Jabil Inc. Form 10-Q Summary
Business context and reporting period
Jabil is a global provider of electronics design, manufacturing and supply-chain services, operating through Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS). This Form 10-Q covers the quarter and nine months ended May 31, 2024, within fiscal 2024. Jabil operates in more than 30 countries, and international operations generated 80.5% of quarterly revenue and 83.4% of nine-month revenue.
On December 29, 2023, Jabil completed the sale of its mobility manufacturing business to an affiliate of BYD Electronic for approximately $2.2 billion, subject to post-closing adjustments. The business remained in continuing operations through the closing date and was not reported as discontinued operations.
Financial performance and liquidity
| Metric | Three months ended May 31, 2024 | Three months ended May 31, 2023 | Nine months ended May 31, 2024 | Nine months ended May 31, 2023 |
|---|---|---|---|---|
| Net revenue | $6.765 billion | $8.475 billion | $21.919 billion | $26.244 billion |
| Gross profit | $608 million | $697 million | $2.013 billion | $2.101 billion |
| Gross margin | 9.0% | 8.2% | 9.2% | 8.0% |
| Operating income | $261 million | $375 million | $1.695 billion | $1.096 billion |
| Net income attributable to Jabil | $129 million | $233 million | $1.250 billion | $663 million |
| Diluted EPS | $1.06 | $1.72 | $9.86 | $4.86 |
Quarterly revenue declined 20.2% year over year, while nine-month revenue declined 16.5%. Quarterly net income declined 44.6%, partly reflecting restructuring and product-quality charges. Nine-month operating income and net income increased substantially because of the $944 million pre-tax gain from the mobility divestiture.
Quarterly EMS revenue was $3.397 billion and DMS revenue was $3.368 billion. Nine-month EMS revenue was $10.320 billion and DMS revenue was $11.599 billion. The five largest customers represented approximately 37% of nine-month revenue, and 86 customers represented approximately 90%.
Net cash provided by operating activities was $1.181 billion for the nine months, compared with $1.048 billion in the prior-year period. Capital expenditures were $660 million, and management-defined adjusted free cash flow was $636 million versus $368 million. Investing cash flow was positive $1.467 billion, primarily because of $2.108 billion of net proceeds from the mobility divestiture. Financing cash flow was negative $1.989 billion, including $1.824 billion of treasury-stock purchases and $32 million of dividends.
Cash and cash equivalents were $2.457 billion at May 31, 2024, up from $1.804 billion at August 31, 2023. Total notes payable and long-term debt were $2.879 billion, with no current maturities presented. Jabil had $4.0 billion of unused revolving-credit capacity and up to $3.2 billion of commercial-paper capacity. The company reported compliance with its debt and securitization covenants.
Material changes versus the prior comparable period
- Revenue declined across both segments. Quarterly DMS revenue decreased 23%, primarily because of the mobility divestiture and lower connected-devices, healthcare and packaging, and automotive revenue. Quarterly EMS revenue decreased 18%, reflecting lower industrial, 5G and wireless, cloud, networking and storage, and digital-print and retail revenue.
- Gross margin improved to 9.0% from 8.2% for the quarter and to 9.2% from 8.0% for the nine-month period, primarily due to product mix and the cessation of depreciation and amortization on mobility assets classified as held for sale.
- Restructuring, severance and related charges increased to $55 million for the quarter and $252 million for the nine months, compared with $0 million and $45 million, respectively, in the prior-year periods.
- Jabil recorded $14 million of quarterly and nine-month business interruption and impairment charges related to product-quality liabilities.
- Jabil incurred $64 million of acquisition and divestiture-related charges for the nine months and recorded a $944 million pre-tax mobility-divestiture gain.
- Share repurchases totaled $1.824 billion during the nine months, reducing shares outstanding to 118.7 million from 131.3 million at August 31, 2023. The amended repurchase authorization had $676 million remaining at May 31, 2024.
Guidance, outlook, commentary and risks
- Management expects approximately $300 million of pre-tax restructuring and related costs during fiscal 2024, including $150 million to $180 million of severance and benefits, $80 million to $120 million of asset write-offs, and $30 million to $40 million of contract termination and other costs. Estimated net cash expenditures are approximately $200 million over fiscal 2024 and 2025, although timing and amounts may change.
- Fiscal 2024 net capital expenditures are expected to equal 2.2% to 2.5% of net revenue. Longer-term net capital expenditures are expected to be 2.0% to 2.3% of net revenue after the mobility divestiture.
- Management expects to continue quarterly dividends at amounts similar to prior declarations, subject to board approval and business conditions. The company also executed additional repurchases and entered into $555 million of ASR agreements in June 2024, after the reporting date.
- Jabil expects available cash, revolving credit, commercial paper, receivables-sale programs, operating cash flow and capital-market access to fund anticipated needs for the next 12 months and beyond. The global asset-backed securitization program had no available liquidity at May 31, 2024 and expires November 25, 2024.
- Principal risks include customer concentration, demand volatility, dependence on selected suppliers and single-source components, international and geopolitical exposure, currency fluctuations, supply-chain disruptions, product-quality liabilities, restructuring execution, mobility-transaction indemnities and post-closing adjustments, cyber and information-system risks, tax-law changes, debt and liquidity risks, and potential impairment or acquisition-related risks.
- The company reported no material adverse effect expected from disclosed legal proceedings, effective disclosure controls, and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Reconcile year-to-date earnings and cash flow for the $944 million mobility-divestiture gain, $64 million of related costs, $252 million of restructuring charges and $58 million of associated income-tax expense.
- Monitor post-closing purchase-price adjustments and indemnification exposure related to the BYD mobility transaction.
- Assess whether revenue declines reflect temporary demand and customer-model changes or a more persistent reduction in the business base following the divestiture.
- Verify the timing and ultimate cost of the 2024 Restructuring Plan and its expected savings or margin benefits.
- Review customer concentration, receivables-sale activity and the renewal or replacement of the asset-backed securitization program before its November 2024 expiration.
- Track post-quarter share repurchases and ASR settlements, including the June 2024 $121 million repurchase and $555 million ASR agreements.