It has been about a month since the last earnings report for Jabil, Inc. (JBL). Shares have added about 3.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Jabil, Inc. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Jabil Q1 Earnings Beat Estimates, Revenues Up Y/Y
Jabil reported first-quarter fiscal 2020 earnings of $1.05 per share, which beat the Zacks Consensus Estimate by 11.7% and increased 16.7% year over year.
The earnings figure surpassed management’s guided range of 88 cents to $1.04 per share on a non-GAAP basis.
Revenues increased 15.4% year over year to $7.5 billion, which surpassed management’s guided range of $6.65-$7.35 billion. The figure also beat the Zacks Consensus Estimate by 7.9%.
In first-quarter fiscal 2020, the company adopted a new lease accounting standard, ASU 2016-02.
Electronics Manufacturing Services (EMS) revenues accounted for 59% of total revenues and increased 26% year over year to $4.43 billion, driven by strength in cloud, industrial, energy and automotive end markets, offset by slower 5G rollouts. Newly formed geocentric cloud services business also added to revenue growth in the reported quarter.
Diversified Manufacturing Services (DMS) revenues accounted for 41% of total revenues and improved 3% year over year to $3.07 billion. The year-over-year growth was driven by robust performance in diversified businesses including healthcare and edge devices.
Gross margin, on a GAAP basis, contracted 60 basis points (bps) year over year to 7.4%.
Core EBITDA margin contracted 50 bps on a year-over-year basis to 6.2%.
Operating expenses on a GAAP basis expanded 70 bps on a year-over-year basis to 5.3%. While selling, general and administrative (SG&A) expenses expanded 10 bps to 4.4%, research & development (R&D) expenses as a percentage of revenues were flat at 0.1%.
Improved inventory levels during the quarter were offset by higher days of sales outstandings at the end of the quarter, driven mainly by the timing of sales.
Non-GAAP core operating margin contracted 20 bps on a year-over-year basis to 3.7%.
EMS core margin was 2.4%, primarily due to the soft capital equipment space and costs associated with the ramping up of new business awards.
DMS core margin was 5.6%, driven by improved business mix supported by Jabil’s diversification efforts.
Jabil’s core tax rate for first-quarter fiscal 2020 was 27%, in line with expectations.
Balance Sheet & Cash Flow
As of Nov 30, cash and cash equivalents were $719.8 million compared with $1.16 billion at the end of the previous quarter.
The company exited the quarter with total debt-to-core EBITDA of approximately 1.5 times.
In the quarter, cash flow from operations was $21 million.
In first-quarter fiscal 2020, Jabil repurchased approximately 2.6 million shares for $96 million as part of a two-year $600 million authorization announced in Sep 2019.
For second-quarter fiscal 2020, Jabil expects total revenues between $6 billion and $6.7 billion.
DMS revenues are forecast to be $2.35 billion, up roughly 4% year over year. EMS revenues are forecast to be $4 billion, up nearly 5% year over year.
Core non-GAAP operating income is estimated to be $155-$255 million, with core operating margin of 2.6-3.8%. The company’s core earnings are expected between 62 cents and 82 cents per share on a non-GAAP basis.
For fiscal 2020, revenues are expected to be around $26.7 billion. Core operating income is expected to be around $980 million, with core operating margin of 3.7%.
For DMS segment, revenues are expected to be $10.2 billion with expected core margin of 4.1% for fiscal 2020. Jabil expects higher health care and packaging revenues driven by better-than-expected volumes associated with strategic health care collaboration.
Further, EMS segment revenues are expected to be $16.5 billion with expected core margin of 3.5% for fiscal 2020. Proliferation of autonomous driving & electric vehicles, rollout of 5G infrastructure and strong growth in cloud and industrial and energy are expected to drive segment revenues.
The company’s core earnings are expected to be $3.6 per share on a non-GAAP basis.
Adjusted free cash flow is expected to be more than $500 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 15.19% due to these changes.
At this time, Jabil, Inc. has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Jabil, Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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