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 filing covers the quarter and nine months ended May 31, 2023, within fiscal 2023. Jabil operates in more than 30 countries, and foreign-source revenue represented 86.9% of quarterly revenue and 85.6% of nine-month revenue.
Financial Results and Key Metrics
| Metric | Three Months Ended May 31, 2023 | Year-over-Year Change | Nine Months Ended May 31, 2023 | Year-over-Year Change |
|---|---|---|---|---|
| Net revenue | $8.475 billion | 1.8% | $26.244 billion | 7.3% |
| Gross profit | $697 million | 12.6% | $2.101 billion | 10.4% |
| Gross margin | 8.2% | Up from 7.4% | 8.0% | Up from 7.8% |
| Operating income | $375 million | 16.8% | $1.096 billion | 11.4% |
| Net income attributable to Jabil | $233 million | 6.9% | $663 million | Down from $681 million |
| Diluted EPS | $1.72 | Up from $1.52 | $4.86 | Up from $4.67 |
Quarterly operating margin was approximately 4.4% and nine-month operating margin was approximately 4.2%. Quarterly diluted core EPS was $1.99 versus $1.72 in the prior-year quarter; nine-month diluted core EPS was $6.18 versus $5.32. Core measures exclude or adjust for items including amortization, stock-based compensation, restructuring charges and certain benefit costs.
EMS revenue was $4.130 billion in the quarter and $12.727 billion for the nine-month period. DMS revenue was $4.345 billion and $13.517 billion, respectively. DMS represented 51% of quarterly revenue and 52% of nine-month revenue.
Net cash provided by operating activities was $1.048 billion for the nine months, compared with $745 million in the prior-year period. Capital expenditures were $860 million, partly offset by $180 million of proceeds and advances from PP&E sales. Adjusted free cash flow was $368 million, compared with $147 million in the prior-year period. Cash and cash equivalents were $1.480 billion at May 31, 2023.
Total debt was $3.174 billion at May 31, 2023, compared with $2.875 billion at August 31, 2022. Current debt was $300 million. Jabil reported $3.9 billion of unused revolving-credit capacity and up to $3.2 billion of commercial-paper capacity. The company was in compliance with its debt covenants.
Material Changes Versus Prior Comparable Period
- Quarterly revenue growth was driven by a 13% increase in DMS revenue, including growth in automotive and transportation and healthcare and packaging. EMS revenue declined 8%, principally because a 5G, wireless and cloud customer began transitioning to a customer-controlled consignment model.
- For the nine-month period, DMS revenue increased 10% and EMS revenue increased 5%. DMS increased its share of total revenue from 50% to 52%.
- Gross margin improved in the quarter primarily because of product mix and improved profitability across various businesses; nine-month gross margin was broadly stable.
- Interest expense increased to $83 million for the quarter and $216 million for the nine-month period, versus $39 million and $105 million, respectively, primarily because of higher interest rates and borrowings.
- Other expense increased to $18 million for the quarter and $50 million for the nine-month period, largely due to higher securitization and receivables-sale program fees and higher interest rates.
- Nine-month results included $45 million of restructuring, severance and related charges, primarily associated with headcount reductions. No such charges were recorded in the quarter.
- The effective tax rate increased to 24.0% for the quarter and 25.7% for the nine-month period, compared with 21.8% and 22.5%, respectively, mainly because of changes in the jurisdictional mix of earnings.
- Jabil repurchased $442 million of common stock during the nine months. The 2023 share-repurchase authorization had $821 million remaining at May 31, 2023.
Guidance, Outlook, Commentary, Risks and Unusual Items
Management expects fiscal 2023 net capital expenditures of approximately $875 million. The company expects to continue declaring regular quarterly dividends at amounts similar to past declarations, although future dividends remain discretionary. Management stated that available liquidity is expected to support capital expenditures, dividends, share repurchases, potential acquisitions, working-capital needs and contractual obligations for the next 12 months and beyond.
Jabil issued $300 million of 5.450% senior notes due 2029 in April 2023 and intended to use the proceeds, together with cash, to repay the $300 million of 4.900% senior notes due July 2023. The filing text does not confirm completion of that repayment after the reporting date.
Working-capital metrics improved sequentially during the quarter: the sales cycle was 48 days, days in inventory were 84, days in accounts receivable were 38, and days in accounts payable were 74. The global asset-backed securitization program had no available liquidity at May 31, 2023, while trade accounts receivable sale programs provided up to approximately $1.0 billion of available liquidity.
Key risks include customer concentration, demand volatility, reliance on critical single-source components, supply-chain and transportation constraints, international operations and foreign-currency exposure, higher interest rates and debt exposure, technology and competitive changes, cybersecurity and information-system risks, manufacturing or design defects, regulatory and tax matters, restructuring execution, natural disasters, climate-related events and continuing COVID-19-related impacts. The five largest customers represented approximately 43% of nine-month revenue.
Jabil reported no material adverse effect expected from ordinary-course legal proceedings. The company disclosed $25 million of restructuring liabilities at May 31, 2023, primarily for employee severance, with most payments expected during fiscal 2023. New accounting guidance adopted during the period did not have a material impact.
Facts Investors Should Verify
- Whether the July 2023 maturity of the $300 million 4.900% senior notes was repaid or refinanced after May 31, 2023.
- Whether the transition to a customer-controlled consignment model affects future EMS revenue, working capital and margins.
- The sustainability of improved gross margins and DMS growth amid changing customer demand and product mix.
- The impact of higher interest rates, receivables-sale fees and securitization costs on future earnings and cash flow.
- Actual fiscal 2023 capital expenditures relative to the approximately $875 million expectation.
- Customer concentration, single-source component exposure and the availability of liquidity under receivables-sale and asset-backed securitization programs.
- Progress and remaining cash costs associated with the restructuring program and the pace of share repurchases under the remaining $821 million authorization.