Jabil Inc. Fiscal 2020 Form 10-K Summary
Business context and reporting period
Jabil provides global electronics design, manufacturing, supply-chain and product-management services through its Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS) segments. Operations span 31 countries, with approximately 240,000 employees and manufacturing facilities primarily in Asia, the Americas and Europe. The filing covers the fiscal year ended August 31, 2020; fiscal fourth-quarter results are also presented.
Financial performance and key metrics
| Metric | Fiscal 2020 | Fiscal 2019 | Change |
|---|---|---|---|
| Net revenue | $27.27 billion | $25.28 billion | +7.8% |
| Gross profit | $1.93 billion | $1.91 billion | +0.9% |
| Gross margin | 7.1% | 7.6% | Down 50 bps |
| Operating income | $499.8 million | $701.4 million | -28.7% |
| Operating margin | 1.8% | 2.8% | Down approximately 90 bps |
| Net income attributable to Jabil | $53.9 million | $287.1 million | -81.2% |
| Diluted EPS | $0.35 | $1.81 | -80.7% |
| Net cash from operating activities | $1.26 billion | $1.19 billion | +5.4% |
| Adjusted free cash flow | $460.9 million | $503.1 million | -8.4% |
EMS represented 61% of revenue and DMS 39%. EMS revenue increased 8%, led by cloud and capital-equipment demand. DMS revenue increased 8%, led by healthcare. Foreign-source revenue represented 82.6% of total revenue. The five largest customers accounted for approximately 47% of revenue; Apple represented 20% and Amazon 11%.
At August 31, 2020, cash and cash equivalents were $1.39 billion, working capital was $75.4 million, and total debt was $2.73 billion, including $50.2 million of current maturities. The company reported $3.7 billion of unused revolving-credit capacity, up to $1.4 billion of available liquidity under trade-receivable sale programs, and $49 million available under asset-backed securitization programs. Net debt was approximately $1.33 billion before lease liabilities.
Fiscal fourth quarter
Fourth-quarter revenue was $7.30 billion, gross profit was $490.7 million, operating income was $197.1 million, and net income attributable to Jabil was $67.7 million, or $0.44 diluted EPS. Fourth-quarter results included $21.5 million of COVID-19 direct costs, $4.3 million of workforce-reduction severance costs and an impairment of the remaining $36.4 million investment in iQor following its bankruptcy filing.
Material changes versus the prior comparable period
- Revenue grew 7.8%, but profitability declined materially because of COVID-19 disruption, unfavorable EMS product mix, higher restructuring costs, increased amortization and investment losses.
- COVID-19 generated approximately $141.9 million of direct fiscal-year costs, including incremental and idle labor and personal protective equipment. Of this amount, approximately $108.8 million affected gross profit and $33.1 million was included in selling, general and administrative expense.
- Restructuring, severance and related charges increased to $156.6 million from $25.9 million. The company incurred $56.6 million for worldwide workforce reductions and expects annualized savings of approximately $40 million to $50 million beginning in fiscal 2021.
- The effective tax rate increased to 78.2% from 35.8%, primarily because of lower pretax income, limited tax benefits from restructuring charges and a $21.2 million deferred-tax-asset remeasurement.
- The company issued $500 million of 3.600% senior notes due 2030 and $600 million of 3.000% senior notes due 2031. The July issuance funded redemption of $400 million of 5.625% senior notes due December 2020 and increased cash balances.
- Jabil completed the third closing of its Johnson & Johnson Medical Devices asset acquisition for approximately $113.1 million in cash, including $56.0 million of goodwill and assumed pension obligations.
- Share repurchases declined to $213.9 million from $350.0 million. As of August 31, 2020, $386.1 million remained available under the $600 million repurchase authorization.
Guidance, outlook, commentary and risks
Management expects fiscal 2021 revenue to be lower than fiscal 2020 because approximately $1.0 billion of cloud-business component procurement will shift from a purchase-and-resale model to a consignment model. Management expects the transition to improve gross margins and reduce cash usage. Fiscal 2021 net capital expenditures were expected to be approximately $800 million. The company expects to continue quarterly dividends at amounts similar to historical declarations, subject to Board approval.
Management stated that COVID-19 would continue to negatively affect operations, financial position and cash flows in the near term and potentially beyond. Key risks include facility closures, reduced utilization, supply-chain constraints, logistics disruption, unpredictable customer demand, component shortages, customer concentration, international and China exposure, tariffs, currency movements, cybersecurity, regulatory and environmental compliance, tax disputes, pension obligations, acquisition integration and refinancing or renewal risk for receivable-sale programs.
The filing reports no goodwill, intangible-asset or long-lived-asset impairment from the fourth-quarter 2020 review. Legal proceedings were described as ordinary-course matters not expected to have a material adverse effect. Management and Ernst & Young reported effective internal control over financial reporting, although the assessment excluded controls of the operations acquired in the third JJMD closing; those operations represented 2.1% of consolidated assets and 1.9% of fiscal 2020 revenue.
Most important facts for investors to verify
- Whether COVID-19 disruption, labor costs, utilization and supply-chain constraints continue to pressure gross and operating margins.
- Execution of the 2020 restructuring plan, remaining costs and realization of the expected $40 million to $50 million of annual savings.
- Impact of the cloud-business shift to consignment on revenue, gross margin, working capital and cash flow.
- Customer concentration and trends in Apple, Amazon and other major accounts, including order cancellations or production changes.
- Liquidity dependence on receivables sales, asset-backed securitization and revolving-credit facilities, including renewal terms and covenant compliance.
- Debt maturities, variable-rate exposure and the effect of LIBOR transition or credit-rating changes.
- Uncertain tax positions of $189.8 million, including $108.6 million that would affect the effective tax rate if recognized.
- Potential inventory obsolescence, customer credit losses and component shortages; inventory reserves increased to $85.3 million from $69.6 million.