Jabil Inc. 10-Q Filing Summary
Business Context and Reporting Period
Company: Jabil Circuit, Inc. (Jabil Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: May 31, 2010 (Third Quarter of Fiscal Year 2010)
Business Overview: Jabil is a leading provider of worldwide electronic manufacturing services and solutions, operating in three segments: Consumer, Electronic Manufacturing Services (EMS), and Aftermarket Services (AMS). The company operates in 24 countries, with approximately 84.5% of revenue derived from foreign sources.
Key Financial Metrics
| Metric | Three Months Ended May 31, 2010 | Nine Months Ended May 31, 2010 |
|---|---|---|
| Net Revenue | $3,455.6 million | $9,548.5 million |
| Gross Profit | $262.1 million (7.6% margin) | $716.6 million (7.5% margin) |
| Operating Income | $96.5 million | $224.6 million |
| Net Income (Attributable to Jabil) | $52.0 million | $110.1 million |
| Diluted EPS | $0.24 | $0.51 |
| Cash and Cash Equivalents | $600.3 million | (Balance Sheet Item) |
| Total Debt (Current + Long-Term) | $1,126.0 million | (Balance Sheet Item) |
| Net Cash Provided by Operating Activities | N/A | $142.2 million |
Material Changes vs. Prior Comparable Period
- Revenue Growth: Net revenue increased 32.1% for the quarter and 7.5% for the nine-month period compared to the prior year. Growth was driven by increased demand in instrumentation/medical, networking, and mobility sectors, offset by a decline in the "other" sector due to the exit from the automotive business.
- Profitability Improvement: The company returned to profitability, reporting net income of $52.0 million for the quarter compared to a net loss of $28.8 million in the same period of 2009. This turnaround is largely attributed to revenue growth and cost restructuring initiatives.
- Restructuring Charges: Restructuring and impairment charges decreased significantly to $1.6 million for the quarter (vs. $16.2 million in 2009) and $5.7 million for the nine months (vs. $48.3 million in 2009). The prior year included a $1.0 billion goodwill impairment charge which did not recur in the current period.
- Inventory Build: Inventories increased to $1.78 billion from $1.23 billion at the end of the prior fiscal year, reflecting a ramp-up to support new business wins and raw material shortages.
Guidance, Outlook, and Risks
- Outlook: Management sees signs of economic stabilization and improved credit markets. They anticipate capital expenditures of $300.0 million to $350.0 million over the next twelve months.
- Divestiture: The company has entered a letter of intent to divest manufacturing operations in France and Italy (approx. $300 million annual revenue). A loss of approximately $10.0 million is anticipated in the fourth quarter, with potential additional charges up to $35 million depending on future events.
- Restructuring: The 2009 Restructuring Plan is expected to yield annualized cost savings of approximately $55.0 million. The 2006 Restructuring Plan is substantially complete.
- Tax Contingency: The IRS issued a Revenue Agent's Report proposing adjustments for fiscal years 2003-2005 that could result in approximately $71.0 million in additional tax payments. Jabil disagrees and intends to contest this vigorously.
- Risks: Key risks include dependence on a limited number of customers (top 5 accounted for 46% of revenue), supply chain constraints for critical components, foreign currency fluctuations, and the potential for further economic downturns.
Investor Verification Checklist
- Inventory Levels: Verify the rationale for the $555 million increase in inventory and assess the risk of obsolescence given the constrained materials environment.
- Customer Concentration: Review the financial health of the top 5 customers, which represent nearly half of total revenue.
- Tax Liability: Monitor the status of the IRS dispute regarding the $71 million proposed tax adjustment and potential impact on future cash flows.
- Divestiture Terms: Track the progress of the France/Italy divestiture and the finalization of the anticipated $10 million loss and potential additional charges.
- Debt Maturities: Note the $5.1 million 5.875% Senior Notes maturing in July 2010 and the expiration of securitization programs in March and May 2011.