Business Context and Reporting Period
Jabil Inc. is a global provider of electronics and diversified manufacturing services, including design, production, supply-chain management, systems assembly and fulfillment. Operations are reported through Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS), with facilities across Asia, the Americas and Europe.
This Form 10-K covers the fiscal year ended August 31, 2022. The fourth-quarter results are for the three months ended August 31, 2022. Jabil generated 83.9% of fiscal-year revenue outside the United States and employed approximately 250,000 permanent, temporary and contingent workers across more than 30 countries.
Financial Performance and Liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenue | $33.478 billion | $29.285 billion | +14.3% |
| Gross profit | $2.632 billion | $2.359 billion | +11.6% |
| Gross margin | 7.9% | 8.1% | Down 20 bps |
| Operating income | $1.393 billion | $1.055 billion | +32.0% |
| Net income attributable to Jabil | $996 million | $696 million | +43.1% |
| Diluted EPS | $6.90 | $4.58 | +50.7% |
| Operating cash flow | $1.651 billion | $1.433 billion | +15.2% |
| Adjusted free cash flow | $810 million | $640 million | +26.6% |
Fiscal-year operating margin was approximately 4.2% and net margin was approximately 3.0%. Operating income benefited from higher volume and lower selling, general and administrative expense, while gross margin declined primarily because of product mix.
Fourth-quarter revenue was $9.030 billion, gross profit was $729 million, operating income was $409 million, net income attributable to Jabil was $315 million, and diluted EPS was $2.25. Compared with the fourth quarter of fiscal 2021, revenue increased from $7.409 billion, operating income from $265 million, net income from $175 million, and diluted EPS from $1.16.
At August 31, 2022, cash and cash equivalents were $1.478 billion, accounts receivable were $3.995 billion, and inventory was $6.128 billion. Inventory increased from $4.414 billion, primarily due to supply-chain constraints and preparation for expected fiscal 2023 sales. The sales cycle increased to 32 days from 19 days a year earlier.
Total notes payable and long-term debt were $2.875 billion, including $300 million due within one year. Jabil had $3.8 billion of unused revolving-credit capacity, commercial paper capacity of up to $3.2 billion, and up to $1.6 billion of available liquidity under uncommitted receivables-sale programs. The global asset-backed securitization program had no available liquidity at year-end. Jabil was in compliance with its debt covenants.
Fiscal-year financing uses included $696 million of share repurchases and $48 million of dividends. The company repurchased approximately 12.4 million shares for $737 million under its fiscal 2022 authorization, with $263 million remaining at year-end. A new $1.0 billion repurchase authorization was approved in September 2022.
Material Changes Versus the Prior Comparable Period
- EMS revenue increased 20%, driven by growth in 5G, wireless and cloud, digital print and retail, industrial and capital equipment, and networking and storage.
- DMS revenue increased 9%, led by automotive and transportation, healthcare and packaging, and connected devices; mobility revenue declined 2%.
- Operating income increased 32%, supported by higher revenue, lower SG&A expense and improved operating leverage. SG&A declined by $59 million to $1.154 billion.
- Interest expense increased to $151 million from $130 million because of higher interest rates, higher borrowings during the year and additional senior notes.
- The effective tax rate decreased to 19.1% from 26.0%, including a $26 million benefit from reversing part of the U.S. valuation allowance. This benefit was partly offset by a $17 million tax expense related to prior-year intercompany transactions.
- Restructuring, severance and related charges increased to $18 million from $10 million, primarily for headcount reductions, but remained well below the $157 million recorded in fiscal 2020.
- Jabil issued $500 million of 4.250% senior notes due 2027 and used the proceeds to redeem its 4.700% senior notes due 2022, incurring a $4 million debt-extinguishment loss.
- Revenue mix shifted toward EMS, which represented 50% of fiscal 2022 revenue versus 47% in fiscal 2021; DMS represented 50% versus 53%.
- Jabil expects an additional $500 million of cloud-business component purchases to shift from purchase-and-resale accounting to customer-controlled consignment in fiscal 2023, which is expected to increase reported gross margins and reduce cash used in that business while lowering reported revenue.
Outlook, Commentary, Risks and Unusual Items
Management believes available cash, operating cash flow, borrowing capacity, receivables-sale programs and capital-market access will fund working capital, capital expenditures, dividends, repurchases, acquisitions and other obligations for the next 12 months and beyond. Jabil expects fiscal 2023 net capital expenditures of approximately $875 million. The filing does not provide a clear fiscal 2023 revenue or earnings forecast.
- COVID-19 continued to cause additional labor, protective-equipment, transportation and other costs, as well as facility-utilization and supply-chain disruptions.
- Component shortages, particularly semiconductors, may constrain production, increase freight and material costs, and raise inventory-obsolescence risk.
- Customer concentration is significant: the five largest customers accounted for approximately 44% of fiscal 2022 revenue; Apple represented 19% and Amazon represented 11%. Most customers do not commit to firm production schedules beyond one quarter.
- Jabil is exposed to inflation, energy and transportation costs, foreign-exchange movements, interest-rate increases, tariffs, trade restrictions and geopolitical risks, particularly involving China and other international operations.
- Supply-chain changes, customer cancellations, product transitions or reduced capacity utilization could pressure gross margins because many operating costs are relatively fixed.
- Jabil relies on receivables sales for liquidity and sold $8.5 billion of receivables under trade receivables-sale programs and $3.9 billion under its global securitization program during fiscal 2022. These programs are subject to counterparty availability and covenant requirements.
- The filing identifies uncertain tax positions of $253 million at August 31, 2022, including $150 million that would affect the effective tax rate if recognized. The company also disclosed approximately $2.9 billion of indefinitely reinvested foreign earnings with an estimated unrecognized deferred tax liability of approximately $200 million.
- No goodwill or indefinite-lived intangible impairment was identified in the fourth-quarter fiscal 2022 annual assessment. Legal proceedings were described as ordinary-course matters not expected to have a material adverse effect.
Facts Investors Should Verify
- Whether revenue growth and operating leverage continue after fiscal 2022, particularly in EMS and cloud-related programs.
- The sustainability of the 7.9% gross margin given product mix, inflation, component shortages and the planned consignment-model transition.
- Inventory normalization, customer collections and working-capital requirements following the increase in inventory and accounts receivable.
- Availability and cost of receivables-sale, commercial-paper and revolving-credit liquidity, including renewal of facilities expiring or subject to extension in fiscal 2023.
- Debt repayment and refinancing needs, especially the $300 million senior-note maturity in fiscal 2023 and exposure to higher interest rates.
- Customer concentration, production-schedule changes and any loss or reduction of business from Apple, Amazon or other major customers.
- Future tax-rate effects from valuation-allowance changes, tax incentives, intercompany transactions and uncertain tax positions.
- Execution of the approximately $875 million fiscal 2023 capital-expenditure plan and the company’s ability to convert operating cash flow into sustainable free cash flow.