Highlights From JBL's Q4 Conference Call: Revenues Increased 11% Y-o-Y; Guidance In-line for Q1

Jabil Circuit, Inc. (NYSE: JBL) reported Q4 EPS of $0.52, $0.04 worse than the analyst estimate of $0.56. Revenue for the quarter came in at $4.28 billion versus the consensus estimate of $4.19 billion.

Highlights From JBL's Q4 Conference Call:

• (Forbes I. J. Alexander) Net revenue for the fourth quarter was $4.3 billion, an increase of 11% year-over-year.
  
• GAAP operating income was $165.6 million, or 3.9% of revenue, which compares to $103 million of GAAP operating income and revenues of $3.9 billion, or 2.7%, for the same period in the prior year.
  
• Core operating income, excluding the amortization intangibles and stock-based compensation, increased 19% to $187.2 million and represents 4.4% of revenue. This compares to $157 million or 4.1% for the same period in the prior year.
  
• On a sequential basis, revenue increased 1% in the fourth quarter, while core operating income increased 5%. Core diluted earnings per share was $0.62, an increase of 19% over the prior year.
  
• In fiscal 2011, net revenue was $16.5 billion, an increase of 23%. GAAP operating income was $578.7 million, an increase of 77% and represented 3.5% of the revenue. This compares to $327.6 million of GAAP operating income on revenues of $13.4 billion for fiscal 2010 and 2.4% of revenue.
  
• Core operating income, excluding amortization of intangibles and stock-based compensation, increased 46% to $715.2 million and represented 4.3% of the revenue for the full fiscal year. This compares to $490.9 million or 3.7% for the same period in the prior year. Core diluted earnings per share was $2.34, an increase of 54% over the prior year.
  
• In the fourth quarter, our Diversified Manufacturing Services segment grew 10% sequentially. On a year-over-year basis, this segment grew 35%. Revenue was approximately $1.7 billion, representing 40% of the total company revenue.
  
• The Enterprise & Infrastructure segment grew 1% sequentially. On a year-over-year basis this segment grew 10% for the quarter.
  
• The decline in core operating margin this quarter is primarily attributable to actions we are taking to restructure our operations in Italy, specifically severance costs, asset write-offs and other related charges of approximately $8 million.
  
• As we move through fiscal '12, the continued ramp up of these new programs around the world will continue, diluting the negative impact of operating results in Western Europe. We therefore expect margins in this segment to steadily improve over the course of the fiscal year and core operating margin targets between 4% and 4.5% remain intact.
  
• Our High Velocity segment decreased 9% sequentially. On a year-over-year basis this segment decreased 11% for the quarter. Revenue was approximately $1.2 billion, representing 28% of the total company revenue in the quarter. Core operating income for this segment was 3.1% of revenue.
  
• The Enterprise & Infrastructure segment grew 18% in fiscal 2011. The revenue was approximately $5.2 billion, representing 32% of total company revenue. And core operating income was 3.9% for the full year.
  
• And finally our High Velocity segment grew 11%. Revenue was approximately $5.3 billion, again, representing 32% of total company revenue, and core operating income was 2.4% for the full year.
  
• Our investments in the fiscal year were and shall remain focused towards our Diversified Manufacturing Services segment. Approximately 60% of these investments were made in the Diversified Manufacturing Services segment, 11% in Enterprise & Infrastructure and 8% in High Velocity, the balance being IT and infrastructure to support our current and planned future growth.
  
• Our earnings growth and focused balance sheet management have allowed us to produce very strong cash flows, producing $304 million of operating cash flow in the fourth quarter, $828 million for the full fiscal year, resulting in a free cash flow yield of some 40%, exceeding the target we established at the beginning of the fiscal year.
  
• These strong cash flows have also allowed us to return some $260 million to shareholders through stock repurchases and our ongoing dividend payment.
  
• (GUIDANCE) Looking ahead into 2012, we expect continued growth. We expect revenue in the first quarter on a year-over-year basis to be up approximately 8% on the range of $4.3 billion, to $4.5 billion (consensus is $4.42bln) . The Diversified Manufacturing Services segment is expected to increase 3% sequentially, the Enterprise & Infrastructure segment is expected to be consistent and our High Velocity is expected to increase 6% sequentially, representing less seasonality than past years as a result of continued diversification of our business model.
  
• Core operating income is estimated to be in the range of $185 million to $205 million, and the core operating margin in the range of 4.3% to 4.5%, while core earnings per share in the range of $0.62 to $0.70 per diluted share (consensus is $0.62), based upon a diluted share count of 213 million shares. Based upon the current estimates of production, the tax rate on core operating income is expected to be 17% for the quarter and the full fiscal year.
  
• (Timothy L. Main) Well, I think it would be an oversimplification to attribute the results solely to mix and our exposure to growth markets. In fact, I think a big contributor to our story is our culture of continuous improvement. Look from Blitz Kaizen events with 14,000 events this year, we have 3,000 people enrolled in Lean Six Sigma education programs. We've significantly expanded our human development and leadership training resources.
  
• In High Velocity, it's really about staying ahead of the game. We do this by having a hyperactive focus on cost, rapid development of new technology, approaches and locations really keeps us lean and moving to the right locations in the world.
  
• In the Enterprise & Infrastructure area, we do operate at the higher end of product and service complexity. Our customers are continuously challenged with an ever expanding number of new countries, suppliers, order configurations, services they must provide to their customers and delivering it to different customers all over the world. Our job is really to provide simplification of this web of complexity.
  
• In Diversified Manufacturing Services, we are really there to make a difference. Make a difference to patients, to the environment, to help our customers' products more attractive, more functional and help make the user experience through aftermarket support. We do this in the materials technology group, which has been a big part of our growth story this year, and this group continues to provide synergistic value to targeted markets, particularly healthcare.
  
• Aftermarket services is an area of great opportunity for us, and we have recently made an acquisition we hope to close later this quarter and we expect to see more growth from this group in coming years.
  
• (Q&A) Maybe you can give us a few more thoughts on the macro trends out there in the sense, obviously you have got a broad base of business and your results obviously are very good and realize that you are outperforming almost all of your customers but maybe just give us a little bit more read on what they are telling you and maybe also in the diversified manufacturing area. (A) Yes, I would love to give you some color on that and I think it's really remarkable how little macroeconomic trends have mattered to the company this year. I think U.S. GDP growth in the March quarter was less than a point, in the June quarter about a point and in the September quarter, I can't imagine it being much above a point. I don't think European GDP growth has amounted to much all year, and I think Japan is teetering on the edge of recession. So I think that covers around 60% of the world's economy and, you know, we put up 23% revenue growth in that type of environment. So the remarkable thing to me is how little the macroeconomic environment has mattered to the company's results over the course of the year. You know, I think as we move into 2012, I think we were being a little bit conservative in the level of growth that we could put up consecutively after having such a robust 2011, but it's still a year in which we think Diversified Manufacturing Services has the ability to grow at the range, maybe at the low end of the range, but certainly within the targeted long-term growth ranges, and Enterprise & Infrastructure we would expect a similar level of performance. In the High Velocity, we will see what the consumer trends are over the course of the year and we think it's a good set of conditions right now to be conservative and, you know, it's not all bad if -- if revenue growth slows down from 23% to, you know, 10ish percent. That's not a - that's not a big deal to the company and give us an opportunity to really drive margin expansion and EPS growth in 2012. So I kind of like - I kind of like the environment, Lou.
  
• Maybe you could just expand on that. If you did see slower top line growth, where do you think you could drive earnings? (A) Well, the continuous improvement culture, I think is very important to us: 14,000 Blitz Kaizen events. I think our Kaizen events were up 44% over the year. We are continuously looking to improve our productivity. That has an excellent impact in High Velocity and Enterprise & Infrastructure. We do have, as Forbes mentioned, a number of new programs ramping in Enterprise & Infrastructure that we think will grow our top line over the course of 2012 and much of that is a function of market share gains and so we look forward to that. And then in Diversified Manufacturing services, we really have a combination of internal manufacturing that's being externalized. You have some very valuable services that Jabil provides and access to emerging economies, product development, localizing supply chains and this is an area of activity that we just see very robust demand from healthcare customers, industrial customers, we think our clean tech business is in a very strong position, and materials technology group continues to do very well. So, you know, overall, I think it's, you know, an area that is a combination of driving a lean culture and higher levels of productivity along with specific revenue growth in targeted areas should result in a year in which we can put up another good year.

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