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Jabil's (JBL) Q4 Earnings and Revenues Surpass Estimates

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Jabil, Inc. reported better-than-expected fourth-quarter fiscal 2018 results wherein both the top and the bottom lines surpassed the Zacks Consensus Estimate and recorded year-over-year improvement.

The company reported earnings of 70 cents per share, which beat the Zacks Consensus Estimate of 68 cents and were higher than the prior-year quarter’s figure of 64 cents.

Revenues increased 14.9% year over year to $5.77 billion and outpaced the Zacks Consensus Estimate of $5.40 billion.

In fiscal 2018, revenues increased 15.9% year over year to $22.09 billion, mainly driven by robust performance from Diversified Manufacturing Services (DMS) segment.  Additionally, fiscal 2018 Non-GAAP earnings increased 24.2% to $2.62.

Notably, the company continues to benefit from its diversification strategies across high margin and low volatile business segments. However, supply chain constraints persist.

Jabil, Inc. Price, Consensus and EPS Surprise

Jabil, Inc. Price, Consensus and EPS Surprise | Jabil, Inc. Quote

Quarter Details

Electronics Manufacturing Services (EMS) revenues (58% of total revenues) were up 18% year over year to $3.40 billion backed by growing number of customers in automotive, energy and wireless infrastructure businesses.

DMS revenues (42% of revenues) increased 11% year over year to $2.40 billion, driven by strength in mobility and healthcare businesses.

Investments & Collaboration

In the healthcare space, Jabil is gaining adoption in the areas of diagnostics, medical device, pharmaceuticals, and drug delivery. Additionally, in the current quarter, Jabil collaborated with Johnson & Johnson medical devices to further expand its healthcare portfolio.
Jabil noted that as part of this deal, it will acquire 14 sites from Johnson & Johnson mainly in the areas of spine, surgical, instrumentation, trauma and endo.

Costs associated with the deal were in the range of $80 million and revenue contribution is expected to exceed $1 billion annually. Notably, the deal is not expected to add to fiscal 2019 bottom line.

Jabil continues to invest in areas where it has domain expertise. This will not only diversify revenue streams but will also reduce top-line volatility.

In the current quarter, the company has invested in areas like additive manufacturing in 3D print, antenna integration, RF and server platforms in markets like 5G and cloud.

Operating Details

Gross margin contracted 80 basis points (bps) on a year-over-year basis to 7.7%.

Operating expenses contracted 110 bps to $288.3 million. Selling, general and administration (SGA) expenses (4.5% of total revenue) increased 8% year over year to $261.2 million. Research & Development (R&D) expense (0.2% of total revenue) surged 42.8% year over year to $10.9 million.

Non-GAAP core operating income increased 10.9% year over year to $212.3 million. Core operating margin contacted 10 bps to 3.7%.

Balance Sheet & Cash Flow

The company exited the quarter with cash and cash equivalents of $1.3 billion compared with $677.5 million in the previous quarter.

In the quarter, cash flow from operations was $739 million. Cash flow from operations for fiscal 2018 was $933.8 million compared with $1.3 billion in the year-ago period. Free cash flow for fiscal 2018 was approximately $248 million

Jabil repurchased 4.7 million shares worth $450 million in the quarter. Moreover, the board members authorized an additional stock repurchase program of $350 million through fiscal 2019.

Guidance

Jabil noted that from fiscal 2019 it will adopt two new accounting standards - ASC 606 (revenue recognition) and ASU 2016-15.

For first-quarter fiscal 2019, Jabil expects total revenues in the range of $5.8–$6.4 billion. Core operating income is estimated in the range of $2151–$265 million.

DMS revenues are forecast to be $2.85 billion, up 5% year over year. EMS revenues are forecast to be $3.25 billion, up 13% year over year.

The company’s core earnings are expected in the range of 79–99 cents per share on a non-GAAP basis.

Jabil noted that for fiscal 2019 the company has $2 billion worth new business wins, which will amount to $3 billion by fiscal 2021. New business wins of $1.7 billion can be attributed to four end markets – healthcare, automotive, cloud and 5G, mainly as customers are increasingly outsourcing.

Cloud and 5G are expected to contribute about $20 million to the second half of fiscal 2019 with pre-revenue costs of $15-$20 million in the first half of 2019. Healthcare and automotive are not expected to contribute to fiscal 2019 results.

Zacks Rank & Stocks to Consider

Jabil currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Apple (AAPL - Free Report) , Vishay Intertechnology (VSH - Free Report) and DXC Technology (DXC - Free Report) . While Apple and Vishay Intertechnology sport a Zacks Rank #1 (Strong Buy), DXC carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Apple, Vishay Intertechnology and DXC Technology is projected to be 9.7%, 9.2% and 7.2%, respectively.

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