robust within industrial .
  • New business momentum: 42 program wins ($205M annualized) including the largest ever sustaining‑services award; engineering wins best in 5+ years—leading indicators for future growth .

• What Went Wrong

  • Industrial ex‑semi‑cap remains soft: test & measurement, heavy equipment, energy/electrification headwinds persisted despite some green shoots of inventory normalization .
  • Gross margin dipped 30 bps q/q to 10.0% due to seasonal cost headwinds, partly offset by service mix and operational efficiency; management expects slight improvement next quarter (9.9–10.2%) .
  • Tariff uncertainty remains a macro overhang; while costs are passed through, customers are in “wait‑and‑see” mode and only modest relocations have begun .

Financial Results

Summary P&L and Margins (GAAP and Non‑GAAP)

Q2 FY25 vs S&P Global Consensus

Values marked with * retrieved from S&P Global.

Market Sector Revenue ($USD Millions)

Geographic Segments ($USD Millions)

Working Capital and Cash‑Cycle KPIs

Other KPIs: ROIC 13.7% in Q2 FY25 (economic return 4.8%); free cash flow $16.5M in Q2 (CFO $36.7M, capex $20.2M); repurchases $12.2M in Q2 .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Non‑GAAP operating margin of 5.7% met the high‑end of our guidance range. Our operational efficiency efforts and stronger performance from our engineering solutions and sustaining services helped to offset a portion of the typical seasonal cost headwinds.” — CEO, prepared remarks .
• “We delivered $36.7 million in cash from operations and spent $20.2 million on capital expenditures, generating free cash flow of $16.5 million… Cash cycle… was 68 days… a 25% improvement from one year ago.” — CFO .
• “We are guiding fiscal third quarter revenue of $1.00 to $1.04 billion, non‑GAAP operating margin of 5.7% to 6.1% and non‑GAAP EPS of $1.65 to $1.80.” — CEO .
• “We continue to anticipate achieving meaningful EPS growth in fiscal 2025… with revenue growth in each of our market sectors, robust operating margin performance and ongoing free cash flow deployment.” — CEO .

Q&A Highlights

• Tariffs: Costs are passed through to customers; customers are largely “wait‑and‑see”; modest relocations underway; footprint enables in‑region moves if needed .
• Margin outlook: Management sees potential for a “6‑handle” operating margin in Q3, earlier than previously assumed, driven by efficiency and higher‑margin services mix .
• Semi‑cap breadth: Strength is broad‑based across front‑end/back‑end and technologies; share gains and program ramps underpin growth .
• Penang ramp: Minimal gross‑margin headwind; Malaysia typically reaches profitability in 3–4 quarters and corporate averages thereafter .
• Cash cycle target: Mid‑to‑low 60s over time; each day of improvement frees up ~$10M of cash flow .

Estimates Context

• Q2 FY25: Revenue essentially in line ($980.17M actual vs $980.07M consensus*) and non‑GAAP EPS beat ($1.66 vs $1.54*), reflecting gross‑margin quality and lower‑than‑anticipated non‑op expense/tax .
• Track record: Q4 FY24 beat on both revenue and EPS ($1.051B actual vs $1.009B est*; $1.85 vs $1.55*), and Q1 FY25 EPS beat ($1.73 vs $1.592*), supporting credibility of margin improvement narrative .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

• Margin story accelerating: operational efficiency and service mix support a path to ≥6% non‑GAAP operating margin in 2H FY25; Q3 guide already brackets this outcome .
• Demand mix improving: healthcare strengthening sequentially; A&D growing mid‑single digits; semi‑cap robust with share gains—tempered by softness in industrial ex‑semi‑cap .
• Cash discipline durable: cash cycle steady at 68 days with continued inventory reductions; FY25 FCF up to $100M reiterated; buyback authorization capacity remains .
• Tariff risk manageable: costs passed through; ample regional capacity and compliance infrastructure enable agile rerouting if needed .
• Guidance constructive: Q3 revenue $1.00–$1.04B and EPS $1.65–$1.80 (non‑GAAP) with gross margin 9.9–10.2% and cash cycle 66–70 days; FY25 capex trimmed to $110–$130M .
• Beat quality: Q2 non‑GAAP EPS beat came from margin, FX/interest, and tax favorability, not just revenue; sustainability of gross‑margin improvement is the stock’s key debate point .
• Medium‑term: secular outsourcing in A&D/industrial and engineering‑led wins pipeline (largest ever sustaining‑services win; best engineering wins in 5+ years) support revenue visibility into FY26 .

Notes on non‑GAAP: Q2 FY25 non‑GAAP metrics exclude ~$0.25 net of tax stock‑based compensation (≈70 bps to operating margin) per company definitions .