Jabil Inc. Form 10-Q Summary
Business Context and Reporting Period
Jabil provides global electronics design, manufacturing, supply-chain and product-management services through two segments: Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS). The report covers the quarter and six months ended February 29, 2024, compared with the periods ended February 28, 2023. Jabil operates in more than 30 countries, and foreign-source revenue represented 82.5% of quarterly revenue and 84.7% of year-to-date 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 in cash, subject to post-closing adjustments.
Key Financial Metrics
| Metric | Three Months Ended February 29, 2024 | Prior Year | Six Months Ended February 29, 2024 | Prior Year |
|---|---|---|---|---|
| Net revenue | $6.767 billion | $8.134 billion | $15.154 billion | $17.769 billion |
| Gross profit | $630 million | $661 million | $1.405 billion | $1.404 billion |
| Gross margin | 9.3% | 8.1% | 9.3% | 7.9% |
| Operating income | $1.131 billion | $359 million | $1.434 billion | $721 million |
| Net income attributable to Jabil | $927 million | $207 million | $1.121 billion | $430 million |
| Diluted EPS | $7.31 | $1.52 | $8.66 | $3.14 |
Reported operating income and net income included a $944 million pre-tax gain from the mobility divestiture. Excluding specified adjustments, core operating income was $338 million for the quarter and $837 million year to date, compared with $391 million and $852 million, respectively, in the prior-year periods. Diluted core EPS was $1.68 for the quarter and $4.30 year to date, compared with $1.88 and $4.19.
Six-month net cash provided by operating activities was $666 million, compared with $580 million in the prior year. Capital expenditures were $554 million, partially offset by $109 million of proceeds and advances from PP&E sales, resulting in adjusted free cash flow of $221 million versus $112 million. Investing activities provided $1.558 billion, primarily from $2.108 billion of net divestiture proceeds. Financing activities used $1.455 billion, including $1.325 billion for share repurchases and $22 million of dividends.
At February 29, 2024, cash and cash equivalents were $2.566 billion, accounts receivable were $2.648 billion, inventories were $4.821 billion and total assets were $17.123 billion. Long-term debt was $2.878 billion, with no current maturities reported. Jabil had $3.9 billion of unused revolving credit capacity, commercial paper capacity of up to $3.2 billion and up to $1.0 billion of available liquidity under trade receivable sale programs. Management believes liquidity is adequate for the next 12 months and beyond.
Material Changes Versus the Prior Comparable Period
- Revenue declined 16.8% for the quarter and 14.7% for the six-month period.
- EMS quarterly revenue decreased 18%, primarily because of lower 5G and wireless, digital print and retail, and industrial and semi-capital equipment demand. DMS quarterly revenue decreased 16%, primarily due to the mobility divestiture and lower connected-device revenue.
- Gross margin improved primarily because depreciation and amortization on mobility-related long-lived assets ceased while the assets were held for sale, together with favorable product mix.
- SG&A increased by $23 million in the quarter and $18 million year to date, primarily from higher salary and related expenses.
- Restructuring charges increased to $70 million in the quarter and $197 million year to date, compared with none and $45 million, respectively, in the prior-year periods.
- The effective tax rate declined to 12.7% for the quarter and 13.6% year to date, from 27.6% and 26.6%, primarily due to changes in the jurisdictional mix of earnings, restructuring charges and the mobility divestiture.
- Shares outstanding declined materially due to repurchases. Jabil repurchased 10.4 million shares for $1.3 billion through February 29, 2024, with approximately $1.2 billion remaining under the amended authorization.
- Working-capital indicators improved year over year: sales cycle was 48 days versus 50, days in inventory were 87 versus 93, and days in accounts payable were 74 versus 84.
Guidance, Outlook, Risks and Unusual Items
Jabil expects approximately $300 million of pre-tax restructuring and related costs during fiscal 2024, including $150 million to $180 million of severance and benefit costs, $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 remain subject to employee consultations and other factors.
Fiscal 2024 net capital expenditures are expected to be 2.2% to 2.5% of net revenue. Longer-term net capital expenditures following the mobility sale are expected to be 2.0% to 2.3% of net revenue. Management expects to continue regular quarterly dividends at amounts similar to past declarations, subject to Board approval.
The mobility divestiture generated a $944 million pre-tax gain and $2.108 billion of net cash proceeds. Post-closing purchase price adjustments are expected to be finalized in the third quarter of fiscal 2024. Jabil also provided certain indemnifications for liabilities related to periods before closing.
Key risks include customer concentration, dependence on critical single-source components, fluctuations in customer demand, supply-chain and transportation disruptions, international and geopolitical exposure, foreign-currency movements, restructuring execution, acquisition and divestiture liabilities, cybersecurity and information-system risks, manufacturing or design defects, regulatory and environmental compliance, tax matters, debt and liquidity risks, and potential asset impairments. The five largest customers represented approximately 39% of six-month revenue, while 82 customers represented approximately 90%.
Jabil acquired ProcureAbility for approximately $60 million in cash on November 1, 2023. The acquisition was not considered significant for pro forma reporting. The company reported no material adverse effect from ordinary-course legal proceedings, no debt covenant violations and effective disclosure controls.
Important Facts for Investors to Verify
- Verify the final purchase price adjustments and any indemnity exposure related to the mobility divestiture.
- Assess the sustainability of earnings excluding the $944 million divestiture gain and the effect of restructuring, acquisition and divestiture charges.
- Monitor revenue trends in EMS, particularly 5G, wireless, cloud, digital print and industrial markets, and DMS trends following the mobility sale.
- Track the timing and ultimate cost of the 2024 Restructuring Plan, including the estimated $200 million of net cash expenditures.
- Review customer concentration and exposure to single-source suppliers and international operations.
- Confirm liquidity availability, receivables-sale activity and the November 2024 expiration of the global asset-backed securitization program.
- Evaluate the impact of continued share repurchases on share count, liquidity and capital allocation.