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Jabil Circuit Inc. (JBL - Analyst Report) reported better-than-expected fiscal fourth-quarter 2013 results. Earnings of 48 cents per share beat the Zacks Consensus Estimate by a penny, while revenues were well ahead of the consensus mark. Earnings (including stock-based compensation) increased 10.8% from the year-ago quarter.
However, shares dropped 3.71% in after-hours trading due to lower fiscal 2014 guidance. Jabil noted that a possible disengagement with BlackBerry (BBRY - Analyst Report) will negatively impact fiscal 2014 earnings by 28 cents to 34 cents per share. Management also expects revenues to decline in the first quarter.
Revenues increased 11.0% from the year-ago quarter to $4.81 billion, much better than management’s guided range of $4.45 billion to 4.65 billion. The year-over-year growth was primarily driven by strong performance across all the segments.
Diversified Manufacturing revenues (44.0% of revenues) increased 11.0% year over year to $2.1 billion. The strong year-over-year growth was driven by better performance from specialized services and inclusion of 2 months of Nypro revenues.
Enterprise & Infrastructure revenues (29.0% of revenues) were up 3.0% year over year $1.4 billion. High Velocity (27.0% of revenues) jumped 21.0% year over year to $1.3 billion (much higher than 15.0% year-over-year growth expected earlier), driven by strength in handset volumes.
Gross margin remained flat year over year at 7.3%, primarily due to unfavorable product mix.
Operating expenses as a percentage of revenues increased 20 basis points (bps) from the year-ago quarter to 4.1%. Selling, general and administrative expense as a percentage of revenues increased 10 bps on a year-over-year basis.
As a result, operating margin (including stock-based compensation) contracted 10 bps from the year-ago quarter to 3.4%.
Net income margin (includes stock-based compensation) remained flat year over year at 2.1%.
Balance Sheet & Cash Flow
Exiting the fourth quarter of 2013, cash and cash equivalents were $1.01 billion, down from $1.35 billion in the previous quarter. Total debt, as of Aug 31, was $1.91 billion compared with $1.66 billion as of Feb 28, 2013.
Cash flow from operations was $404.0 million compared with $504.0 million in the previous quarter. Capital expenditure was $280.0 million compared with $81.5 million in the previous quarter.
Jabil has undertaken a restructuring initiative, which is targeted at realigning its manufacturing capacity and cost base as per current market conditions and geographic needs. The realignment is expected to result in charges of $188.0 million, of which $61.0 million were recorded in the third quarter.
Jabil expects to incur restructuring charges in the range of $105.0 million to $175.0 million during 2014 and $90.0 million to $29.0 million during 2015. The realignment is estimated to save $30.0 to $40.0 million in fiscal 2014 and $65.0 million in fiscal 2015.
Jabil expects net revenue to decrease approximately 3.0% from the year-ago quarter to the range of $4.35 billion to $4.65 billion for fiscal first quarter of 2014.
Revenues from Diversified Manufacturing are expected to increase 7.0% year-over-year, while Enterprise and Infrastructure are expected to be at par with the year-ago period. High Velocity revenues are forecast to decrease 25.0% on a year-over-year basis for the first quarter.
Jabil projects operating income in the $165.0 million to $195.0 million range for the first quarter of 2014. Operating margin is expected in the range of 3.8% to 4.2%. Jabil expects non-GAAP earnings to be between 50 cents and 60 cents per share for the first quarter.
Jabil expects to earn $2.48 (down from earlier projection of $2.77) in fiscal 2014, driven by strong growth from the Nypro acquisition (16 to 22 cents), restructuring benefits (11 to 15 cents) and organic growth (11 to 31 cents).
Management expects cash flow from operations to be more than $1.0 billion for fiscal 2014. Capital expenditures are expected to be around $250.0 million to $350.0 million for 2014.
We believe that a weak first quarter revenue guidance and lowered earnings outlook for the full year will remain an overhang on the stock in the near term. The disengagement with BlackBerry is expected to negatively impact top line and margins over the next couple of quarters.
We believe that Jabil will continue to face macroeconomic headwinds in the near term. Moreover, the company continues to invest in the diversified manufacturing segment, which will increase its capital expenditure.
Nonetheless, Jabil’s increasing association with Apple (AAPL - Analyst Report) is expected to boost its growth prospects, going forward. Additionally estimated strong growth from the Nypro acquisition, restructuring benefits and new customer wins will help Jabil to compete with the likes of Flextronics (FLEX - Snapshot Report) going forward.
Currently, Jabil Circuit has a Zacks Rank #3 (Hold).