Jabil Inc. Fiscal 2021 Form 10-K Summary
Business context and reporting period
Jabil is a global provider of electronics design, manufacturing, supply-chain management and product-management services. Operations are organized into Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS), serving industries including cloud, 5G and wireless, automotive, connected devices, healthcare, packaging, industrial and capital equipment.
This Form 10-K covers the fiscal year ended August 31, 2021. The filing also reports fourth-quarter results for the three months ended August 31, 2021. Jabil operated across approximately 100 locations in more than 30 countries and had approximately 238,000 employees, including permanent, temporary and contingent workers.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenue | $29.285 billion | $27.266 billion | Up 7.4% |
| Gross profit | $2.359 billion | $1.931 billion | Up 22.2% |
| Gross margin | 8.1% | 7.1% | Up 100 bps |
| Operating income | $1.055 billion | $500 million | Up 111% |
| Net income attributable to Jabil | $696 million | $54 million | Up materially |
| Diluted EPS | $4.58 | $0.35 | Up materially |
| Operating cash flow | $1.433 billion | $1.257 billion | Up $176 million |
| Adjusted free cash flow | $640 million | $461 million | Up $179 million |
FY2021 segment revenue was $13.904 billion for EMS, down 1%, and $15.381 billion for DMS, up 17%. DMS represented 53% of total revenue versus 48% in the prior year. Foreign-source revenue was 83.6% of consolidated revenue.
Fourth-quarter FY2021 revenue was $7.409 billion, gross profit was $587 million, operating income was $265 million, net income attributable to Jabil was $175 million and diluted EPS was $1.16. Fourth-quarter results included $23 million of direct COVID-19 costs.
As of August 31, 2021, cash and cash equivalents were $1.567 billion, accounts receivable were $3.141 billion and inventory was $4.414 billion. Total debt was $2.878 billion, with no current installment due. Jabil had $3.8 billion of unused revolving-credit capacity, up to $2.0 billion of available liquidity under trade receivable sale programs and up to $24 million available under its global asset-backed securitization program. The company was in compliance with debt covenants.
Material changes versus the prior comparable period
- Revenue increased 7.4%, driven primarily by DMS growth, including mobility, connected devices, automotive and transportation, healthcare and packaging. EMS revenue declined primarily because of a cloud-business transition to a consignment model.
- Gross margin improved to 8.1%, reflecting product mix, improved profitability across businesses and a $72 million reduction in incremental and idle labor costs associated with COVID-19-related restrictions.
- Operating income increased by $555 million. FY2020 included $157 million of restructuring, severance and related charges; FY2021 included $10 million. The 2020 Restructuring Plan was complete as of August 31, 2021.
- Net income benefited from stronger operating performance, lower interest expense, lower securities losses and a substantially lower effective tax rate. The effective tax rate declined to 26.0% from 78.2%, with the prior year affected by restructuring charges and a $21 million deferred-tax-asset remeasurement.
- Inventory increased to $4.414 billion from $3.132 billion, primarily to support expected FY2022 sales and address COVID-19-related supply-chain constraints. Days in inventory increased to 71 from 56 in the comparable fourth quarter.
- Net capital expenditures were approximately $793 million, calculated as $1.159 billion of property, plant and equipment purchases less $366 million of proceeds and advances from asset sales. FY2021 also included acquisitions of certain Johnson & Johnson Medical Devices assets and Ecologic Brands.
- Jabil issued approximately $500 million of 1.700% senior notes due 2026 and used proceeds partly to repay a $300 million term loan. The company also increased its three-year revolving-credit commitments from $700 million to $1.2 billion.
- Share repurchases totaled $428 million in FY2021 and dividends paid totaled $50 million. A new $1.0 billion repurchase authorization was approved in July 2021, with $958 million remaining available at year-end.
Guidance, outlook, management commentary and risks
Management stated that available liquidity is expected to fund capital expenditures, dividends, approved share repurchases, potential acquisitions and working-capital needs for the next 12 months. Net capital expenditures for FY2022 were expected to be approximately $830 million.
Management described supply-chain constraints, component shortages, higher material and freight costs, and elevated inventory as ongoing issues. Customer demand and production schedules can change quickly because most customers do not provide firm commitments beyond one quarter.
- COVID-19 may cause factory closures, lower utilization, higher labor and protective-equipment costs, supply interruptions, logistics delays and unpredictable customer demand.
- Customer concentration remains significant: the five largest customers represented approximately 47% of FY2021 revenue, and Apple represented 22%. Loss or reduction of business from a major customer could materially affect results.
- Component availability, single-source suppliers, pricing inflation, inventory obsolescence and customer cancellations may pressure margins and cash flow.
- International operations, particularly in China, expose Jabil to trade disputes, tariffs, regulatory changes, labor costs, currency fluctuations, political risks and restrictions on moving funds.
- Debt, variable interest rates, refinancing needs, credit ratings and the transition away from LIBOR could affect financing costs and liquidity.
- Unrecognized tax benefits were $241 million at year-end, including $139 million that would affect the effective tax rate if recognized. The filing states that unrecognized tax benefits could decrease by approximately $19 million over the next 12 months.
- Legal proceedings in the ordinary course were not expected to have a material adverse effect. The company reported no goodwill or indefinite-lived intangible-asset impairment from its FY2021 annual analysis.
Most important facts for investors to verify
- Whether DMS growth and the EMS cloud consignment transition support sustained revenue and margin performance.
- Whether elevated inventory, receivables and working-capital requirements convert into cash without significant excess or obsolete inventory charges.
- The renewal and availability terms of trade receivable sale programs expiring or subject to termination during FY2022.
- The effect of component shortages, freight costs, COVID-19 developments and geopolitical or tariff changes on utilization and gross margins.
- The sustainability of the 26.0% effective tax rate, including foreign tax incentives and uncertain intercompany tax positions.
- Progress on the FY2022 capital-expenditure plan, acquisitions, dividends and the remaining $958 million share-repurchase authorization.
- Debt maturities, covenant compliance and refinancing requirements, including the $799 million due in FY2023 and $496 million due in FY2026.