Jabil (JBL) Q3 Earnings Beat, Revenues Up On EMS Growth

Jabil (NYSE:JBL) reported third-quarter fiscal 2019 earnings of 57 cents per share, which beat the Zacks Consensus Estimate by a penny and rallied 23.9% year over year.

Revenues increased 12.8% year over year to $6.14 billion that outpaced the Zacks Consensus Estimate of $6 billion.

Moreover, during the quarter, Jabil completed Wave 1 and Wave 2 phases related to the previously announced collaboration with Johnson & Johnson (NYSE:JNJ) Medical Devices Companies (JJMDC).

Quarter Details

Electronics Manufacturing Services (EMS) revenues accounted for 65% of total revenues and increased 26% year over year to $4 billion, driven by strength in cloud, point-of-sale, 5G and wireless, and industrial end markets.

Diversified Manufacturing Services (DMS) revenues accounted for 37% of revenues and decreased 6% year over year to $2.1 billion, primarily due to weak demand for mobility, which is part of Mechanics and Edge Devices & Accessories end markets.

Gross margin on a GAAP basis contracted 10 basis points (bps) year over year to 7.2%.

Core EBITDA margin contracted 20 bps on a year-over-year basis to 6.1%.

Operating expenses on a GAAP basis declined 30 bps to 4.9%. While selling, general and administrative (SG&A) expenses shrank 20 bps to 4.5%, research & development (R&D) expenses as percentage of revenues were flat at 0.2%.

Non-GAAP core operating margin expanded 30 bps to 3%.

EMS core margin declined 100 bps on a year-over-year basis to 3.3%, primarily due to softness in the capital equipment space and costs associated with the ramping up of new business awards.

However, DMS core margin improved 130 bps on a year-over-year basis to 2.6%, driven by improved business mix well supported by Jabil’s diversification efforts.

Balance Sheet & Cash Flow

Jabil exited the quarter with cash and cash equivalents of $694 million compared with $749.1 million in the previous quarter.

In the quarter, cash flow from operations was $5 million, while free cash outflow was $225 million.

Guidance

For fourth-quarter fiscal 2019, Jabil expects total revenues between $6.3 billion and $6.9 billion. Revenues are expected to grow almost 14% year over year at mid-point.

DMS revenues are forecasted to be $2.5 billion, up roughly 4% year over year. EMS revenues are forecasted to be $4.1 billion, up nearly 22% year over year.

Core operating income is estimated to be $215-$275 million, with core operating margin of 3.4%-4%. The company’s core earnings are expected to be 76-96 cents per share on a non-GAAP basis.

For fiscal 2019, revenues are expected to be $25.3 billion. Core operating income is expected to be $875 million, up 14% year over year.

Adjusted free cash flow is expected around $400 million, up 60% year over year.

For DMS segment, revenues are expected to be $9.9 billion. Jabil expects core operating margin to be 3.9% and EBITDA of $890 million.

Further, EMS segment revenues are expected to be $15.4 million. The company expects core operating margin to be 3.2% and EBITDA of $760 million.

Moreover, for fiscal 2020, revenues associated with the J&J collaboration are expected between $800 million and $1 billion.

Zacks Rank & Stocks to Consider

Jabil currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector include Sanmina (NASDAQ:SANM) , Fitbit (NYSE:FIT) and Universal Display (NASDAQ:OLED) . While Sanmina and Fitbit have Zacks Rank #2 (Buy), Universal Display flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Sanmina, Fitbit and Universal Display are currently pegged at 12%, 17.5% and 30%, respectively.

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