Jabil Inc. Form 10-Q Summary
Business Context and Reporting Period
Jabil provides global electronics design, manufacturing and product-management services through its Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS) segments. The report covers the three months ended November 30, 2020, the first quarter of fiscal 2021, and was filed January 8, 2021.
Jabil operated in 31 countries, with 83.6% of revenue from foreign operations. The five largest customers represented approximately 50% of quarterly revenue.
Financial Performance and Position
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net revenue | $7.833 billion | $7.506 billion | 4.4% increase |
| Gross profit | $634.6 million | $553.8 million | 14.6% increase |
| Gross margin | 8.1% | 7.4% | 70 basis-point increase |
| Operating income | $314.0 million | $152.8 million | Increase |
| Operating margin | 4.0% | 2.0% | Approximately 200 basis-point increase |
| Net income attributable to Jabil | $200.4 million | $40.4 million | Increase |
| Diluted EPS | $1.31 | $0.26 | Increase |
| Core diluted EPS | $1.60 | $1.05 | Increase |
- EMS revenue was $3.593 billion, down 4% year over year, primarily due to lower cloud-business revenue associated with a transition to a consignment model.
- DMS revenue was $4.239 billion, up 13%, supported by mobility, connected devices, healthcare and packaging businesses.
- SG&A declined to $302.8 million from $328.9 million, while COVID-19-related costs increased by approximately $9.0 million.
- Interest expense declined to $32.3 million from $44.9 million due to lower rates and lower borrowings. The effective tax rate declined to 29.6% from 60.3%.
- Cash and cash equivalents were $1.108 billion at November 30, 2020, compared with $1.394 billion at August 31, 2020.
- Net cash provided by operating activities was $65.5 million, compared with $20.9 million in the prior-year quarter. Adjusted free cash flow was negative $176.6 million.
- Capital expenditures were $352.9 million, partially offset by $110.8 million of proceeds from property, plant and equipment sales.
- Total debt was $2.729 billion, including $50.2 million of current maturities. The company reported $3.8 billion of unused revolving-credit capacity and up to $1.8 billion of available liquidity under trade receivable sale programs.
- Jabil repurchased $50.0 million of common stock and paid $13.8 million in dividends during the quarter. The remaining authorization under the share repurchase program was $336.1 million at November 30, 2020.
Material Changes Versus the Prior Comparable Period
- Profitability improved materially, driven by favorable product mix, improved profitability across businesses, lower restructuring charges, lower SG&A, reduced amortization and lower interest expense.
- Restructuring, severance and related charges were a net benefit of $1.7 million, compared with $45.3 million of expense in the prior-year quarter. The company expects approximately $8.1 million of additional costs under the 2020 Restructuring Plan, based on the stated approximately $85.0 million total estimate and $76.9 million incurred in fiscal 2020.
- Core earnings increased to $245.2 million from $163.6 million; the prior-year period included a $15.0 million distressed-customer charge and higher acquisition and restructuring costs.
- Operating working capital absorbed cash: accounts receivable increased by $791.5 million and inventories increased by $134.7 million during the quarter, partly offset by higher accounts payable and accrued liabilities.
- The sales cycle remained 16 days, compared with 23 days in the prior-year quarter. Days in accounts receivable increased sequentially to 42 days, while days in accounts payable increased to 80 days.
Guidance, Outlook, Commentary and Risks
- Management believes available liquidity, including cash, operating cash flow, borrowing capacity, receivable-sale programs and capital-market access, is adequate for the next 12 months.
- Fiscal 2021 net capital expenditures are expected to be approximately $800 million. The filing does not provide clear numerical revenue or earnings guidance.
- COVID-19 continued to affect operations, customers and suppliers through restrictions, additional costs, supply-chain constraints and transportation challenges. Management stated that the ultimate impact remains uncertain.
- Key risks include customer concentration, rapid changes in customer demand, dependence on selected suppliers and single-source components, international operations and currency exposure, restructuring execution, acquisitions, cyber and information-system risks, product defects, debt and covenant compliance, and global economic conditions.
- The company entered into the fourth closing of its Johnson & Johnson Medical Devices collaboration on October 26, 2020, paying approximately $18.4 million in cash. Purchase accounting remains preliminary and subject to adjustment.
- The company was in compliance with debt and securitization covenants at November 30, 2020. Ordinary-course litigation was not expected to have a material adverse effect.
Investor Verification Items
- Verify whether the strong year-over-year earnings improvement is sustainable after excluding restructuring, acquisition, stock compensation, amortization and other non-GAAP adjustments.
- Assess the effect of the cloud-business consignment transition on future EMS revenue, working capital and reported margins.
- Monitor cash conversion, receivables, inventory levels and reliance on receivable-sale and securitization programs, given negative adjusted free cash flow.
- Evaluate COVID-19-related supply-chain, logistics and demand risks across Jabil’s international manufacturing footprint.
- Review customer concentration and the financial condition and demand outlook of the largest customers.
- Confirm progress and remaining costs under the 2020 Restructuring Plan and the final purchase accounting for the JJMD asset acquisition.