Jabil Circuit Beats on Q1 Earnings, Reaffirms 2016 Outlook

Jabil Circuit Inc. JBL reported first quarter fiscal 2016 adjusted earnings (including share-based compensation but excluding all one-items) of 72 cents per share, which beat the Zacks Consensus Estimate of 70 cents. The bottom line improved 56.5% from 46 cents reported in the year-ago quarter.

 

Jabil Circuit Inc. (JBL) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

 

Quarter Details

Revenues increased 14.5% year over year to $5.21 billion and beat the Zacks Consensus Estimate of $5.19 billion. The year-over-year increase can be mainly attributed to better-than-expected demand from both its segments and a surge in product sales.

Electronics Manufacturing services revenues (52% of revenues) came in at $2.7 billion, up 3.1% year over year. Diversified Manufacturing Services revenues (48% of revenues) surged 30% year over year to $2.5 billion.

Operating Details

Gross margin expanded 90 basis points (bps) on a year-over-year basis to 9.3%.

Operating expenses as a percentage of revenues remained consistent year over year at 5.2%. Selling, general and administrative and research & development expenses (as a percentage of revenues) increased 10 bps each on a year-over-year basis.

As a result, operating income (including stock-based compensation but excluding all one-time items) increased to $223.7 million from $162.6 million in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the quarter, cash and cash equivalents were $1.1 billion, up from $913.9 million as on Aug 31, 2015.

Cash flow from operations for the quarter was $145.3 million compared with $189.1 million in the prior-year quarter. However, the company’s free cash outflow was $140 million owing to higher capital expenditure.

Guidance

The company provided its outlook for the second quarter of fiscal 2016 while reaffirming the same for fiscal 2016.

Jabil expects net revenue to be in the range of $4.4 billion to $4.7 billion for the second quarter of fiscal 2016. Jabil projects core operating income in the range of $170 million to $210 million.

On a year-over-year basis, revenues from Diversified Manufacturing are expected to increase 14% to $1.9 billion, while Electronics Manufacturing Services revenues are expected to be flat on a year-over-year basis at $2.6 billion.

The company expects second quarter GAAP earnings in a range of 37 cents to 55 cents per share, including 4 cents for amortization of intangibles, 10 cents of stock-based compensation expense and 1 cent – 3 cents as restructuring charges.

Management continues to expect fiscal 2016 revenues of $20 billion and earnings of about $2.60 per share.

Our Take

We believe that the strong performance of non-traditional sectors, diversity in its revenue channels and a customer base spread across the world should help Jabil deliver strong revenues and profitability going forward.

Jabil has been seeing strength across most of its end markets like automobile, connected homes, wearables, healthcare, consumer packaging, cloud infrastructure and capital equipment. The company’s EMS margins have already started improving owing to the restructuring initiative, which has also resulted in increasing market share. Its DMS business, a significant part of which is dependent on Apple AAPL has remained strong so far. The company has also planned to increase the investment in this segment. However, given the projected slowdown in demand for iPhone, there can be some concerns.   

Also with its top five customers accounting for over 45% of its revenues, the company is exposed to significant customer concentration risks. Increasing competition from the likes of Flextronics FLEX remains a concern.

Currently, Jabil Circuit has a Zacks Rank #3 (Hold). A better-ranked tech stock is MeetMe, Inc. MEET sporting a Zacks Rank #1 (Strong Buy).

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