Jabil's (JBL) Q3 Earnings And Revenues Surpass Estimates

Jabil Inc. (NYSE:JBL) reported better-than-expected fiscal third-quarter 2018 results wherein both the top and the bottom lines surpassed the Zacks Consensus Estimate and recorded year-over-year improvement.

The company reported earnings of 46 cents per share, which beat the Zacks Consensus Estimate by a penny and were much higher than the prior-year quarter’s figure of 31 cents.

Revenues increased 21% year over year to $5.44 billion and outpaced the Zacks Consensus Estimate of $4.89 billion as well.

Notably, the company is benefiting from its diversification strategies which are driving new customer engagements. However, supply chain constraints were an overhang.

Shares of Jabil have gained 13.7% year to date, outperforming the industry’s rally of 6.1%.

Top-Line Details

Electronics Manufacturing Services (EMS) revenues (representing 58% of revenues) were up 12% year over year to $3.2 billion backed by growing number of customers in automotive, connected home, capital equipment, industrial, energy and wireless infrastructure. New customer engagement has been the key driver of this segment.

Diversified Manufacturing Services (DMS) revenues (42% of revenues) increased 36% year over year to $2.3 billion, driven by strength in mobility, consumer goods and healthcare businesses.

In the healthcare space, Jabil is gaining adoption in the areas of diagnostics, medical device, pharmaceuticals, and drug delivery. In the packaging market space, the company’s one-stop solutions set made up of molding and better electronics, final product assembly and material sciences are a differentiator.

Operating Details

Gross margin expanded 10 basis points (bps) on a year-over-year basis to 7.3%.

The company’s core operating income increased 31.6% year over year to $150 million. Core operating margin expanded 30 bps to 2.8%.

However, rise in factory costs due to material and component constraints coupled with cost overshoot in the packaging business was a dampener.

Balance Sheet & Cash Flow

The company exited the quarter with cash and cash equivalents of $677.5 million compared with $940.8 million in the previous quarter.

In the quarter, cash flow from operations was $352 million. Cash flow from operations for the first nine months of the fiscal was $194.9 million compared with $533 million in the year-ago period.

Jabil repurchased $91 million worth of shares in the quarter. At the end of the quarter, the company had$134 million outstanding under the current stock repurchase authorization.

Moreover, the board members authorized an additional stock repurchase program of $350 million through fiscal 2019.

Guidance

For the fourth quarter, Jabil expects total revenues to increase 8% (at mid-point) year over year in the range of $4.75–$5.05 billion. Core operating income is estimated in the range of $175–$225 million.

DMS revenues are forecast to remain flat year over year at $2.15 billion.

EMS revenues are anticipated to increase 13% on a year-over-year basis to $3.25 billion.

The company’s core earnings are expected in the range of 56–80 cents per share on a non-GAAP basis.

The company projects fiscal 2018 revenues and core earnings per share growth of 14% and 23%, respectively.

Cash flow from operations for the fiscal year is now estimated to be $800 million, down from previous expectations of $1 billion due to increase in working capital to support revenue growth and component market challenges.

Zacks Rank & Stocks to Consider

Jabil Circuit currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include NVIDIA Corporation (NASDAQ:NVDA) , Micron Technology (NASDAQ:MU) and Texas Instruments (NASDAQ:TXN) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for NVIDIA, Micron and Texas Instruments is projected to be 10.3%, 10% and 9.6%, respectively.

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