Executive Summary / Key Takeaways

• Differentiated Expertise Drives Outperformance: Plexus leverages its deep engineering solutions and operational excellence in highly complex, regulated manufacturing to secure market share gains and outgrow its end markets, even amidst broader industry softness.
• Robust Profitability and Cash Generation: The company consistently achieves its 6% non-GAAP operating margin target and generated a record $341 million in free cash flow in fiscal 2024, with an anticipated $100 million for fiscal 2025, demonstrating strong financial discipline.
• Strategic Capital Allocation: Significant free cash flow is being deployed to reduce debt (over $200 million reduction since Q3 FY24) and accelerate share repurchases, actively creating shareholder value.
• Targeted Growth in Key Sectors: While navigating mixed market signals, Plexus anticipates healthy year-over-year revenue growth in fiscal 2026 across all market sectors, driven by new program ramps and customer wins, rather than broad market recovery.
• Resilience Amidst Macro Headwinds: Despite uncertainties like tariffs and commercial aerospace production delays, Plexus's global footprint, trade compliance investments, and conservative forecasting position it for continued strong performance.

The Unseen Hand: Plexus's Strategic Edge in High-Complexity Manufacturing

Plexus Corp., founded in 1979 in Neenah, Wisconsin, has evolved into a global leader in electronic manufacturing services (EMS), specializing in the design, manufacture, and servicing of highly complex products for demanding regulatory environments. The company's core business revolves around providing comprehensive product lifecycle solutions to market-leading and disruptive global companies across the Aerospace/Defense, Healthcare/Life Sciences, and Industrial sectors. This strategic focus, supported by a global team of over 20,000 members operating from 26 facilities across the Americas (AMER), Asia-Pacific (APAC), and Europe, Middle East and Africa (EMEA) regions, underpins its ability to deliver a consistent "One Plexus" experience to its customers.

Plexus's competitive advantage is deeply rooted in its Engineering Solutions, a core differentiator that has been integral to its operations for over three decades. This expertise translates into tangible benefits for its customers and, consequently, for its financial performance. Historically, Plexus has directly impacted approximately one-third of its manufacturing revenue through these engineering services. This segment currently generates annual revenue in excess of $100 million and boasts margins that can be double the company's manufacturing margin, making it a highly profitable contributor. The company's ongoing investment in advanced capabilities, including the growing internal use of AI and numerous tools focused on process automation and achieving "zero defects," further enhances its technological moat. For instance, a warehouse automation project in its Penang, Malaysia campus in fiscal 2024 resulted in a 60% reduction in space utilization and a 300% increase in pick rate, alongside improved labor efficiency. These operational advancements are being replicated across three other facilities, demonstrating a commitment to continuous improvement and efficiency. Furthermore, achieving NQA-1 compliance, ASME's nuclear quality assurance standard, expands Plexus's differentiation in supporting the nuclear energy supply chain, opening new avenues for revenue growth.

Competitive Arena: Outmaneuvering Rivals in Niche Markets

In the highly competitive EMS landscape, Plexus distinguishes itself from larger, more generalized players like Flex Ltd. (FLEX) and Jabil Inc. (JBL), as well as specialized competitors such as Sanmina Corporation (SANM). While Flex and Jabil are known for their scale in mass production and broader supply chain integration, Plexus excels in providing highly customized, engineering-focused solutions, emphasizing agility in new product introductions and aftermarket support. This allows Plexus to capture market share in niche segments requiring bespoke designs and stringent regulatory compliance, such as life-saving medical devices and mission-critical aerospace components.

Plexus's engineering expertise enables notably faster innovation in specialized projects, which can lead to superior gross margins and market share gains, particularly in the healthcare sector. Against Jabil, Plexus's deep customer engagement and focus on customization can offer significantly greater efficiency in product lifecycle management, fostering stronger customer loyalty and recurring revenue. Compared to Sanmina, which also targets high-reliability sectors, Plexus's comprehensive lifecycle services, including robust design and aftermarket support, provide a notable performance advantage in customized solutions. This strategic positioning, coupled with a global service network and adaptability, allows Plexus to secure exclusive engagements with customers, as evidenced by instances where clients engaged solely with Plexus for new product launches due to the strength of the relationship and execution.

The EMS industry benefits from high barriers to entry, including substantial capital requirements, specialized expertise, and established supply chains. These factors protect Plexus's market position by limiting new entrants and favoring established players. However, Plexus remains vigilant against indirect competitors, such as OEMs opting for in-house manufacturing or new technologies like 3D printing, which could offer alternative prototyping solutions. The company's proactive investments in its trade compliance organization and its ability to pass tariff costs directly to customers further bolster its competitive resilience in an evolving global trade environment.

Financial Fortitude: Operational Excellence Translates to Robust Results

Plexus's strategic focus on operational efficiency and high-value services has translated into robust financial performance. For the fiscal third quarter ended June 28, 2025, Plexus reported revenue of $1.018 billion, meeting its guidance. This was a 6.0% increase compared to the prior year's third quarter. Non-GAAP operating margin reached 6.0%, near the high end of guidance and marking the third time in the last four quarters that the company achieved or exceeded its stated long-term goal. This expansion was driven by strong gross margin performance of 10.1%, which benefited from lower costs due to operational efficiencies and prior restructuring activities. Non-GAAP diluted earnings per share (EPS) for the quarter stood at $1.90, exceeding guidance.

Looking at the first nine months of fiscal 2025, net sales increased 2.2% year-over-year to $2.97 billion, while operating income surged 31.1% to $149.3 million. This significant improvement underscores the impact of the company's efficiency initiatives and reduced restructuring charges. Plexus's return on invested capital (ROIC) for the nine-month period was 14.1%, a substantial 520 basis points above its weighted average cost of capital (WACC) of 8.9%. This represents the highest ROIC in nearly four years, reflecting the company's strong capital efficiency and improved operating performance.

Plexus has also demonstrated exceptional liquidity and capital management. It generated $13.2 million in free cash flow (FCF) in Q3 FY25, contributing to a projected $100 million in FCF for fiscal 2025, and a cumulative two-year FCF generation of nearly $450 million.

This robust cash flow has enabled significant debt reduction, with total debt decreasing by over $200 million since Q3 FY24, including the repayment of $100 million in Senior Notes in June 2025. The company also accelerated its share repurchase activity, expending its $50 million 2025 program and approving a new $100 million 2026 program. Working capital management has been a key focus, with the annualized cash cycle days decreasing by fourteen days to 69 days compared to the prior year, driven by a 23-day improvement in inventory days and a 19-day reduction in advanced payments.

Sector Dynamics: Growth Drivers and Headwinds

Plexus's revenue performance reflects a nuanced interplay of sector-specific dynamics:

• Aerospace/Defense: This sector saw a 3.2% increase in net sales in Q3 FY25, driven by new program ramps and increased end-market demand, particularly in the Defense and Space subsectors. Management notes early signs of increasing European defense sector activity, which presents a significant opportunity. While the long-term outlook for commercial aerospace remains strong due to an 11.5-year OEM backlog, Plexus's near-term fiscal 2026 outlook does not assume a recovery in production rates from major players like Boeing (BA) or Airbus (EADSY), reflecting a conservative stance.
• Healthcare/Life Sciences: Net sales in this sector grew 10.6% in Q3 FY25, fueled by new product ramps and increased customer demand. Despite a temporary production delay due to a customer design update, the sector is benefiting from a gradual improvement in healthcare customer demand following a prolonged inventory correction. New program wins, including a substantial follow-on award for a global atrial fibrillation treatment platform and a surgical generator for novel cancer treatment, underscore the sector's growth potential.
• Industrial: This sector experienced a 2.9% increase in net sales in Q3 FY25. While the semi-cap subsector, which constitutes nearly half of the industrial business, is now expected to grow in the low double digits for fiscal 2025 (down from mid-teens), Plexus continues to outgrow the market due to share gains and new program wins. Signs of demand recovery are emerging in certain subsectors, notably Energy, where Plexus holds a strong competitive position.

Strategic Outlook: Sustaining Momentum Amidst Uncertainty

For the fiscal fourth quarter, Plexus forecasts sequential revenue growth, with guidance set at $1.025 billion to $1.065 billion. Non-GAAP operating margin is expected to be between 5.7% and 6.1%, inclusive of higher incentive compensation and a slight margin drag from the startup of the new Penang, Malaysia facility. Non-GAAP EPS is projected to be in the range of $1.82 to $1.97. At the midpoint, this implies an impressive 26% non-GAAP EPS growth for fiscal 2025.

Looking ahead to fiscal 2026, Plexus anticipates delivering healthy year-over-year revenue growth across all market sectors, crucially, without assuming a broad improvement in end-market demand. This outlook is predicated on the continued momentum from new program ramps, share gains, and the benefits of strategic investments. Capital expenditures for fiscal 2025 are estimated at $80 million to $100 million, with some payments for the new Penang facility shifting to early fiscal 2026. This new facility, the sixth in Malaysia, is strategically positioned to support growth in semi-cap and healthcare, with management expecting a quick ramp to profitability given existing new business.

Risks and Resilience: A Balanced View

While Plexus's outlook is strong, it operates within a dynamic global environment. Key risks include evolving program ramp timelines and uncertainties related to tariffs. However, Plexus has proactively addressed tariff concerns by investing heavily in its trade compliance organization, passing tariff costs directly to customers, and leveraging its global footprint to adjust production as needed. The company's Mexico operations, for instance, have achieved over 80% USMCA compliance for customer products, demonstrating adaptability.

Macroeconomic factors such as inflationary pressures, increased component and labor costs, and supply chain constraints also pose challenges. Nevertheless, Plexus's balance sheet is well-positioned, and its relentless focus on operational efficiencies, working capital management, and disciplined capital allocation provides a strong buffer against these headwinds. The company's ability to maintain high customer satisfaction, as evidenced by a 7-year high in its Net Promoter Survey, further solidifies its relationships and potential for expanded outsourcing opportunities.

Conclusion

Plexus Corp. stands as a compelling investment opportunity, characterized by its specialized expertise in high-complexity manufacturing and a proven track record of operational excellence. The company's strategic emphasis on engineering solutions and comprehensive product lifecycle services provides a significant competitive moat, enabling it to secure market share gains and outgrow its end markets. This differentiated approach, coupled with disciplined financial management, has consistently translated into robust profitability and exceptional free cash flow generation, which is actively returned to shareholders through debt reduction and share repurchases.

Despite a mixed macroeconomic backdrop and specific sector headwinds, Plexus's proactive investments in advanced capabilities, new facilities, and customer relationships position it for sustained growth. The preliminary fiscal 2026 outlook, projecting healthy revenue growth without relying on broad market recovery, underscores management's confidence in its strategic initiatives and technological leadership. For discerning investors, Plexus offers a compelling narrative of a specialized manufacturer poised for continued financial outperformance and long-term value creation.