Jabil Circuit Up on Q4 Earnings & Revenue Beat, Guides Well

Shares of Jabil Circuit Inc. JBL went up 9.4% in after-hours trading, after the company reported better-than-expected fourth-quarter fiscal 2015 results. Also, an encouraging first quarter and fiscal 2016 guidance positively impacted the share price.

The company reported fourth-quarter adjusted earnings (including share-based compensation but excluding all one-items) of 48 cents per share, which beat the Zacks Consensus Estimate of 35 cents. The bottom line also improved significantly from 4 cents reported in the year-ago quarter.
 

Jabil Circuit Inc. - Earnings Surprise | FindTheBest

Quarter Details

Revenues increased to $4.68 billion from $4.06 billion in the prior-year quarter and beat the Zacks Consensus Estimate of $4.59 billion. Also, reported revenues came ahead of management’s guided range of $4.45 billion to $4.65. Jabil Circuit, which makes phone casings for Apple Inc. AAPL, recorded a 15.4% year-over-year rise in revenues. The year-over-year increase can be mainly attributed to better-than-expected demand from Diversified Manufacturing Services (DMS) mobility business and a surge in product sales.

Electronics Manufacturing services revenues (59% of revenues) came in at $2.8 billion. Diversified Manufacturing Services revenues (41% of revenues) surged 47% year over year to $1.9 billion.

Operating Details

Gross margin expanded 157 basis points (bps) on a year-over-year basis to 8%.

Operating expenses as a percentage of revenues increased 9 bps on a year-over-year basis to 4.7%. Selling, general and administrative expense, as a percentage of revenues, increased 8 bps on a year-over-year basis. Research and development expense, as a percentage of revenues, remained flat year over year.

As a result, operating income (including stock-based compensation but excluding all one-time items) increased to $150.4 million from $46.6 million in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the quarter, cash and cash equivalents were $913.9 million, down from $962.8 million reported in the previous quarter. At the end of the twelve-month period, total long-term  was $1.35 billion compared with $1.66 billion in the previous quarter.

Cash flow from operations for the twelve-month period was $1.24 billion compared with $882.9 million in the prior quarter. Free cash flow came in at $293 million.

Guidance

Jabil expects net revenue to be in the range of $5.1 billion to $5.3 billion for the first quarter of fiscal 2016. The Zacks Consensus Estimate for revenues is pegged at $4.8 billion.

Jabil projects core operating income in the range of $220 million to $260 million.

On a year-over-year basis, revenues from Diversified Manufacturing are expected to increase 33%, while Electronics Manufacturing Services are expected to be flat on a year-over-year basis.

The company expects earnings to range between 72 cents to 88 cents per share, including 3 cents for amortization of intangibles, 10 cents of stock-based compensation expense and 1 cent - 3 cents for restructuring charges. The Zacks Consensus Estimate is pegged at 51 cents.

Management forecasts fiscal 2016 revenues of approximately $20 billion. Earnings are expected to be roughly $2.60 per share. The Zacks Consensus Estimate for revenues and earnings is pegged at $19.2 billion and $1.94 per share, respectively.

Our Take

Jabil reported strong fourth quarter fiscal 2015 results. Also, year-over-year comparisons on both the counts were favorable. Moreover, the company provided an impressive first quarter and fiscal 2016 guidance. We believe with Apple as its largest customer, the rising demand for iPhones should aid Jabil’s results going ahead.

The company’s contract with ViZn Energy Systems for ramping up the production of redox flow batteries for the latter is also a big growth driver. In addition, last year, the company completed a comprehensive restructuring program related to the reallocation of manufacturing resources. The restructuring program helped the company realign its manufacturing capacity and cost base to address market conditions and customers’ geographic needs. The program is expected to generate benefits of approximately $65 million in 2015 for Jabil.

However, the company is exposed to significant customer concentration risk, with its top five customers accounting for approximately 45% of its revenues. Further, we believe that the loss of BlackBerry BBRY, its second largest customer in 2013, is a significant setback for the company (especially for the EMS segment) and it will take some time to recover from this blow.

Additionally, competition from the likes of Flextronics FLEX remains a concern.

Currently, Jabil Circuit has a Zacks Rank #3 (Hold).

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