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 months ended November 30, 2021, the first quarter of fiscal 2022. Jabil operates in more than 30 countries, and 84.8% of quarterly revenue was generated from foreign operations.
Financial Performance and Liquidity
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net revenue | $8.567 billion | $7.833 billion |
| Gross profit | $675 million | $635 million |
| Operating income | $350 million | $314 million |
| Net income attributable to Jabil | $241 million | $200 million |
| Diluted EPS | $1.63 | $1.31 |
| Operating cash flow | $(46) million | $65 million |
| Adjusted free cash flow | $(119) million | $(177) million |
- Revenue increased 9.4% year over year. DMS revenue increased 11% and EMS revenue increased 7%.
- Gross margin was 7.9%, compared with 8.1% in the prior-year quarter. Operating margin was approximately 4.1%, compared with 4.0%; net margin was approximately 2.8%, compared with 2.6%.
- The effective tax rate declined to 23.9% from 29.6%, primarily because of decreased losses in jurisdictions with existing valuation allowances.
- Cash and cash equivalents were $1.229 billion at November 30, 2021, down from $1.567 billion at August 31, 2021.
- Total debt was $2.879 billion, including $500 million of senior notes due September 2022. Jabil had $3.8 billion of unused revolving credit capacity and up to $1.8 billion of commercial paper capacity.
- Accounts receivable increased to $3.917 billion and inventories increased to $4.681 billion from $3.141 billion and $4.414 billion, respectively, at August 31, 2021.
- Jabil sold approximately $1.968 billion of receivables under trade receivable sale programs and $1.032 billion under its asset-backed securitization program. The latter program had no available liquidity at quarter-end; up to $1.4 billion remained available under the trade receivable programs.
- Net cash used in investing activities was $73 million, including $281 million of capital expenditures. Net cash used in financing activities was $208 million, including $127 million of share repurchases and $14 million of dividends.
Material Changes Versus Prior Comparable Period
- Revenue, operating income and net income attributable to Jabil increased 9.4%, 11.5% and 20.5%, respectively.
- Diluted EPS increased 24.4% to $1.63, aided by higher earnings and a lower diluted share count of 147.7 million versus 152.9 million.
- Gross margin declined by 20 basis points, primarily due to DMS product mix.
- Operating cash flow changed from a $65 million inflow to a $46 million outflow. Management attributed the change primarily to higher accounts receivable, inventories, contract assets and other current assets.
- Inventory days increased to 66 from 55 in the prior-year quarter, primarily because of supply-chain constraints and increased material purchases supporting expected second-quarter sales.
- The sales cycle increased to 22 days from 16 days, while days payable increased to 85 from 80.
- Restructuring charges were zero compared with a $1 million benefit in the prior-year quarter; the 2021 restructuring plan was complete as of August 31, 2021.
- Jabil repurchased 2.1 million shares under its publicly announced program for $127 million during the quarter. The remaining authorization was $831 million at November 30, 2021.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Jabil expects fiscal 2022 net capital expenditures of approximately $830 million. The filing does not provide clear quarterly or full-year revenue, earnings or margin guidance.
- Management expects regular quarterly dividends to continue at an amount similar to prior declarations, subject to Board approval and business conditions.
- COVID-19 continued to affect operations, suppliers and customers. Reported impacts included operating restrictions, additional direct costs, component shortages, supply-chain constraints and transportation challenges.
- Key risks include customer concentration, reliance on certain single-source components, rapid changes in customer demand, international operations and currency exposure, supply-chain disruption, transportation issues, technology and execution risks, cybersecurity, product defects, intellectual property, regulatory compliance, acquisitions, debt and covenant compliance, tax matters, natural disasters and other global events.
- The five largest customers represented approximately 49% of revenue, and 74 customers represented approximately 90% of revenue.
- Forward foreign-exchange hedges had aggregate notional amounts of $1.3 billion for anticipated revenues and expenses and $3.5 billion for transactional exposures at quarter-end.
- Jabil was in compliance with its debt and securitization covenants. Ordinary-course litigation was not expected to have a material adverse effect.
- Management concluded that disclosure controls were effective and identified no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Whether elevated inventories, receivables and contract assets convert to cash as expected and whether the negative operating cash flow reverses.
- The ability to manage COVID-19-related supply-chain constraints, component availability and transportation costs without further margin pressure.
- Customer concentration and the sustainability of demand across the EMS and DMS end markets.
- Funding and refinancing plans for the $500 million of senior notes due September 2022.
- Actual fiscal 2022 capital expenditures compared with the approximately $830 million expectation.
- The ongoing availability and terms of receivable-sale programs, particularly because the asset-backed securitization program had no available liquidity at quarter-end.
- The pace and valuation of share repurchases relative to liquidity, debt reduction and capital investment needs.