S&P revises Jabil Circuit's outlook to positive
April 16 - Standard & Poor's Ratings Services today revised its outlook on Jabil Circuit to positive from stable. The outlook revision reflects the company's good operational performance and its growing electronics manufacturing services (EMS) market position following the integration of several acquisitions. Ratings on the company, including the 'BB+' corporate credit rating, were affirmed.
Jabil Circuit is a leading provider of EMS to such leading original equipment manufacturers (OEMs) as Koninklijke Philips Electronics N.V., Cisco, and Hewlett-Packard. St. Petersburg, Fla.-based Jabil Circuit had about $865 million in total debt outstanding, including operating leases and securitizations, at February 2004.
"The ratings reflect operational challenges associated with supplying volatile electronics end-markets, as well as customer concentration," said Standard & Poor's credit analyst Emile Courtney. "These factors are partly offset by Jabil's good operational performance, its top-tier industry position, and its moderate financial profile."
Compared with its top-tier EMS peers, Jabil pursued an organic growth strategy during the rapid growth phase of the last business cycle (1998-2001), deploying comparatively modest levels of capital for acquisitions. As a result, the company emerged from the industry's downturn (2001-2003) larger and with good profitability, avoiding the facilities closures, headcount reductions, and write-offs of its peers. Since 2001, management has used $600 million acquiring OEM customer programs that, given volatile electronics end markets, introduced a measure of risk into the company's business profile. These acquisitions have been integrated well, and have diversified Jabil's end markets and geographic reach, adding major European customers.
Jabil's strong customer focus and its position as a premium provider of EMS services are key differentiators in its strategic approach. The company's good customer relationships have resulted in solid sales growth with existing customers. In addition, Jabil's expansion of its low-cost manufacturing capacity was well managed, and the company has exhibited good operational execution over a number of challenging years. Still, customer concentration, although decreasing, is still significant: The three largest customers comprise about 40% of sales.
Jabil is the most profitable top-tier EMS provider, with operating margins before depreciation and amortization of nearly 7.5% in the 12 months ended February 2004. Standard & Poor's believes that operating margins will likely stabilize at modestly lower levels, reflecting a higher percentage of consumer electronics volume in the company's sales mix. Return on invested capital, which includes operating leases and securitizations, net of cash, was almost 12% in the 12 months ended February 2004, more than 2x that of most other top-tier EMS providers. |
