- Revenue: $6.8 billion, $265 million above the midpoint of the guidance range.
- Core Operating Income: $350 million or 5.2% of revenue, an improvement of 40 basis points year over year.
- Net Interest Expense: $64 million, better than expected due to lower levels of inventory.
- GAAP Operating Income: $261 million.
- GAAP Diluted Earnings Per Share: $1.06.
- Core Diluted Earnings Per Share: $1.89, $0.04 above the midpoint of guidance.
- DMS Segment Revenue: $3.4 billion, $65 million above expectations, down 23% year over year.
- DMS Core Operating Margins: 4.6%, 50 basis points higher year over year.
- EMS Segment Revenue: $3.4 billion, $200 million above expectations, down 18% year over year.
- EMS Core Margins: 5.7%, up 20 basis points year over year.
- Inventory Days: 81 days, six days lower sequentially; net of inventory deposits, 58 days, a four-day improvement.
- Cash Flows from Operations: $515 million.
- Net Capital Expenditures: $100 million.
- Adjusted Free Cash Flow: $415 million.
- Share Repurchase: 3.7 million shares for approximately $500 million, $700 million remaining on $2.5 billion authorization.
- Debt to Core EBITDA: 1.2 times.
- Cash Balances: Approximately $2.5 billion.
- Q4 Revenue Guidance: $6.3 billion to $6.9 billion.
- Q4 Core Operating Income Guidance: $365 million to $425 million.
- Q4 GAAP Operating Income Guidance: $285 million to $355 million.
- Q4 Core Diluted EPS Guidance: $2.03 to $2.43.
- Q4 GAAP Diluted EPS Guidance: $1.40 to $1.88.
- Q4 Net Interest Expense Guidance: Approximately $67 million.
- Q4 Core Tax Rate Guidance: 20%.
- FY24 Revenue Guidance: $28.5 billion.
- FY24 Core Margins Guidance: 5.6%, a 60 basis point improvement over the prior year.
- FY24 EPS Guidance: $8.40.
- FY24 Adjusted Free Cash Flow Guidance: Over $1 billion.
Release Date: June 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Jabil Inc (JBL, Financial) reported $6.8 billion in revenue for Q3, exceeding the midpoint of the guidance range by $265 million.
- Core operating income improved to $350 million, representing 5.2% of revenue, a 40 basis point increase year over year.
- Net interest expense for Q3 was better than expected at $64 million due to improved working capital management.
- The company generated strong cash flows from operations at $515 million, with adjusted free cash flow totaling $415 million.
- Jabil Inc (JBL) remains committed to completing its $2.5 billion share repurchase authorization by the end of FY24, with $700 million remaining as of May 31.
Negative Points
- Revenue for the DMS segment was down approximately 23% year over year, primarily due to the mobility divestiture.
- EMS segment revenue decreased by roughly 18% compared to the prior year quarter, driven by lower revenue in end markets like 5G, renewable energy, and digital print.
- The automotive and healthcare businesses experienced lower than anticipated revenue, impacting overall performance.
- The company anticipates higher net interest expense and core tax rate in FY25 due to elevated interest rates and the adoption of Pillar Two global minimum tax legislation.
- Jabil Inc (JBL) rescinded its FY25 guidance due to uncertainties in end market recoveries, particularly in EVs and semi-cap equipment, and expects a potential negative impact of approximately $800 million in revenue.
Q & A Highlights
Q: Mike, what do you see as the biggest opportunity for Jabil over the next year? And what do you see as the biggest risk? And Greg, a similar question to you as CFO, what are your main focus areas for the next year?
A: (Mike Dastoor, CEO) The biggest opportunity lies in the AI proliferation across various end markets, which will require hardware refreshes. The biggest risk is the timing of recovery in our end markets. (Gregory Hebard, CFO) Expanding operating margins, generating strong free cash flows, and returning capital to shareholders are my main focus areas.
Q: How do you see Jabil's investments in AI trending over the next few years? And do you think margins on the AI side trend lower or higher than the rest of the business, given the increased competition?
A: (Mike Dastoor, CEO) AI investments will focus on server rack equipment, data center infrastructure, power, cooling, and value-added services. Margins may initially dip but are expected to recover as we expand our AI-driven strategy.
Q: You talked about some weakening in the auto and healthcare spaces. When do you expect a recovery in these? And if revenues continue to be weak, what are some of the levers you have to continue to drive margins and free cash flow?
A: (Mike Dastoor, CEO) Auto recovery is impacted by oversupply in China, and semi-cap recovery is pushed to mid-2025. We will maintain capacity to be ready for recovery, which may temporarily impact margins but positions us well long-term.
Q: The guidance for Q4 implies you hit a 6% operating margin. How sustainable is this 6% margin?
A: (Mike Dastoor, CEO) The 6% margin is influenced by seasonality and is not sustainable in Q1. Historically, Q1 and Q2 margins are lower, with an uptick in Q3 and Q4.
Q: Can you expand on the reshaping of your portfolio geographically and by end market?
A: (Mike Dastoor, CEO) We are focusing on margins and free cash flow, moving away from less attractive end markets and geographies. This includes reducing legacy networking and increasing AI-related business.
Q: You mentioned better-than-expected results in connected devices and networking storage. What's driving this improvement?
A: (Mike Dastoor, CEO) The improvement was due to conservative forecasting rather than significant end-market growth or share gains.
Q: Is the $6 billion AI revenue target for FY25 still intact? And can you elaborate on your initiatives in power and cooling for data centers?
A: (Mike Dastoor, CEO) Yes, the $6 billion AI revenue target remains. We are focusing on capabilities in cooling distribution units and liquid cooling for data centers, which will be a differentiator.
Q: Can you provide more details on your networking business and your approach to legacy versus new networking technologies?
A: (Mike Dastoor, CEO) We are transitioning from legacy networking to new AI-driven networking and switching technologies, including silicon photonics and transceivers.
Q: Why not reduce short-term borrowings to lower net interest expense instead of aggressive share buybacks?
A: (Gregory Hebard, CFO) We balance interest expense and share buybacks for effective EPS results. We expect interest rates to remain elevated but will continue to focus on reducing net inventory and maintaining strong free cash flows.
Q: Can you clarify the $800 million revenue headwind for next year and its impact on margins?
A: (Mike Dastoor, CEO) The $800 million headwind is due to reshaping our portfolio, focusing on higher-margin and better cash flow opportunities. While it may not immediately improve margins in FY25, it positions us well for future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
