Highlights From JBL's Q4 Conference Call: Revenues Grew Sequentially, Guides Above for Q1

September 30, 2009 10:46 AM EDT

Jabil (NYSE: JBL) reports Q4 EPS of $0.16, 8 cents better than the analyst estimate of $0.08. Revenue for the quarter was $2.8 billion, which compares to the estimate of $2.66 billion. Shares are up 8% today on strong earnings and better than expected guidance.

Highlights From JBL's Q4 Conference Call:

• Sees Q1 core 21c to 32c versus 18c consensus. Sees Q1 revs $3B to 3.2B versus consensus $2.88B.
  
• (Vice President, Communications and Investor Relations) On revenues of 2.8 billion, GAAP operating income was 43.1 million. This compares to 87.8 million GAAP operating income on revenues of 3.3 billion for the same period in the prior year.
  
• Core operating income excluding amortization of intangibles, stock-based compensation and restructuring charges for the quarter was 65.4 million, or 2.3% of revenue, as compared to 104.7 million or 3.2% for the same period in the prior year.
  
• On a year-over-year basis for the quarter, revenue declined 14% while core operating profits declined 38%.
  
• On a sequential basis, revenues increased by 7% while core operating income increased 124%, reflecting stability and growth across all but one of the sectors, the industry sectors that we serve.
  
• First our EMS division, revenue represented approximately 58% or 1.63 billion of sequential growth of 8% as compared to Q3 of fiscal 2009. Core operating income for the division in the quarter was 3% of revenue.
  
• Production levels in the Automotive sector increased 4% sequentially and represented 3% of total revenues in the quarter.
  
• Computing and Storage sector decreased 5% from Q3 and represented 10% of total revenue for the quarter.
  
• Industrial, Instrumentation and Medical sector increased 14% from the prior quarter as a result of approximately 60% of our customer base showing growth in the quarter. This sector was 19% of total revenue.
  
• The Networking sector, production increased by 11% from the previous quarter and represented 17% of revenue.
  
• Telecommunications sector increased by 13% sequentially and represented 6% of Q4's revenue. For the full fiscal year, revenues represented approximately 6.8 billion, or 58% of total Jabil revenues, a year-over-year decline of 17%. For the full fiscal year, core operating income was 1.9% of revenue.
  
• Looking now at the Consumer division, which represented approximately 34% or 960 million in the Q4, a sequential increase of 4%. Core operating income for the division in the quarter was 0.3% of revenue.
  
• The Displays sector increased by 9% from the third quarter and represented 3% of revenue. The Mobility sector increased by 4% from the prior quarter and represented 20% of revenue in the quarter.
  
• The Peripherals sector increased by 5% from the third fiscal quarter and represented 11% of revenue. On a full fiscal year basis, revenues represented approximately 36% or 4.2 billion, growth of 7% on a year-over-year basis. Core operating income for the full fiscal year was 1.4% of revenue.
  
• As a note, in fiscal 2010, we shall be combining our Displays and Peripheral sector and reporting under the title of Digital Home and Office sector.
  
• Turning now to the Aftermarket Services division, it increased by 10% from the prior quarter and represented approximately 7% of overall company revenue in Q4. Core operating income for the division for the quarter was 7.2% of revenue.
  
• For the full fiscal year, two customers accounted for more than 10% of revenues. These are Cisco (Nasdaq: CSCO) at 13% and RIM (Nasdaq: RIMM) at 12%, with our top ten customers representing approximately 58% of revenue.
  
• Selling, general and administrative expenses increased by $4 million to 116 million for the quarter. Research and development costs were 8.7 million in the quarter. Stock-based compensation was 11 million in the quarter.
  
• (CFO) We were able to decrease our sales cycle in the quarter by six days to 16 days, while keeping days sales outstanding consistent at 40 days. We improved accounts payable days by two days to 66, and reduced inventory balances by $28 million, while days in inventory declined by four days to 42 days. Inventory turns improved to nine.
  
• We continue to generate cash flow from operations, of $169 million in Q4. Year-to-date, we have generated $556 million of cash from operations.
  
• Our return on invested capital increased to 11.5% in Q4. Cash and cash equivalents were $876 million at the end of Q4, with no sums outstanding on our $800 million revolving credit facility.
  
• Our capital expenditures during the quarter were approximately $57 million. This level of expenditure primarily reflects our continued investment in our IT infrastructure and our maintenance capital investment.
  
• Capital expenditures in the full fiscal year were $292 million. Depreciation for the quarter was approximately $66 million and core EBITDA was approximately $131 million, or 4.7% of revenue.
  
• As revenue growth returned in Q4, we have successfully continued to manage our working capital and operational cash generation.
  
• We produced $169 million of cash from operations, while decreasing inventory levels sequentially by 2% as revenues grew by 7%.
  
• We successfully repurchased $295 million or 98% of our 5.875% senior notes due in 2010, and closed on our $312 million offering of 7.75% senior notes due in 2016, providing us continued flexibility in the years ahead.
  
• We expect to divest of our automotive electronics manufacturing entity in Western Europe. This transaction is anticipated, subject to regulatory approvals and other closing conditions to close during
  the first fiscal quarter of 2010. And we expect to recognize a loss on sale of this entity in the range of 20, $25 million, of which we estimate $4 million to be cash. This loss should be accounted for with core operating income as a loss on sale.
  
• Our expectations reflect growth of 3% from Q4 in our EMS division and 30% growth in our Consumer division.
  
• Guidance for Q1 of fiscal 2010 is as follows. Revenue is estimated to increase sequentially in the range of seven to 14%, or a range of a three billion to 3.2 billion. Core operating income is expected to be 85 to $105 million; again excluding the estimated loss of the divestiture of our automotive electronics manufacturing entity. (Q1 revenue consensus is $2.88B)
  
• As a result, core-operating margin is expected to be in the range of 2.8 to 3.3% of revenue and core earnings per share are expected to be in the range of $0.24 to $0.32 per diluted share. (Consensus is $0.25)
  
• (CEO) We generated very strong cash flow from operations, reduced debt, closed a $300 million bond transaction in a horrible credit market, added to our cash balances and simply put ourselves in an excellent position to compete and expand in 2010 and beyond.
  
• (Q&A) I guess the last quarter you talked about that you would get some expanded margins as you
  obviously reramp revenue. Is that where most of the upside came from? Or maybe you could point to a couple of other things? (A)It's really revenue-driven. I mean we produce 2.8 billion in revenue versus the guidance of 2.5 to 2.7. And so looking at the Q3 revenue level of 2.615 billion, really it's almost, you know, a direct operating leverage function going from 2.615 billion to 2.8 billion. That's $185 million revenue increase, and going from $29 million to 65, 66 million in operating income. So as Forbes said, $0.18 on the revenue dollar. If you look at the composition of that $185 million increase, there were some higher margin contributions to that increase in the revenue stream. The biggest increases we enjoyed in Q4 was in the Medical Instrumentation, Industrial Controls sector. That led all other sectors as a percentage and as, in terms of absolute dollars, followed by Networking, Telecommunications and AMS all enjoyed good upsides in Q4 versus Q3. And those are all pretty decent margin sectors. And in Mobility, we had a relatively modest increase in revenue, but it occurred in some of our vertical operations. So that's really a disproportionate addition to operating margin. So yeah, I think that, you know, we're on the high side of our 10 to $0.15 of operating leverage per revenue dollar, but given the composition of revenue, I think and really it's a little bit easier moving from the low point of 2.6 billion. But pretty, pretty strong performance there. And, you know, looking forward, that operating leverage would be a little bit slower given, again, the function of it being primarily Consumer Electronics driven in Q1 and having that, of that Consumer Electronics, a lot of it being primarily the Electronic Assembly side, which carries very high material content and low material margins, so a little bit less operating leverage. But kind of as we, as we predicted, we went into Q4 with relatively conservative guidance. We
  talked in June about things starting to stabilize a little bit, but it was a little bit early to make that call, and we saw those trends continue through June and July and things starting to get a little bit better in late July and August.
  
• As you look out in fiscal 10, as much as you can help us out with, what are you thinking about from cash flow from operations and then it does look like if you get that down to the free cash flow line, that maybe CapEx is going to start to slow down if it starts to flat line here at 50 million? (A)You know, we're
  calling for about $50 million in CapEx in Q1. And we'll probably consume a little bit of cash in Q1, as we ramp up our working capital requirements, and probably get much of that back in Q2, given the seasonal slowness. I think it's a little bit early to talk about 2010. We're not providing guidance for the full year, but certainly, we will use this opportunity to use nine as the next bar in terms of inventory turns and really drive to much higher levels of efficiency and continuing to really work our working capital metrics. So I think 2010 should be a vastly improved year. And with a little help on the top line, which it looks like we're going to get. I mean it, I can't imagine 2010 having the kind of crater that we saw in late Q1, Q2 and Q3 of fiscal '09. So really all we need is any GDP between zero and 2% would be just a lovely, delightful environment for us to be in. And if we have that type of environment, we'll be able to post pretty strong revenue growth year-over-year and strong margin improvement and very good cash flow.

Jabil Circuit, Inc., together with its subsidiaries, provides electronic manufacturing services and solutions worldwide.

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