Jabil continues to show strong momentum
10:06AM Jabil Circuit (JBL)
30.18 -0.19: Jabil Circuit continues to show strong momentum on the top and bottom lines, producing yet again another solid quarter. The EMS company, which manufacturers products for Nokia, Phillips, and Hewlett Packard, generated fourth quarter profit growth of 59%, as sales increased at the fastest rate in over a year.
The company reported net earnings of $70.5 mln, or $0.34 per share. On a comparable basis, excluding non-recurring items, earnings were $76.8 mln, or $0.37 per share - a penny above consensus. On the top line, sales grew an impressive 25% from last year's period and 5% sequentially to $2.04 bln. Gross margins remained steady at 8.4% with EBIT margins widening to 4.2% - a sequential improvement of 40 basis points.
Jabil's customer base reaches into many sectors and industries. For the quarter, Consumer, at 31% of total revenues, played a significant role as the largest industry segment and was driven by the ongoing ramp of new and existing products. Expanding sales of LCDs led growth in Peripherals, which gained 25% this quarter. Automotive (7% of total revs) declined, as production levels fell in the industry due to seasonality. Computing & Storage and Telecom declined 15% while Instrumentation & Medical (IM) grew 10%.
During its conference call, management noted it has not seen any discernable slowdown due to the hurricanes in the Gulf. Speaking to what it thinks will be the strongest industries next year, management highlighted IM, Defense & Aerospace, Consumer, and Computer & Storage. It also sees a shift toward full product development and order fulfillment, particularly in Consumer Electronics, along with full supply chain management of complex production - all trends that fit well into Jabil's strengths.
Jabil has one of the strongest balance sheets in the business, with consistent cash flow generation. Its sales cycle of 17 days - an improvement of three days sequentially - marked the best performance in the company's history. Return on invested capital expanded to 19%, up from 18% last year, and exceeding its weighted cost of capital. Jabil is the only US EMS company with an investment grade rating from all three rating agencies.
For investors looking for a consistent earner with a low risk profile, strong balance sheet, and industry-leading profitability, Jabil certainly fits the bill. The St. Petersburg, Florida-based manufacturer expects to see a repeat performance of 2005 next year, forecasting top line growth of 20% and earnings growth of 25%. It provided full year estimates for the first time, saying it expects to earn $1.55 to $1.65 per diluted share. That forecast is in-line with the current consensus. Net revenue is estimated to be in a range of $8.7 to $9.3 bln.
Jabil, providing an end-to-end solution, is well-positioned to benefit from the increasing outsourcing trend. Performance will be achieved through market share gains and end-market demand, as the company ramps production capacity and capability worldwide to accommodate a plethora of platforms, industries, and sectors. Investors have been rewarded this year as JBL is up 18.7% year-to-date compared to the Technology sector, which is down 3.5%. The stock now trades at 18.9x forward earnings, which we feel is attractive due to its low-risk profile, consistent performance, and strong earnings growth. ---Kimberly DuBord, Briefing.com |
