Earnings Preview: Jabil - Analyst Blog

A premier global supplier of electronic manufacturing services (EMS) and solutions, Jabil Circuit, Inc. (JBL) is set to announce its third quarter 2010 results on June 22.
 
During the second quarter conference call, Jabil provided its third quarter earnings guidance. The company expects net revenues to be in the range of $3.1 billion to $3.3 billion, an increase of 3% to 10% sequentially.
 
The EMS division is expected to grow 8% sequentially, while the consumer division is projected to grow 5%. The AMS division is expected to have consistent revenues with those of the second quarter.
 
Core operating income is expected to be in the range of $100 million to $120 million, up 4% to 25% sequentially. As a result, core operating income margin will be in the range of 3.2% to 3.6%
 
At the mid-point of the guidance, revenues represent a growth of approximately $600 million or 22% on a year-over-year basis, while core operating income represents a growth of $80 million or 81% on a year-over-year basis.
 
SG&A expenses are estimated to remain at $120 million, while R&D expenses are expected to be approximately $8 million. Jabil plans to invest an incremental $70 million to fund new technology and new program wins within the Jabil Green Point mechanical operations, which totals $150 million of expenditure in the third quarter.
 
Core earnings per share for the third quarter are expected to be 30 cents to 36 cents per share, a growth of 3% to 24% sequentially.
 
Zacks Consensus Estimate
 
The Zacks Consensus Estimate calls for earnings of 26 cents per share for the third quarter of 2010. This is a huge improvement from a loss of 2 cents reported in the year- ago period. It is also above the earnings of 17 cents per share reported last quarter.
 
In the last 30 days, out of 9 analysts covering the stock, 1 analyst increased the third quarter estimates. None of the analysts made a downward revision to their forecasts. Additionally, 1 out of the 9 analysts covering the stock raised their estimates for full fiscal 2010.
 
There has been no change in the last 30 days in the earnings estimate of 26 cents for the third quarter as seen from the magnitude of the Consensus estimate trend. Therefore, the analysts expect the company to report in line.
 
Last Quarter Highlights
 
Despite the unfavorable seasonality, Jabil posted a much higher profit for the second quarter 2010. Results benefited from significant year-over-year margin expansion on modest revenue growth.
 
Total revenue for the quarter was $3.0 billion, an increase of 4.1% from $2.89 billion reported in the year-ago quarter. On a sequential basis, revenues decreased by 3% reflecting the seasonal weakness in the Consumer division.
 
Core earnings or non-GAAP earnings (excluding one-time items and discontinued operations but including stock based compensation expenses) in the quarter was 17 cents per share, up 54.5% from 11 cents reported in the year-ago period. The improvement in profitability year over year came from increased focus on operations and realized savings from previous restructuring plans.
 
Maintain Neutral Rating
 
Jabil’s operations continue to improve and we expect it to resume growth by the end of fiscal year 2010 on account of new business wins, restructuring initiatives and increase in customer orders.
 
Jabil’s business outlook is improving as a result of improving end-market demand; however, higher spending, rising inventory levels and intense competition will be a drag on near-term results.
 
Jabil’s major competitors include Flextronics International Ltd. (FLEX), Sanmina-SCI (SANM), Benchmark Electronics (BHE) and Plexus Corp. (PLXS).
 
We have a Neutral rating on Jabil with an expectation of potential revenue growth based on a recovery in the overall EMS industry in the current year and the next, aided by a reviving economic environment and rise in IT spending.
 
Read the full analyst report on "JBL"
Read the full analyst report on "FLEX"
Read the full analyst report on "SANM"
Read the full analyst report on "BHE"
Read the full analyst report on "PLXS"
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