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: February 28, 2010 (Second 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 83-85% of revenue derived from international sources.
Key Financial Metrics
| Metric | Three Months Ended Feb 28, 2010 | Six Months Ended Feb 28, 2010 | Three Months Ended Feb 28, 2009 | Six Months Ended Feb 28, 2009 |
|---|---|---|---|---|
| Net Revenue | $3,004.6 million | $6,092.9 million | $2,887.4 million | $6,269.9 million |
| Gross Profit | $222.7 million (7.4%) | $454.5 million (7.5%) | $155.5 million (5.4%) | $379.3 million (6.0%) |
| Operating Income | $61.8 million | $128.0 million | $(705.6) million | $(945.5) million |
| Net Income (Attributable to Jabil) | $29.8 million | $58.1 million | $(866.1) million | $(1,142.0) million |
| Diluted EPS | $0.14 | $0.27 | $(4.19) | $(5.53) |
| Cash and Equivalents | $794.1 million (as of Feb 28, 2010) | |||
| Total Debt (Current + Long-Term) | $1,196.4 million (as of Feb 28, 2010) | |||
| Operating Cash Flow (6 months) | $104.8 million |
Material Changes vs. Prior Period
- Profitability Turnaround: The company returned to profitability, reporting net income of $29.8 million for the quarter, compared to a net loss of $866.1 million in the same period of the prior year. This improvement is primarily due to the absence of massive goodwill impairment charges ($705.1 million) and significant restructuring charges ($31.5 million) recorded in the prior year.
- Revenue Growth: Net revenue increased 4.1% quarter-over-quarter to $3.0 billion, driven by growth in instrumentation/medical (+32%), networking (+9%), and aftermarket services (+16%). This offset declines in mobility (-16%) and computing/storage (-8%).
- Margin Expansion: Gross margin improved to 7.4% from 5.4% year-over-year, attributed to cost savings from restructuring initiatives and higher capacity utilization.
- Inventory Build: Inventories increased to $1.57 billion from $1.23 billion at the end of the prior fiscal year, driven by ramping up for new business wins and raw material shortages extending lead times.
Guidance, Outlook, Risks, and Unusual Items
- Restructuring Plans: The company is executing the "2009 Restructuring Plan," expecting total costs of approximately $64.0 million. Through February 28, 2010, $57.6 million has been incurred. The plan aims to yield annualized cost savings of approximately $55.0 million. A separate "2006 Restructuring Plan" is substantially complete.
- Legal Proceedings: A putative shareholder class action regarding historical stock option grants was dismissed with prejudice by the U.S. Court of Appeals for the Eleventh Circuit in January 2010. Plaintiffs may petition the U.S. Supreme Court for a writ of certiorari by May 24, 2010. The company believes the complaint is without merit.
- Unusual Items:
- Loss on Disposal: A $15.7 million loss was recorded in the first quarter of fiscal 2010 related to the sale of the Jabil Circuit Automotive subsidiary.
- Stock-Based Compensation: Expenses increased significantly due to the recognition of $7.1 million related to performance-based restricted stock awards vesting and $4.7 million for modifications to equity awards.
- Outlook: Management anticipates capital expenditures of $300.0 million to $350.0 million for the next twelve months. The company expects foreign source revenue to slightly increase. Liquidity is supported by cash on hand, credit facilities, and securitization programs.
- Risks: Key risks include dependence on a limited number of customers (top 5 account for ~45% of revenue), global economic recession impacts, component shortages, and potential future goodwill impairment if stock prices or cash flows decline further.
Investor Verification Checklist
- Customer Concentration: Verify the stability of the top 5 customers, which represent 45% of net revenue, and monitor for any shifts in manufacturing strategies (insourcing) by these clients.
- Inventory Levels: Assess the $1.57 billion inventory balance against current demand forecasts to evaluate the risk of obsolescence or write-downs given the recent build-up.
- Legal Resolution: Monitor the status of the shareholder class action appeal to the U.S. Supreme Court for potential financial or reputational impact.
- Debt Covenants: Review compliance with financial covenants in the Credit Facility and securitization programs, particularly the Debt-to-EBITDA ratio, given the company's leverage.
- Restructuring Savings: Track the realization of the projected $55.0 million in annualized cost savings from the 2009 Restructuring Plan to ensure margin improvements are sustainable.