What To Expect When Plexus (PLXS) Reports Earnings In Q4?

Plexus Corp (NASDAQ:PLXS) is set to report fourth-quarter fiscal 2016 results on Oct 26, after the market closes. Last quarter, the company reported a positive earnings surprise of 7.89%. Over the past four quarters, the company has posted an average positive earnings surprise of 5.49%. Let’s see how things are shaping up for this announcement.

Factors to Consider

We believe that a strong number of program wins is a big positive for the company. In the last reported quarter, Plexus won 46 programs worth approximately $194 million.For the fourth quarter, management expects revenues in the industrial & commercial sector to grow in a high single digits range due to new program wins. Plexus is also seeing strength in its Defense/Security/Aerospace business.

Furthermore, the consolidation of the company’s production facilities in low-cost areas is expected to boost margins, going forward. The company has also initiated restructuring of a couple of its facilities (in Fremont and Livingston) with regard to lower margin programs in networking/communications and industrial/commercial sectors. Plexus expects annual cost savings of about $8 million to $9 million upon completion of these restructuring initiatives. Plus, a robust shareholder return policy is also a big positive.

However, macroeconomic headwinds as well as softening end-market demand continue to remain big worries for Plexus. The company’s significant exposure to the slowing Networking and Communications industry also remains an added concern. The company also faces customer concentration risks. In the last reported quarter, the top 10 customers contributed nearly 60% of the company’s total revenue.

For the fourth quarter of fiscal 2016, revenues are projected in the range of $655 million - $685 million. Non GAAP earnings are projected within 76 cents to 84 cents per share.

Earnings Whispers

Our proven model does not conclusively show that Plexus is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Plexus has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 80 cents.

Zacks Rank: Though Plexus’ Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks worth considering that, as per our model, havethe right combination of elements to post an earnings beat this quarter:

Amazon.com, Inc. (NASDAQ:AMZN) with an Earnings ESP of +10.47% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mercadolibre, Inc. (NASDAQ:MELI) with an Earnings ESP of +8.24% and a Zacks Rank #1

Apple Inc. (NASDAQ:AAPL) with an Earnings ESP of +1.21% and a Zacks Rank #2.

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