Jabil Inc. Form 10-Q Summary
Business Context and Reporting Period
Jabil provides global electronics manufacturing, design, supply-chain and product-management services through two segments: Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS). The report covers the three and six months ended February 28, 2022, within fiscal 2022. Jabil operated in more than 30 countries, and international operations generated 83.5% of quarterly revenue and 84.2% of six-month revenue.
Financial Metrics
| Metric | Three Months Ended February 28, 2022 | Year-over-Year Change | Six Months Ended February 28, 2022 | Year-over-Year Change |
|---|---|---|---|---|
| Net revenue | $7,553 million | 10.6% | $16,120 million | 10.0% |
| Gross profit | $609 million | 7.0% | $1,284 million | 6.6% |
| Gross margin | 8.1% | Down from 8.3% | 8.0% | Down from 8.2% |
| Operating income | $313 million | 32.6% | $663 million | 20.5% |
| Net income attributable to Jabil | $222 million | 46.1% | $463 million | 31.5% |
| Diluted EPS | $1.51 | From $0.99 | $3.15 | From $2.30 |
EMS revenue increased 19% in the quarter and 13% year to date, while DMS revenue increased 4% and 8%, respectively. Quarterly segment income was $152 million for EMS and $192 million for DMS. The effective tax rate declined to 21.7% from 26.9% for the quarter and to 22.8% from 28.5% for the six-month period.
For the six months, operating cash flow was $200 million versus $86 million in the prior-year period. Investing cash flow was negative $292 million, including $704 million of capital expenditures partly offset by $430 million of proceeds from property, plant and equipment sales. Financing cash flow was negative $381 million, including $272 million of share repurchases, $25 million of dividends and net debt payments. Cash and cash equivalents declined to $1.093 billion from $1.567 billion at August 31, 2021.
At February 28, 2022, total debt was $2.881 billion, including $501 million classified as current. Jabil had $3.8 billion of unused revolving credit capacity and commercial paper capacity of up to $3.2 billion. The company was in compliance with its debt covenants. The global asset-backed securitization program had no available liquidity, while trade receivable sale programs had up to $1.6 billion of available liquidity.
Material Changes Versus the Prior Comparable Period
- Revenue growth was led by EMS, particularly 5G, wireless and cloud, digital print and retail, industrial and capital equipment, and networking and storage.
- Gross margin declined by approximately 20 basis points in both comparison periods, primarily because of product mix.
- Operating income benefited from lower selling, general and administrative expense, lower amortization, and the absence of restructuring charges recorded in the prior-year period.
- Net income and EPS increased substantially, aided by higher operating income, a lower effective tax rate and reduced weighted-average shares outstanding.
- Inventory increased to $5.395 billion from $4.414 billion at fiscal year-end, primarily because of higher raw-material balances related to supply-chain constraints. The quarterly sales cycle increased to 35 days from 25 days in the prior-year quarter.
- Jabil repurchased $272 million of stock during the six months. As of February 28, 2022, 5.1 million shares had been repurchased for $314 million, with $686 million remaining under the $1.0 billion authorization.
Guidance, Outlook, Commentary and Risks
Management expected fiscal 2022 net capital expenditures of approximately $850 million. Management stated that available liquidity, including cash, operating cash flow, revolving facilities, receivable-sale programs and capital-market access, was expected to fund requirements for the next 12 months and beyond. Jabil also expected to continue declaring quarterly dividends at amounts similar to past declarations, subject to board approval.
COVID-19 continued to affect operations, suppliers and customers through operating restrictions, additional costs, material shortages and transportation challenges. Management highlighted supply-chain constraints, customer concentration, dependence on critical single-source components, international operations, currency fluctuations, debt and covenant exposure, tariffs and trade disputes, geopolitical unrest including the invasion of Ukraine, cybersecurity, regulatory compliance, labor availability and natural disasters as material risks.
The five largest customers represented approximately 47% of six-month revenue, and 78 customers represented approximately 90%. Legal proceedings were described as ordinary-course matters that management did not expect to have a material adverse effect. No material changes to market-risk exposures were reported, and management concluded that disclosure controls and procedures were effective.
Investor Verification Priorities
- Verify whether inventory growth and the longer sales cycle normalize as supply-chain constraints ease.
- Assess the sustainability of the 8.0% quarterly and six-month gross margins amid product-mix, component, freight and labor pressures.
- Monitor the September 2022 maturity of the $500 million 4.700% Senior Notes and available refinancing capacity.
- Reconcile operating cash flow and adjusted free cash flow, which was negative $74 million for the six months after capital expenditures and property-sale proceeds.
- Evaluate customer concentration and the effect of demand changes among major EMS and DMS customers.
- Track execution of the approximately $850 million fiscal-year capital-spending plan and the remaining $686 million share-repurchase authorization.
- Review subsequent filings for impacts from COVID-19, geopolitical developments, Ukraine-related sanctions, China operations, tariffs and component availability.