Jabil Inc. Fiscal 2024 First-Quarter 10-Q Summary
Business context and reporting period
Jabil provides global electronics design, manufacturing, supply-chain and product-management services through two segments: Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS). The report covers the three months ended November 30, 2023, compared with the three months ended November 30, 2022. Approximately 86.4% of revenue was from foreign operations, and the five largest customers represented approximately 44% of revenue.
Financial performance and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net revenue | $8.387 billion | $9.635 billion | -12.9% |
| Gross profit | $775 million | $743 million | +4.3% |
| Gross margin | 9.2% | 7.7% | +150 basis points |
| Operating income | $303 million | $362 million | -16.3% |
| Net income attributable to Jabil | $194 million | $223 million | -13.0% |
| Diluted EPS | $1.47 | $1.61 | -8.7% |
| Operating cash flow | $448 million | $166 million | +$282 million |
| Adjusted free cash flow | $173 million | $2 million | +$171 million |
- Segment revenue was $3.592 billion for EMS, down 21%, and $4.795 billion for DMS, down 6%. Segment income increased to $499 million from $461 million, reflecting DMS improvement despite lower consolidated GAAP operating income.
- Operating margin was approximately 3.6%, compared with 3.8% in the prior-year quarter. Net margin was approximately 2.3%, compared with 2.3% previously.
- Cash and cash equivalents were $1.550 billion at November 30, 2023, compared with $1.804 billion at August 31, 2023. The quarterly cash decrease was primarily driven by $500 million of share repurchases, $436 million of debt payments and $288 million of capital expenditures.
- Total debt was $2.876 billion, substantially unchanged from August 31, 2023. Jabil had $3.8 billion of unused revolving-credit capacity and up to $3.2 billion of commercial-paper borrowing capacity. The company was in compliance with debt covenants.
- Working-capital indicators were a 42-day sales cycle, five annualized inventory turns, 43 days of accounts receivable, 78 days of inventory and 78 days of accounts payable.
Material changes versus the prior comparable period
- Revenue declined primarily because EMS demand fell in 5G, wireless and cloud, digital print and retail, and industrial and semi-capital equipment. DMS revenue declined primarily in connected devices and mobility, partly offset by automotive and transportation growth.
- Gross margin improved because of product mix, better profitability across businesses and the suspension of depreciation and amortization on assets classified as held for sale.
- Restructuring, severance and related charges increased to $127 million from $45 million. The increase related primarily to the 2024 Restructuring Plan.
- Jabil incurred $15 million of divestiture costs, compared with none in the prior-year quarter, and other expense increased to $21 million from $15 million, primarily because of higher receivable-financing fees.
- The effective tax rate decreased to 17.6% from 25.6%, including $19 million from reversal of a non-U.S. unrecognized tax benefit and an $11 million reversal of part of a U.S. valuation allowance.
- Jabil repurchased approximately $500 million of common stock under an accelerated share repurchase agreement, receiving 3.9 million shares at an average price of $128.61. Approximately $2.0 billion remained available under the repurchase authorization at quarter-end.
- Jabil acquired ProcureAbility for approximately $60 million in cash on November 1, 2023. The acquisition added $38 million of goodwill and $40 million of intangible assets on a preliminary basis.
Guidance, outlook, risks and unusual items
- Under the 2024 Restructuring Plan, management expects approximately $300 million of pre-tax restructuring and related costs during fiscal 2024, with approximately $200 million of net cash expenditures expected during fiscal 2024 and fiscal 2025. Actual amounts and timing may vary.
- Management expects fiscal 2024 net capital expenditures of 2.2% to 2.5% of net revenue. Following completion of the mobility-business sale, longer-term net capital expenditures are expected at 2.0% to 2.3% of revenue.
- Management expects to continue declaring quarterly dividends at an amount similar to prior declarations, subject to board approval and business conditions.
- Jabil agreed to sell its Chengdu product-manufacturing business and supporting Wuxi component operations to BYD Electronic for approximately $2.2 billion, subject to customary adjustments. The sale closed on December 29, 2023, after the reporting date. The assets and liabilities were classified as held for sale at November 30, 2023, and the business remained in continuing operations through closing.
- Key risks include customer concentration, dependence on single-source components, fluctuations in customer demand, international and geopolitical exposure, foreign-currency movements, supply-chain disruption, restructuring execution, acquisition and divestiture liabilities, manufacturing defects, cybersecurity, regulatory and tax matters, and debt and liquidity risks.
- The global asset-backed securitization program had no available liquidity at quarter-end and expires November 25, 2024. Trade receivable sale programs provided up to approximately $1.4 billion of available liquidity.
- Management concluded that disclosure controls were effective and identified no material changes to internal control over financial reporting.
Important facts for investors to verify
- Verify the final cash proceeds and accounting impact of the BYD mobility-business divestiture, including purchase-price adjustments and any post-closing liabilities.
- Track actual restructuring charges and cash payments against the approximately $300 million cost estimate and approximately $200 million net cash-outflow estimate.
- Assess whether lower EMS and mobility-related revenue persists after the divestiture and whether DMS growth offsets the decline.
- Reconcile operating cash flow and adjusted free cash flow, including the effects of receivable sales, working-capital timing and capital expenditures.
- Monitor customer concentration, demand trends, component availability and foreign-exchange exposure.
- Review debt maturities, covenant compliance, renewal of the asset-backed securitization program and continuing reliance on receivable-sale facilities.