Jabil Down 11% After 4Q Outlook Disappoints Investors
By DONNA FUSCALDO / WSJ / June 17, 2004 9:43 a.m.
Shares of Jabil Circuit plummeted in trading Thursday after the company's fourth quarter outlook failed to impress investors.
For its fiscal fourth quarter, Jabil expects earnings to come in between 25 cents and 27 cents a share and full year earnings at 80 cents to 82 cents.
Analysts, according to Thomson First Call, had expected Jabil to report earnings of 28 cents a share in its fourth quarter and $1.03 for the full year.
Recently, shares of Jabil were trading down 16.4%, or $4601, to $23.44, on heavy volume of 6.2 million shares. Average daily volume is 1.4 million shares.
Jabil 's disappointing outlook also pressured other electronic manufacturing services stocks Thursday, with Flextronics (FLEX) recently down 6%, while Sanmina (SANM) was off 7%, and Celestica (CLS) was down 4.9%.
"Jabil 's guidance for the August quarter, which was below consensus revenue and EPS estimates, was both a surprise and disappointment," wrote Matthew Sheerin, an analyst at Thomas Weisel Partners, in a research report. The analyst, who does not own shares of Jabil , noted that investors are reacting negatively to Jabil 's outlook because the company has been "such a rock and as dependable as you can get in the tough EMS business."
According to Sheerin, who rates Jabil an outperform, the company's lower than expected fourth quarter outlook is due to its largest customer, Cisco Systems Inc. (CSCO), which he said has a buildup of inventory.
Still, while investors sent shares of Jabil plummenting on its outlook, some analysts said the decline represents a buying opportunity for investors.
Deutsche Bank analyst Chris Whitmore, who rates Jabil a hold, said in a research report that Jabil 's stock will be fairly valued following the correction in the stock Thursday.
Meanwhile, Thomas Weisel's Sheerin said the selloff is a buying opportunity because Jabil is the "premier player" in the electronic manufacturing services industry.
Deutsche Bank and Thomas Weisel Partners do not have an investment banking relationship with Jabil .
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Jabil Circuit Reports Quarterly Results; Core Earnings Increase 39 Percent
June 16, 2004 5:53 p.m.
(WSJ) ST. PETERSBURG, Fla. -- Jabil Circuit posted a sharp rise in third-quarter earnings, in line with expectations, but implied that it may miss analysts' expectations for the fourth quarter.
In a press release Wednesday, the electronics manufacturing services provider said third-quarter net income rose to $40.1 million, or 19 cents a share, from $4.5 million, or 2 cents a share, in the year-earlier period.
The company's core earnings rose to $53.1 million, or 26 cents a share, from $38.2 million, or 19 cents a share, last year. Core earnings exclude amortization of intangibles, acquisition-related charges, restructuring and impairment charges and other income or losses.
The company expects fourth-quarter earnings of 25 cents to 27 cents a share, excluding items. Analysts expect, on average, earnings of 28 cents a share.
In after-hours trading, Jabil fell more than 7% to $26 a share from its Wednesday closing price of $28.05 cents.
Separately, Jabil said it named Forbes Alexander chief financial officer to replace Chris Lewis, who was named vice president of business development, effective Sept. 1.
The company said Alexander, 43 years old, has been with Jabil since 1993 and was named treasurer in 1996.
Lewis, also 43, became chief financial officer in 1996.
Jabil Circuit's third-quarter revenue rose 33% to $1.63 billion from $1.22 billion a year earlier.
The company expects fourth-quarter net income of 21 cents to 23 cents a share, including a charge of 4 cents a share for amortization of intangibles. Excluding the charge, Jabil expects core earnings of 25 cents to 27 cents a share.
Jabil also estimated revenue of $1.6 billion to $1.65 billion for the fourth quarter.
Analysts expect, on average, fourth-quarter core earnings of 28 cents a share on sales of $1.76 billion.
Jabil expects fiscal 2004 earnings of 80 cents to 82 cents a share, including charges of 20 cents a share for amortization of intangibles, acquisition-related charges and other income and losses. Revenue is estimated at $6.2 billion to $6.3 billion for the fiscal year.
On average, analysts expect fiscal 2004 earnings, excluding items, of $1.03 a share on revenue of $6.3 billion.
The company also forecasted first-quarter earnings of 26 cents to 28 cents a share, including charges of 4 cents a share, and expects first-quarter revenue of $1.75 billion to $1.85 billion.
Analysts expected first-quarter earnings of 32 cents a share on revenue of $1.86 billion.
Jabil 's Chief Executive Timothy L. Main said in a statement that the company's business environment has stabilized, and he believes its new customer programs "should be a significant driver for growth as we move into fiscal 2005."
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[So much for this old article! Peter.]
Why Jabil Fits the Bill
By ERIC C. FLEMING / Barrons / May 18, 2004
SOMETIMES IT'S GOOD to be the person behind the scenes.
As technology spending picks up, Jabil Circuit's factories are humming. The contract manufacturer makes products ranging from personal computers to parts of cell phones for other companies, such as Nokia.
Shares of Jabil are up more than a third from their 52-week low last May, beating the Nasdaq Composite index's advance of 21% since then.
And Jabil may keep investors smiling: The continued recovery in electronics demand should keep its manufacturing facilities busy and its profits rising, and it's expanding in areas like medical devices, too.
Chief information officers from Fortune 1000 companies polled by Goldman Sachs in April expect technology spending to rise by 2.4% this year, up from an estimated 0.9% advance in a December survey.
That's prompting companies like Cisco Systems, whose inventory rose by 20% over the past three months, to boost their orders to Jabil.
Cisco's stocking up "tells me that Cisco and Cisco's customers are comfortable with spending," says Kevin Wagner, an analyst at Banc One Investment Advisors.
"[Corporations] are much more confident to accelerate spending on technology," says Andrew Huang, an analyst at American Technology Research, who rates Jabil Buy.
European consumer electronics giant Royal Philips Electronics announced last month that sales for the year were improving, and Hewlett-Packard has reported a recovery in demand, as its printer business remains strong. (Jabil makes H-P's laser printers.) Philips, H-P and Cisco comprised 42% of Jabil's sales for the fiscal year that ended last August.
Deutsche Bank expects Jabil to add 22 new customers and $1 billion in revenue in fiscal 2004, more than a 20% increase in sales (see At a Glance). About 95% of Jabil's sales last year came from 32 customers.
Jabil also is winning more profitable jobs, such as making and assembling industrial and medical products.
At a Glance
Jabal Circuit (JBL)
Stock Price: $25.66
52-Wk High: $32.40
52-Wk Low: $18.83
Market Cap: $5.1 billion
Earnings Est. (fiscal '04): $1.03
Forward P/E: 25x
Projected Long-term EPS Growth: 22%
Projected EPS Growth ('04/'03): 45%
Sales (fiscal '03): $4.7 billion
Div. Yield: None
CEO: Timothy Main
Headquarters: St. Petersburg Fla.
Source: Thomson Financial/First Call, Jabil.com
Gross margins on medical equipment can run about 15%, whereas gross margins on assembling computers are a paltry 5%.
Jabil, which makes medical products from blood glucose meters to x-ray machines, expects its industrial and medical business to reach 11% of sales this year from just 2% in fiscal 2001, with customers like Abbott Laboratories and Agilent Technologies.
As the population ages and the medical community increasingly embraces technology, "companies like Jabil are seeing margins go up," says Jim Walker, an analyst at Stamford, Conn.-based market research firm Gartner Dataquest.
Jabil expects consumer electronics to represent nearly a quarter of its fiscal 2004 sales, while networking gear should comprise about 20% and computing and storage about 14%. The rest of its sales comes from telecom, automotive and other products.
While about a quarter of total electronics production is currently outsourced, Huang sees that percentage growing by about two points a year for the next several years.
Reik Reed, an analyst at Robert W. Baird, estimates that contractors such as Jabil could make as much as 80% of electronics in the future.
Cisco and Philips, for example, have been gradually increasing the percentage of manufacturing that they outsource, says Jim Kelleher, an analyst at Argus Research.
What's also helping Jabil now is what it didn't do several years ago.
While several rivals bulked up through acquisitions in the bullish 1990s, Jabil focused on growing organically, thereby avoiding the painful downsizing that some contract manufacturers, such as Solectron, are still enduring, says Sandy Sanders, an analyst at Evergreen Investments.
And Jabil plans to expand its operations this year in low-cost areas like China and India, where it already has about 70% of its manufacturing facilities.
Needham & Co expects Jabil's operating margins to rise to 4.5% in fiscal 2005, from 3.8% in fiscal 2003.
Jabil's already healthy balance sheet's improving, too.
In April, it cut its debt-to-capital ratio to 15% from 28% by calling some of its debt, according to Needham. Jabil now has modest debt and $900 million, or $4.49 a share, in cash.
And while Celestica and Solectron have negative returns on invested capital and Flextronics' returns are about 3%, Jabil's return on capital approaches 8%, according to Baseline.
Yet Jabil's shares trade at a modest premium to their long-term expected annual earnings growth rate (see At a Glance).
And the stock fetches a moderate discount to Jabil's historic five-year median P/E of 31.4x projected earnings, according to Thomson Baseline.
Of course, Jabil's reliance on so few customers remains a concern.
But each of its top three customers seems to be increasing sales and Jabil has been gradually adding customers and expanding in more profitable industries, like medical equipment.
So, as technology spending improves, Jabil, the quiet manufacturing arm of Cisco and others, will let its earnings do the talking—and investors are likely to hear it loud and clear. |
