Electronic Manufacturing Services provider Plexus Corp. ( PLXS - Analyst Report ) reported second quarter earnings of 56 cents per share, which surpassed the Zacks Consensus Estimate by a couple of cents and was within management’s guided range of 51 cents to 58 cents per share. However, on a year-over-year basis earnings declined 5.0%, primarily due to higher interest expense and tax rate in the quarter.

Quarter Details

Total revenue in the quarter decreased 0.9% on a year-over-year basis to $573.5 million, but was within management’s guided range of $550.0 million to $580.0 million and also surpassed the Zacks Consensus Estimate of $566.0 million.

The year-over-year decline in revenue was primarily attributed to continued volatility in the Networking/Communications segment. The segment reported revenue of $210.0 million, down 21.3% year over year in the quarter. Networking/Communications contributed 37.0% to the total revenue in the reported quarter compared with 46.0% in the year-ago quarter.

Industrial/Commercial (33.0% of the total revenue) increased 53.7% year over year to $189.0 million. Medical (20.0% of revenues) decreased 11.0% year over year to $114.0 million. Defense/ Security/Aerospace (10% of the total revenue) improved 20.0% year over year to $60.0 million.

During the quarter, Plexus won 28 new programs in the manufacturing solutions group and the company expects to generate approximately $316.0 million in annualized revenue once production commences.

Top 10 customers of the company accounted for 63.0% of the total revenue. Juniper Networks Inc. ( JNPR - Analyst Report ) and The Coca-Cola Co. ( KO - Analyst Report ) were the only customers accounting for 10.0% or more of revenues during the quarter.

Gross profit dipped 1.5% from the year-ago quarter to $54.6 million. Gross margin for the quarter stood at 9.5% compared with the year-ago level of 9.8%.

Operating profit slipped 2.4% from the prior-year quarter to $25.8 million, while operating margin stood at 4.5% versus 4.6% in the year-ago quarter. Operating profit was negatively impacted by a weaker gross profit in the quarter.

Net income declined 16.4% year over year to $20.0 million. The year-over-year decline was primarily attributable to higher net interest expense (up 93.1% year over year) and taxes. Net margin was 3.5% in the quarter, down from 4.2% reported in the year-ago quarter.

Balance Sheet and Cash Flow

Plexus exited the quarter with $257.8 million in cash and investments versus $248.3 million in the previous quarter. Long-term debt and capital lease obligations (including the current portion) amounted to $279.1 million versus $283.4 million in the previous quarter.

Third Quarter Guidance

For the forthcoming third quarter 2012, total revenue is projected in the range of $590.0 million to $620.0 million. Plexus expects earnings to be between 60 cents and 66 cents per share, excluding any restructuring charges and including approximately 8 cents per share in stock-based compensation expenses. Currently, we expect Plexus to earn 62 cents in the third quarter.

Our Recommendation

We believe that stabilizing end markets, new business opportunities, particularly in the industrial/commercial and medical sector and global expansion will drive growth over the long term. We also believe that the gradual improvement in the U.S. market will boost Plexus’ top line going forward. However, intense competition, continued component challenges and supply chain constraints remain major concerns for Plexus over the long term.

Thus, we have Neutral recommendation on Plexus over the long term (6-12 months). Currently, Plexus has a Zacks #3 Rank, which translates into a Hold rating over the short term.