Business Context and Reporting Period
Jabil Inc. is a global provider of electronics design, manufacturing, supply-chain and product-management services. Operations are organized into Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS), serving industries including cloud, communications, industrial, automotive, healthcare, packaging and connected devices. The filing is the fiscal 2023 Form 10-K for the year ended August 31, 2023; the reported fourth quarter ended August 31, 2023.
Jabil operated across approximately 100 locations in more than 30 countries and employed approximately 236,000 permanent, temporary and contingent workers. Foreign-source revenue represented 85.8% of fiscal 2023 revenue. The five largest customers represented approximately 42% of revenue, and Apple represented 17%.
Key Financial Metrics
| Metric | Fiscal 2023 | Fiscal 2022 | Change |
|---|---|---|---|
| Net revenue | $34.702 billion | $33.478 billion | 3.7% increase |
| Gross profit | $2.867 billion | $2.632 billion | 8.9% increase |
| Gross margin | 8.3% | 7.9% | 40 basis-point increase |
| Operating income | $1.537 billion | $1.393 billion | 10.3% increase |
| Operating margin | 4.4% | 4.2% | Improved |
| Net income attributable to Jabil | $818 million | $996 million | 17.9% decrease |
| Diluted EPS | $6.02 | $6.90 | 12.8% decrease |
| Cash flow from operations | $1.734 billion | $1.651 billion | $83 million increase |
| Adjusted free cash flow | $1.026 billion | $810 million | $216 million increase |
Fiscal 2023 core operating income was $1.733 billion, core earnings were $1.172 billion and diluted core EPS was $8.63. These are non-GAAP measures that exclude specified items including amortization, stock-based compensation and restructuring charges.
| Fourth-quarter metric | Q4 fiscal 2023 | Q4 fiscal 2022 |
|---|---|---|
| Net revenue | $8.458 billion | $9.030 billion |
| Gross profit | $766 million | $729 million |
| Operating income | $441 million | $409 million |
| Net income attributable to Jabil | $155 million | $315 million |
| Diluted EPS | $1.15 | $2.25 |
At August 31, 2023, Jabil had $1.804 billion of cash and cash equivalents, $2.875 billion of notes payable and long-term debt, and $3.8 billion of unused revolving-credit capacity. Total assets were $19.424 billion and total equity was $2.867 billion. The company was in compliance with its debt covenants.
Net cash used in investing activities was $723 million, including $1.030 billion of capital expenditures. Net cash used in financing activities was $680 million, reflecting debt payments, $487 million of share repurchases and $45 million of dividends. Jabil sold $10.8 billion of trade receivables through uncommitted programs and received $10.7 billion of proceeds; available liquidity under those programs was up to $1.8 billion at year-end. The global asset-backed securitization program had no available liquidity at year-end.
Material Changes Versus the Prior Comparable Period
- Revenue grew 3.7%, with DMS revenue increasing 8% and EMS revenue remaining approximately flat. DMS represented 52% of fiscal 2023 revenue versus 50% in fiscal 2022.
- Gross margin improved primarily because of product mix. Operating income increased despite higher selling, general and administrative expense and higher restructuring charges.
- Net income and EPS declined primarily because the effective tax rate increased to 35.2% from 19.1%. The increase included a $146 million tax expense related to a change in the indefinite-reinvestment assertion associated with operations classified as held for sale.
- Interest expense increased to $206 million from $146 million, primarily because of higher interest rates on commercial paper and credit facilities. Other expense increased to $69 million from $12 million, primarily due to higher fees on receivable-sale programs.
- Restructuring, severance and related charges increased to $57 million from $18 million, primarily from headcount reductions and business optimization.
- Inventory declined to $5.206 billion from $6.128 billion, while accounts payable declined to $5.679 billion from $8.006 billion. Management attributed operating cash-flow improvement to lower inventories, receivables and contract assets.
- Jabil issued $300 million of 5.450% senior notes due 2029 and used the proceeds, together with cash, to repay its $300 million of 4.900% senior notes due July 2023. Total debt remained $2.875 billion.
- Share repurchases declined to $487 million from $696 million. The September 2023 authorization increased the repurchase program from $1.0 billion to $2.5 billion.
Guidance, Outlook, Risks and Unusual Items
- Jabil agreed after year-end to sell its mobility business to BYD Electronic for approximately $2.2 billion in cash, subject to customary conditions and regulatory approvals. A $440 million deposit was paid, including $308 million to Jabil and $132 million into escrow. The transaction was expected to close during the first two quarters of fiscal 2024, but completion was not assured.
- The mobility business was classified as held for sale at August 31, 2023, with $1.929 billion of assets and $1.397 billion of liabilities. It was not classified as discontinued operations and remained in DMS results until closing.
- Jabil approved a fiscal 2024 restructuring plan related to the mobility divestiture and global footprint optimization. Management estimated approximately $300 million of pre-tax costs, with approximately $200 million of net cash expenditures expected over fiscal 2024 and fiscal 2025. Actual timing and amounts may vary.
- Fiscal 2024 net capital expenditures were expected to be 2.2% to 2.5% of revenue; after completion of the mobility sale, longer-term net capital expenditures were expected to be 2.0% to 2.3% of revenue.
- Approximately $700 million of components procured for the cloud business were expected to shift from a purchase-and-resale model to a customer-controlled consignment model in fiscal 2024. Management expected this to reduce reported revenue, increase gross margin percentage and lower cash usage in that business.
- Principal risks include customer concentration and short production-commitment periods, demand volatility, excess or obsolete inventory, component shortages, inflation, supply-chain disruption, geopolitical and China-related exposure, foreign-exchange and interest-rate volatility, cybersecurity, product-quality and regulatory liabilities, environmental obligations, tax disputes, and execution risk from acquisitions, divestitures and restructuring.
- Unrecognized tax benefits totaled $257 million at year-end, including $150 million that would affect the effective tax rate if recognized. Management indicated that up to $150 million could decrease during the following 12 months, primarily from potential agreements with tax authorities.
- Jabil completed its annual goodwill and indefinite-lived intangible-asset impairment analysis in the fourth quarter and reported no impairment. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether the BYD mobility-business transaction closed on the expected timetable, the final purchase-price adjustments and the treatment of the $440 million deposit.
- The actual fiscal 2024 restructuring charges, cash expenditures, headcount reductions and savings achieved.
- Underlying revenue, margin and cash-flow effects after the mobility divestiture and the cloud consignment-model transition.
- Customer concentration, particularly Apple and the five largest customers, together with customer production commitments and cancellation rights.
- Liquidity after receivable sales, debt maturities, dividends, share repurchases, capital expenditures and any reduction in uncommitted financing availability.
- Resolution of the $257 million of unrecognized tax benefits and the effect of global minimum-tax rules and other tax changes.
- Exposure to semiconductor and other component shortages, inventory obsolescence, foreign-exchange movements, interest rates, cybersecurity incidents and geopolitical disruption.