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Executives

Angelo Ninivaggi - Senior Vice President, General Counsel, Corporate Compliance Officer and Secretary

Dean Foate - Chairman, President and Chief Executive Officer

Ginger Jones - Senior Vice President and Chief Financial Officer

Todd Kelsey - Executive Vice President and Chief Operating Officer

Analysts

Shawn Harrison - Longbow Research

Steven Fox - Cross Research

Sherri Scribner - Deutsche Bank

Amit Daryanani - RBC Capital Markets

Brian Alexander - Raymond James

Sean Hannan - Needham & Company

Jim Suva - Citi

Plexus Corp. (PLXS) F3Q 2013 (Qtr End 06/29/2013) Earnings Call July 18, 2013 8:30 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to the Plexus Corporation conference call regarding its fiscal third quarter 2013 earnings announcement. (Operator Instructions) I will now turn the call over to Angelo Ninivaggi, Plexus' Senior Vice President, General Counsel and Secretary. Angelo, you may begin.

Angelo Ninivaggi

Good morning, everyone, and thank you very much for joining us today. Before we begin, I should remind everyone that statements made during our call today that are not historical in nature, such statements in the future tense and statements that include 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 in 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 filing for the fiscal year ended September 29, 2012 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 will reference return on invested capital and free cash flow. These non-GAAP financial measures are used for internal management assessments because they provide additional insight into ongoing financial performance and the metrics that are driving management decisions. For a full reconciliation of non-GAAP supplemental information, please refer to yesterday's press release and our periodic SEC filings.

We encourage participants on the call this morning to access the live webcast and supporting materials on Plexus' website at www.plexus.com, by clicking on Investor Relations at the top of the page and then Event Calendar.

Joining me this morning are Dean Foate, Chairman, President and Chief Executive Officer; Ginger Jones, Senior Vice President and Chief Financial Officer; and Todd Kelsey, Executive Vice President and Chief Operating Officer. Let me now turn the call over to Dean Foate. Dean?

Dean Foate

Thank you, Angelo, and good morning everyone. Please advance to Slide 3. Last night, we reported better than anticipated results for our fiscal third quarter of 2013. Revenues were up 3% sequentially to $572 million with EPS of $0.68.

Our revenue performance was above the midpoint of our guidance range, as our Networking/Communications and Healthcare/Life Sciences sectors performed better than expected. While our EPS result benefited from a $0.07 discrete tax event, the underlying result was still strong as a consequence of operating performance initiatives and favorable revenue mix, including strong performance in our Engineering Solutions group.

Slide 4, before Todd and Ginger get into the details on the quarter, I will highlight our progress and some of the focus items that we brought to your attention during our earnings call last quarter. Our new wins performance was strong this quarter after disappointing results in fiscal Q2. But the continuing end-market weakness from many of our customers, the new wins performance is essential to return to revenue growth in fiscal 2014.

Continue to manage constructive and effectively to the Juniper disengagement with no surprises. We are now done with production of Juniper products. We will have some sales of Juniper products and components in fiscal Q4, as part of the agreement to build some buffer stock and support the transition. We anticipate no revenue from Juniper in fiscal 2014.

We have completed the move into our new facility in Oradea, Romania, with no disruptions to our customers. We now have a significant presence and capability, lower-cost Europe to drive growth. We completed the move into our new manufacturing and design center facility in Livingston, Scotland, providing a stronger product realization for our customers in U.K.

Our Fox Cities, Wisconsin transformation process remains on track with a new facility in Neenah, Wisconsin, anticipate to be complete in Q1 fiscal 2014, setting the stage for consolidation of three facilities in the local area. We have entered into the final phase of our process to provide our customers with an alternative lower-cost solution in the Americas. We anticipate issuing announcement during fiscal Q4.

Our productivity initiatives are delivering improvements in our operating performance and working capital. And finally, one other item of significance, we returned Plexus to the corporate structure that includes a Chief Operating Officer to provide greater organizational alignment, accountability and operating performance across our enterprise as we continue to scale globally.

As part of the reorganization, we have created new opportunities for other talented Plexus leaders, including Steve Frisch, who recently returned from his assignment leading our EMEA region. Steve has assumed Todd's prior role, leading Global Customer Services. Steve will participate in our earnings calls and Investor Relations activities from time-to-time. In summary, we accomplished a great deal in fiscal Q3 and delivered results ahead of expectations.

Moving on to our guidance on Slide 5, we are establishing fiscal fourth quarter 2013 revenue guidance of $545 million to $575 million. The midpoint of this guidance range suggest that our fiscal fourth quarter revenue will be down modestly, when compared to our fiscal third quarter, largely driven by a step-down in the revenue from the Juniper disengagement that we are not able to fully overcome with other customer growth.

Despite the modest revenue decline, we anticipate that we will achieve strong operating results and deliver diluted EPS in the range of $0.60 to $0.66, excluding any unanticipated restructuring charges and including approximately $0.08 per share of stock-based compensation expense.

Looking further ahead, we currently anticipate a meaningful sequential decline in revenue in our fiscal first quarter of 2014, as we face the first full quarter revenue headwind associated with the Juniper disengagement. Our current customer forecast suggests we return to sequential growth in the second fiscal quarter of 2014.

With that, I will turn the call over to Todd.

Todd Kelsey

Thank you, Dean. Good morning. Advancing now to Slide 6, for some insight into the performance of our market sectors during our fiscal third quarter of 2013 and our current expectations for fiscal Q4. Our Networking/Communications sector was up about 2% sequentially in fiscal Q3. The result was significantly stronger than our expectations for mid-single digit percentage decline, as our top three customers in this sector, all outperformed earlier forecasts.

Excluding Juniper, fiscal Q3 Networking/Communications revenues were up 10% sequentially, as a result of the growth of our other top customers and new program ramps. We are cautiously guiding a low-to-mid teens percentage decline in our Networking/Communications sector revenues in fiscal Q4.

We are seeing some volatility in end-markets and our Juniper revenue will be approximately half of the Q3 levels, as we will only have inventory sales within the quarter as we complete the Juniper disengagement plan. The Juniper revenue will be split fairly evenly between finished products at normal margins and raw material at lower margins. The Juniper reduction and end-market volatility will be partially offset by other customers that are ramping new programs or are forecasting improved end-market demand. Excluding Juniper revenues, we are projecting mid-teens growth within the sector.

Our Healthcare/Life Sciences sector performed slightly above our original expectations with the revenue result up about 10% sequentially, as our top customers all performed above expectations. We originally expected mid-to-high single-digit growth. Looking ahead to fiscal Q4, we currently anticipate revenues in our Healthcare/Life Sciences sector to grow in the high-single digit percentage range, as new programs ramp and end-markets stabilize.

Our Industrial/Commercial sector was down sequentially about 1% in our fiscal Q3. This was slightly below our expectations of low-single digit growth, as two of our top customers fell short of earlier forecast. We currently anticipate that our Industrial/Commercial sector will be up in the mid-single digit percentage range in fiscal Q4, as we continue to see strengthening in test and measurement and semi-cap equipment.

Our Defense, Security and Aerospace sector was down about 3% in Q3, a result of a softer than our expectations of low-single digit percentage growth. A major security customer was down significantly and we had some softening in our Aerospace component of this sector. We currently expect Q4 to be flat to Q3, as we see a further pullback from the security customer previously mentioned, offset by new program ramps and improved demand in the remainder of the sector.

Now, turning to new business wins on Slide 7. During the quarter we won 28 new programs in our Manufacturing Solutions group that we anticipate will generate approximately $212 million in annualized revenue, when fully ramped into production. The new program wins performance this quarter continue to be strong for Americas region, representing 54% of the revenue. On a sector basis, our Healthcare/Life Sciences sector was the strongest performer this quarter with 41% of the total, although all sectors showed good performance.

Included in these wins were several programs from GE Healthcare. We were very proud to recently announce and celebrate the 30th year anniversary of our partnership with GE Healthcare, a customer relationship that continues to be transformative. In addition, we had a record quarter in Engineering Solutions wins with approximately $25 million in new programs. This total was particularly strong in our Healthcare/Life Sciences sector, where we continue to differentiate in the marketplace.

Slide 8, our wins performance in fiscal Q3, as shown by the overlaid green bars, recovered nicely from our soft Q2 and was in line with our strong performance with previous several quarters. As a result, our trailing four quarters wins, as shown by the blue bars, was at $782 million, which is sufficient to keep our wins momentum above our 30% goal. We are driving hard to continue this performance in coming quarters to sustain our goal, returning to growth in fiscal 2014.

Advancing to Slide 9. Our funnel of new opportunities remained strong at $2.2 billion, near our record level of the previous quarter. Our objective is to continue to harvest at the current rate, while backfilling the funnel. We believe a total funnel of over $2 billion is sufficient to sustain our wins performance.

As we look ahead to the fourth quarter of fiscal 2013 and into fiscal 2014, we have a number of previously announced longer-term projects recently completed are underway. These projects include a manufacturing facility in Romania, which was completed in the fiscal third quarter shown on Slide 10.

Our business has been transitioned from our lease facility into the new facility. This purposely built factory increases our square footage in Romania from 72,000 to 300,000. We believe this investment and low-cost manufacturing in EMEA region is critical to our long-term success in EMEA, and we are seeing strong interest from our customers, looking to ramp business into the facility.

With the strengthening forecast for existing sites in Scotland and the ramping of customers in the new facility in Romania, we expect to see improved operating margin for the EMEA region in F '14, inclusive of the operating cost of the new facility.

During fiscal Q3, we opened our expanded design center and new manufacturing facility in Livingston, Scotland, as seen on Slide 11. The expanded facility consist of a 15,000 square-foot design center and a 47,000 square-foot manufacturing site, which features all of the Plexus Product Realization capabilities, including product development, prototyping and manufacturing under one roof. This site serves as a compliment to our Kelso, Scotland facility and serving U.K. and other European customers.

As we announced in May 2012, we are pursuing a consolidation strategy of facilities in Wisconsin. We are constructing a new 418,000 square foot manufacturing facility, which is shown on Slide 12, that would be complete in the first fiscal quarter of 2014. This will enable us to exit two lease facilities in Neenah, Wisconsin, and one smaller owned facility in Appleton, Wisconsin. The efficiencies from consolidating manufacturing into one facility, exiting higher cost leased space and the benefit of incentives from the state of Wisconsin, enable us to deliver improvements to gross margin when this is completed.

The Neenah transition will happen over the first half of fiscal 2014, and we expect to incur charges of approximately $4 million to $5 million in severance, facility exit cost and cost to move equipment. We have not finalized this estimate or incurred these cost, but we wanted to give investors, visibility into our plans for this consolidation.

The facilities actions described earlier and other operating performance initiatives underway are designed to return us to a targeted operating margin goal of 5% during fiscal '14. Our successes in launching our new facilities Romania and Scotland, have demonstrated our ability to mange complex transitions without impacting customer service excellence.

We are confident in our ability to successfully complete the remaining Wisconsin and Mexico projects with similar results. Ultimately, we will have a better operating platform to service our customers and improved operating performance, necessary to reach our financial goal.

With that, I will turn the call to Ginger, for a more detailed review of our financial performance. Ginger?

Ginger Jones

Thank you, Todd. Our fiscal third quarter results are summarized on Slide 13. Third quarter revenue was $572 million at the top-end of the guidance range for the quarter.

Gross margin was 9.7% for the fiscal third quarter, above our expectations and above our fiscal second quarter results of 9.3%. Gross margin was positively impacted by operating performance initiatives, customer mix and good performance from the Engineering Solutions organization.

Selling and administrative expenses were $30.3 million, slightly above our expectations for the quarter. SG&A as a percentage of revenue was 5.3% in the fiscal third quarter, slightly higher than the fiscal second quarter. Operating margin was at the top-end of expectations at 4.4%.

We recorded a tax benefit of $260,000 during the fiscal third quarter. The result of a $2.2 million discrete tax item recorded during the quarter. The discrete tax item was related to the settlement of an interest rate swap during quarter, resulting in lower tax expense and positively impacting diluted EPS by $0.07.

Turning now to the balance sheet on Slide 14, return on invested capital was 13.2% for the fiscal third quarter of 2013, a 50 basis point improvement from the prior quarter and 120 basis points above our weighted average cost of capital for fiscal '13, which is 12%. ROIC has improved throughout the fiscal year, although still below the 15.5% we delivered in fiscal 2012 and our long-term target of 500 basis points better than our weighted average cost of capital.

During the quarter, we repurchased 533,000 of our shares for approximately $14.5 million at a weighted average price of $27.19 per share. Fiscal year-to-date, we have repurchased 1.4 million shares for approximately $36 million at a weighted average price of $25.55 per share.

As previously announced, in October 2012, the Plexus Board of Directors approved a stock repurchase program, under which the company is authorized to repurchase up to $50 million of its common stock, which will be funded with existing cash. We expect to complete this repurchase program relatively consistently over the balance of the fiscal fourth quarter.

Our cash cycle at the end of the fiscal third quarter was 59 days, lower than our expectations and five days lower than our results in the fiscal second quarter. This is a very good result for us, which is a reflection of working capital initiatives we have been working on for several years and the impact of the Juniper disengagement. In total, working capital decreased by approximately $21 million during the quarter.

Days in receivables decreased by one day to 54 days. As we said last quarter, we expect this downward trend to continue into the fiscal fourth quarter, as we complete the exit of Juniper. Days in inventory were 78 days, down nine days from our results in the prior fiscal quarter, essentially all of this production in inventory during the quarter related to Juniper, as we had meaningful inventory sales under the disengagement agreement.

Accounts payable days were 54 days, down from the prior fiscal quarter. The lower payable days was the result of the timing of inventory purchases during the quarter and is expected to return to more normal levels in the fiscal fourth quarter.

Days of cash deposits increased by two days to 19 days. This includes approximately $60 million in deposits from Juniper, related to the disengagement. Effectively, these deposits allow us to capture much of the benefit to working capital, we expect from the Juniper disengagement. These deposits will be offset by reductions to inventory from sales of inventory at Juniper or their new suppliers in the fiscal fourth quarter.

Free cash flow during the quarter was $23 million. During the quarter, we generated $54 million in cash from operations and spent $31 million in capital expenditures, with approximately $26 million of that capital for footprint expansion in Romania and Wisconsin.

I will now turn to some comments on the fiscal fourth quarter 2013, which are summarized on Slide 15. We are establishing fiscal fourth quarter revenue guidance of $545 million to $575 million. At that level of revenue, we anticipate EPS in the range of $0.60 to $0.66, excluding any unanticipated restructuring charges and including approximately $0.08 per share of stock-based compensation expense.

Gross margin is expected to be in the range of 9.8% to 10%, up from our gross margin of 9.7% in the fiscal third quarter of 2013 and close to our targeted 10%. This improved gross margin is a result of our concerted efforts to improve margins that began in our fiscal first quarter of this year. In addition, margins in the fiscal fourth quarter will benefit from a lower level of expected revenue with Juniper. This customer is dilutive to margin and we will continue to see the impact of the disengagement on margins in the fiscal fourth quarter.

We expect SG&A cost to be similar to spending levels in the fiscal third quarter in the range of $29 million to $30 million. At the midpoint of our guidance range, this revenue will result in approximately 5.2% to 5.4% SG&A as a percentage of revenue. This will be consistent with the 5.3% in the fiscal third quarter. This results in expected operating margin of approximately 4.5% to 4.6%, which demonstrates our continuing improvement in operating performance over the fiscal year.

A few other notes, depreciation and amortization expense is expected to be approximately $12.5 million in the fiscal fourth quarter, up slightly from the $12.4 million in the fiscal third quarter. We are estimating a tax rate for fiscal 2013 of 4% to 6%, below our fiscal 2012 rate of 7%.

Our expectations for the balance sheet are for working capital dollars to be down from the fiscal third quarter. Based on our forecasted levels of revenue, we expect these changes will result in cash cycle days, net of cash deposits of 58 days to 62 days for the fiscal fourth quarter of 2013, another quarterly improvement and the lowest level of working capital in several years. Our capital spending forecast for fiscal 2013 is now $100 million. This estimate includes the completion of our consolidation facility in Wisconsin.

Finally, we will be holding our Investor Day on September 12, 2013, in Chicago, Illinois. Management will be sharing their perspective on the business, and we will offer a tour of our Buffalo Grove facility. We hope that many of you can join us for this event.

With that, I will turn the call back to Dean for a few closing comments. After Dean's comments, we'll open the call for questions. We ask you to please limit yourself to one question and one follow-up.

Dean Foate

All right, I'd just a put up a few closing items here that I think are really important for us to focus on as a team, as we go forward into the coming quarter. Of course, first and foremost, I want to make sure that we fully wrap-up the Juniper disengagement. And as I said earlier, at this point we've had no surprises, so I don't expect any, as we close out the Juniper disengagement in the coming quarter.

The Fox Cities, Wisconsin transformation, as Todd laid out in great detail is a complex transition of few facilities into the single new facility, and of course, we need to execute that policy over the coming quarter. And I've got complete confidence that we will and that we will protect our customers through that process.

Our momentum into the new facility in Oradea is also critical, as we have a significant facility now in place. We've had a good pipeline of new opportunities build during the course of us putting up that facility and anticipation of it, so now we need to close those opportunities and get them into the facility and keep the momentum going.

Americas, we've been talking about this for sometime that we're challenged in terms of our value proposition at Juarez, because of the brand of and reality of violence and challenges in that location. And so we continue to feel that it's really important for us to have an alternative for our customers. We have been working diligently through a process to locate a facility or a place, where we could greenfield the facility, and we are very close to a decision on that and you should anticipate that we'll finally make an announcement here in the current quarter.

New wins are really important for us in fiscal '14, as we look to drive growth in fiscal '14. Of course, we had a soft Q2. We've gotten back on track here in Q3 and had result that was above our target. So we're really pleased about that, but we need to continue to close down on opportunities here to continue to drive growth momentum through '14.

And then finally, we have to recognize that the growth environment is more challenged right now with the economic delays around the world, and so we need to continue to work hard to find ways to deliver on our financial model. And we have a number of initiatives in place here that we believe are going allow us to have a more flexible financial model that allows some delivery results, in spite of perhaps a more challenging growth environment.

And with that, we'll turn it to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Shawn Harrison from Longbow Research.

Shawn Harrison - Longbow Research

Just wanted to get the first question out of the way, which is the material decline anticipated for first fiscal quarter revenues. Seeing the presentation, Juniper sales will be down about $42 million sequentially. So I mean that's material, but how much of that do you expect to offset with program ramps and just business growth?

Dean Foate

I think Ginger's intuition was as that that word would get everyone's attention, and of course, it did, as we saw in some of the pre-notes and consistent with your question, I think we wanted in there because we want to draw attention that there is a misalignment right now, between what we have been guiding for Juniper revenue in Q4 and what we're actually going to see in Q4 for Juniper revenue.

So we have been guiding that we thought we will see about $30 million to $35 million of revenue in Q4. That number is now going to be $42 million in Q4. And so the incremental decline now into Q1 is going to be greater than what the street had it aligned when you look at the quarter-over-quarter number.

So having said that, let me just say that, it's difficult right now to guide with any precision Q1. We're getting descent visibility, a quarter or so, but there has been quiet a bit of volatility, while the volatility is led to more bias that is more up and down, still there is a lot of inaccuracy in Q1. But right now, I would say that the streets absolute kind of consensus on Q1 is probably as good a number as any, it's just that we're going to be stronger in Q4, because of the Juniper revenue is going to be little stronger than Q4 then we had anticipated.

So we would anticipate overcoming some of the $42 million revenue headwind, a fair amount of it. But there is a bit of gap right now, given that there is about a $9 million to $10 million difference I think between what the street was thinking was going to happen with Juniper revenue and what's really going to happen to Juniper revenue quarter-over-quarter.

Shawn Harrison - Longbow Research

So just to be clear, I think the consensus is about $540 million for the December quarter. And your, at least, the best guess right now is you are somewhat comfortable with numbers in that range?

Todd Kelsey

Yes, well, I think the number I see is more closer to $546 million, at least in our number on the street, but somewhere in there and that's, I would say, a reasonable number at this point.

Shawn Harrison - Longbow Research

And then just a couple brief follow-ups. The restructuring charges for early '14, will that be run through the P&L? Just second, kind of the tax rate for early '14 as well and in the end of '14?

Ginger Jones

Our anticipation now is those restructuring charges for the Wisconsin transition will be called out as restructuring. And will not be included in the operating costs given their magnitude. And then the tax rate, I think a rate of 4% to 6% is a good estimate for fiscal '14 as well.

Operator

Our next question comes from Steven Fox from Cross Research.

Steven Fox - Cross Research

Just a couple questions on margin. So you mentioned a margin benefit in 2014 from the new operations in Europe. I was wondering if you can sort of quantify that in terms of how that plays through. How much it is contributing in coming quarters?

And then, secondly, just on Juniper. If I understand what you are saying about the remaining Juniper products that are going to ship, it seems like it's a net margin benefit for the quarter. I was wondering if I have that right. And secondly, as that leaves, as that business winds down, what does it means for margins in the following quarter?

Ginger Jones

I'll take those questions on margin and then Todd can jump in if he wants to. On EMEA, we certainly are seeing some benefit to margins at '14, although I don't know that we're confident enough in them now that we share that. I think we'll talk about that as we go through the year. And that's a result of it being a relatively new facility where we have made big investments in Romania and an increasing revenue pipeline, we think, which we think will help offset those costs.

So I'd say, directionally we think the trend is going to helpful. But we're not ready to quantify that yet. And then on Juniper there are lots of puts and takes on Juniper in the fourth quarter. There is about $42 million of revenue. A portion of that is at normal Juniper margins because it's component to be manufactured and a portion is raw material.

But all in, we believe that it's positive to margins in the fiscal first quarter, partly because it's less than the $70 million, the $80 million or so that we saw in the fiscal third quarter. And as we've said, Juniper overall is dilutive to our margins. So as we exit that, we are seeing the anticipated benefit to margins that we thought we would.

Steven Fox - Cross Research

So if I could just make sure I understand that the Juniper comments, so even though this quarter you're shipping product without any associated production, next quarter it's a net positive effect, even into next quarter because it's a lower margin sales?

Ginger Jones

That's correct. Todd, did you head onto this.

Todd Kelsey

Yeah, so Steve, just to clarify the labor is in the product that we're shipping. I mean basically we acknowledge those costs when we ship the product. So the overall Juniper's dilutive to our margins from an absolute standpoint, it helps us because it's less Juniper-ish to margins in the quarter. Perhaps too, I can provide just a little bit of extra color around your EMEA question and really as it relates to Oradea. If we look at moving the needle, the absolute size of EMEA, I mean it's a relatively small region for us, doesn't move the needle in big ways.

But where we're at with Oradea we're really excited about. Again, the sites about a breakeven site right now, but we get huge leverage from incremental revenue within that site. There is enormous amount of capacity right now. As tooled, it's a very efficient organizational. We're running about 72% as-tooled capacity in Oradea, but the max capacity, we have an enormous amount of capacity and there are several, nearer about, five or six, what I would call, anchor customers within that site that have the ability to grow in a meaningful way.

Operator

Our next question comes from Sherri Scribner from Deutsche Bank.

Sherri Scribner - Deutsche Bank

I wanted to just dig into the commentary about the Networking segment. You have been pretty clear about the Juniper business, but you did give some commentary about the rest of your customers. I think you said the top three customers were better than expected and you gave guidance of, I think, mid-teens growth, ex-Juniper for the rest of your business. Can you give us some commentary about what your customers are seeing? And also to put it in context is the mid teens growth rate for that segment normal for a fourth quarter or it seems a bit high, so just wanted to get some understanding of there?

Todd Kelsey

With respect to the growth, I think the growth is above normal, but it's really being driven primarily by new program ramps and wins that we've had within that sector over the course of the last four to six quarters. So we're seeing the impact of that right now. With respect to the top three customers being up, in that top three is Juniper. And that's up to expectations.

So Juniper was down from an absolute standpoint. The other two of our top three customers were also up quarter-on-quarter and they also beat our expectations. And that was primarily success with new programs that they were ramping. So we're seeing some good traction from those customers and that was, at least, as meaningful of a bead as the Juniper one was.

Sherri Scribner - Deutsche Bank

So just to clarify, it sounds like you're emphasizing the new programs, but what are you seeing in the end-markets from your customers' perspective? Are they expecting a lot of strength in the second half?

Todd Kelsey

No. They are very volatile yet, not a lot of visibility.

Operator

Our next question comes from Amit Daryanani from RBC Capital Markets.

Amit Daryanani - RBC Capital Markets

So couple of questions. One, Ginger, maybe you could just talk about where do you see the $100 million CapEx plan being focused on in fiscal '14? It seems like a fairly large number given the fact you guys actually did some research and take some costs or off sites out in the last few quarters. Maybe you could talk about what that CapEx is catered for? And then maybe implied within that what's the revenue growth, that are you really anticipating in fiscal '14 to require that kind of investment?

Ginger Jones

I'm not sure if I misspoke, so the $100 million number was for fiscal '13. And that's slightly higher than we had talked about a quarter ago, but in line with our expectations and as you mentioned it's related to the significant improvements, initiatives we're doing at Wisconsin and Romania.

If I look ahead, we have not guided a number yet for fiscal '14. But I would expect it to be down meaningfully from that number. We will have a little bit of finish up on our Wisconsin facility and we will be making our investments in Guadalajara, but other than that we have no other major projects that will be going on in fiscal '14.

Amit Daryanani - RBC Capital Markets

Fair enough. That clarifies it. And then when I think of the restructuring initiative regarding the Fox Cities sites that you guys are looking at, when do you expect the savings from that $4 million to $5 million of restructuring charges to start flowing through that? I am assuming it's the back of fiscal '14. And is that the trigger? Is that the catalyst that you need to get to that 5% op margin target?

Ginger Jones

You're right about the timing. So we will see those benefits in the second half of fiscal '14. I think it helps get us to our 4% or 5% operating margin. I don't know that we wouldn't get there otherwise, but certainly its part of our task back to 5% in fiscal '14.

Operator

Our next question comes from Brian Alexander from Raymond James.

Brian Alexander - Raymond James

I just wanted to be clear, Dean, on the December outlook once again. I mean you said you're comfortable with consensus, which I think you said was $545 million or so. I show $539 million as Shawn pointed out, and that would only be down about 3% to 4% sequentially versus the midpoint of your September guidance of $560 million. So it doesn't look like alarming or a meaningful decline. So I just wanted to reconcile the meaningful decline comment with what looks to be a pretty modest decline, and ex-Juniper looks to be like mid-single digit growth?

Dean Foate

I guess it all depends on how all the customer forecast shake out in Q1. Again, and I guess, it's a question of how you characterize modest versus meaningful. But again, our street numbers, I guess, are a little bit different than what you're showing at this point. But again, I would just reiterate that the streets consensus for Q1 is as good a number as any at this point, given the direction that we see from our growth of other programs with our customers and given where we see Juniper stepping down.

I just felt that that if we end up with a very strong Q4 that we're not going to recover all of that through growth of other customer programs into Q1. And the step down could be more than 4% or 3% till we get to the top of the range here in Q1. So it just depends upon, how the two quarter shake out. But I think that there is the possibility there could be a bigger step down given how those two quarter shake out. And I am sure everybody was paying attention to it.

Brian Alexander - Raymond James

And just a couple of follow-ups. On fiscal '14, do you still think modest growth is a reasonable assumption for the year, because if I back out Juniper, it implies about mid-teens growth, which is more consistent with your long-term goal. So do you think that's still possible? And then, Ginger, just to clarify on the 5% operating margin, is that something that you think you could achieve for the full year or is that something that you think you will achieve more in the back half of the year?

Todd Kelsey

Yeah, on the growth, again, it's difficult to guide '14, but we definitely are anticipating growth in the year. And of course, the way we role the forecast now, granted, visibility is not great, but the programs that we're ramping now in conjunction with what we anticipate, bringing into the business here over the next quarter or so will certainly drive us to reasonable topline growth in '14, although I'm not going to peg it to a percentage at this point.

I think we'll give you a little bit better clarity on that as we come into certainly into the earnings call as we wrap up the fiscal year. And depending upon the level of clarity we have in the end-markets, we may even get into that a little bit at our Analyst Day when, I guess, it's early September in Chicago. But it's a little bit too soon. It's a little bit too much volatility here to try to peg it at this point. Relative to margins, I'll let, Ginger, take that one.

Ginger Jones

So as we look at '14, there are a lot of positives for us, including the strong margin we're delivering this quarter and in the fiscal fourth quarter. The first quarter fiscal '14, it's going to be the most challenging for us. With that step down in revenue, we're going to have some issues with leverage. We've looked at that and we feel pretty confident that we can manage that to mid-to-low 4% operating margin. So to kind of give you a bottom for what we think that might be in the first fiscal quarter.

We believe operating margin improves from there. And we're very committed to 5% during fiscal '14. We're not ready to say when and whether we can hit it for the full year in total. But there are a lot of positive, when you think about what we're delivering today, and the impact of the Wisconsin consolidation that we expect in the second half of '14. So that's the visibility we have today.

Operator

Our next question comes from Sean Hannan from Needham & Company.

Sean Hannan - Needham & Company

Ginger, thanks on the commentary for the operating margins. I just want to see if actually you could clarify that a little bit more. When we think about the guidance you have provided for the next quarter and you get to kind of a 9.9% midpoint. And then when we think about the follow-on quarter for December that we should get that margin benefit with the absence of Juniper.

Just trying to understand how it is that the operating income wouldn't perhaps accelerate a bit more than where maybe some of my prior thinking had been to what degree is the SG&A cost not really as pulled back? I know there was a little bit of support there with Juniper costs, but any more clarity there would be helpful.

Ginger Jones

Well, the key issue for us in the December quarter is the fixed costs. And so we're going to have a leverage issue in the December quarter with revenue coming down, the amount that we expect, whether it's modest or meaningful, right. So whatever that is, we currently anticipate a leverage issue. And given our view that there is growth throughout the full fiscal year, we're not going to take a hatchet to our SG&A costs or our fixed other costs throughout organization for a one quarter benefit.

We are doing a lot of work to manage those costs and you're seeing the impact that particularly on the gross margin line. So our view is there is downward pressure on the margins in the December quarter from this lack of leverage, but as I talked about, I think the bottom is low-to-mid fours, somewhere between where we were this quarter and where we were in the March quarter. And then we would see improvements throughout the balance of fiscal '14.

Todd Kelsey

But your observations are correct. If you look at what our guidance on EPS implies on the revenue, it implies very strong, of course, on operating performance in Q4 with that level of revenue. And I think that you could anticipate that if we we're back to that level of revenue or close to it in fiscal '14 in any given quarter that the margins would come back up into that neighborhood and we have a couple of things that we're working on that we'll further improve that margin performance later in the year, namely, one of which of course, is the Fox Cities consolidation, which will give us some level of benefit. So it just depends on how the revenue topline plays out as we move through the year.

Sean Hannan - Needham & Company

And then in terms of the ROIC, when you look at your 17% goal, at this point I would have to assume and maybe I am wrong that you might have a very visible pathway to getting back to that target level. Wanted to get your insights around that and how long this could take for that to materialize for you?

Ginger Jones

We do, Sean, have a path to meaningful ROIC improvement in F '14 and that's driven both by the numerator and denominator with operating margin improvements and with the reductions we've shown in working capital, which we expect to continue modestly throughout '14.

Whether we get back to the full 500 basis points above our weighted average costs to capital is something I'm not really willing to commit to. And part of the reason I say that is, in many ways we see that as a really great results, but in some ways it's also a stretch goal and so we think we deliver meaningful value to shareholders at 300 basis points above weighted average cost to capital.

So we're clearly committed to getting back to the full amount, largely because all of our enduring goals, ROIC is a significant portion of that. So we're very committed to it. And we clearly got a path to significant improvement in F '14, but I guess I am not willing to say yet, how soon we're going to get there.

Dean Foate

Well, considering 40% of our bonus plan is tied to ROIC, we're all motivated of course.

Ginger Jones

Yeah, we structure our incentive plans here to really incent people to focus on enduring goals. And as we have shared before our 40% of our bonus is based on revenue growth, hitting our 15% target and another 40% is based on hitting the full 500 basis points above our ROIC.

Operator

We have Jim Suva online from Citi, please go ahead.

Jim Suva - Citi

Many of the good questions have been asked, but I wanted to follow up a little bit on a couple of areas that potentially could be future catalysts, and that is I think the Aerospace/Defense and Industrial markets were a little bit weaker than expected. Were those, like, timing push out issues due to sequester? Was it order cancellations? Was it customers shifting around things or do you just think that that will kind of come back here in the next couple of quarters?

Todd Kelsey

So Jim, I think they were bit of isolated events. If we look at our Defense/Security/Aerospace sector, of course, that's really three sectors, Defense, Security and Aerospace. And we have basically a softening of a really good customer of ours in the Security sector that really drove the bulk of the result. And we were a hair weak on Aerospace. And I mentioned it, but it's not a meaningful trend.

I mean if you look at the Aerospace market, flight time is at an all-time high. Orders at an all-time high and we're positioned on all the really good growth platforms. So we feel really good about where our Aerospace business is headed in the future. But I'd say, we have primarily a one customer anomaly that's driving those numbers within the sector.

Industrial/Commercial is a bit of a similar situation. We have a couple of large customers that were weak. We are seeing some strength in our customer base in semiconductor capital equipment as well as test and measurement equipment. Now, based on what we see from market data, we think this is customer-specific and not necessarily market-specific. That we're partnering with the right guys there. So I mean there is still a lot of volatility within the Industrial/Commercial sector and that's really what we're seeing in that space.

Jim Suva - Citi

Then on the follow-up, and maybe this is more for Dean or Ginger. When we think about the past Plexus and the future Plexus going forward, I think a lot of investors need to understand that the customer concentration risk associated with Juniper now comes to an end. But looking forward, can you help us understand about did you have any other customers around 10% or above 10%? And once Juniper is completely gone and going forward will you have some customers above 10%, and if so how many and kind of what segments we should think about those in?

Dean Foate

I think the only customer that really is notable is GE, overall and the biggest, and of course, we do business with multiple GE business units, but the largest is GE Healthcare. Of course, we just announced that we had a celebration that frankly they came to us and wanted to do, which is around the 30 year relationship. And we've been gaining share with GE Healthcare now over the last several years and is one of the things that are catalysts for growth in our Healthcare/Life Sciences sector in the coming year.

So we feel really good about our relationship with GE Healthcare and the longevity of that relationship and the relative stickiness of the business. So I think from a customer concentration standpoint, we're probably, at least, as far as I can remember back, which is quit some time, is that we're probably in as good as shape now as we have ever been.

Operator

(Operator Instructions) We have no further questions at this time. Do you have any concluding remarks?

Dean Foate

I just thank all the analysts and the investors for the questions and, of course, the support of Plexus. And I would thank the Plexus folks that listen in on this call for the hard work over the last couple of quarters. This is really a good quarter for us, managing through some challenging situation and we feel really good about where we set the stage here as we come into fiscal '14. Ginger, you might want to remind them, once again, about the Analyst call, if you have the date handy.

Ginger Jones

I will do that. So our Analyst meeting will be on September 12, in Chicago, Illinois. And we would be please to see many of you on the call to join us for that meeting.

Dean Foate

All right. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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