What To Expect From Jabil Circuit's (JBL) Q3 Earnings?

Jabil Circuit Inc. (NYSE:JBL) is set to release third quarter fiscal 2016 results on Jun 15, after the closing bell. Last quarter, the company delivered a negative earnings surprise of 11.54%. Jabil Circuit has delivered an average positive earnings surprise of 7.12% in the trailing four quarters. Let’s see how things are shaping up for this announcement.

JABIL CIRCUIT Price and EPS Surprise

Factors to Consider

Jabil’s top line is expected to be driven by the strong performance of non-traditional sectors, diversity in its revenue channels and a customer base spread across the world. In addition, the company has been seeing strength across most of its end markets like automobile, connected homes, wearables, healthcare, consumer packaging, cloud infrastructure and capital equipment.

The company’s EMS margins have already started improving owing to the restructuring initiative, which has boosted its market share. However, flagging Apple’s (NASDAQ:AAPL) iPhone sales and overall weakness in the smartphone market is concerning for Its Diversified Manufacturing Services (DMS) segment.

However, with its top five customers accounting for over a major chunk of its revenues, the company is exposed to significant customer concentration risks. This apart, intensifying competition, macroeconomic headwinds and increasing investments in diversified manufacturing remain concerns.

For the third quarter, Jabil expects total company revenue to decline 4% and net revenues in the range of $4.1 billion to $4.3 billion. Core operating income is estimated in the range of $80 million to $100 million.

On a year-over-year basis, revenues from Diversified Manufacturing are expected to decrease 10%, while Electronics Manufacturing Services revenues are expected to be flat on a year-over-year basis.

The company expects the bottom line (on a GAAP basis) to be in a range of loss of 5 cents to earnings of 3 cents per share, including 4 cents for amortization of intangibles, 10 cents of stock-based compensation expense and 1 – 3 cents of restructuring charges.

Earnings Whispers

Our proven model does not conclusively show that Jabil is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Jabil currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 5 cents.

Zacks Rank: Jabil’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

The following stocks can be considered at the moment, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

Accenture plc (NYSE:ACN) has an Earnings ESP of +0.71% and a Zacks Rank #2 (Buy)

Ctrip.com International Ltd. (NASDAQ:CTRP) has an Earnings ESP of +17.91% and a Zacks Rank #3.