Jabil Posts Second Quarter Results

March 14, 2019

Diversification Strategy Continues to Drive Positive Results

ST. PETERSBURG, Fla.--(BUSINESS WIRE)--Mar. 14, 2019-- Today, Jabil Inc. (NYSE:JBL), reported preliminary, unaudited financial results for its second quarter of fiscal year 2019.

“I’m extremely pleased with our outstanding second quarter results, which further demonstrate the success of our diversification strategy,” said CEO Mark Mondello. “Quite simply, our approach is working, both in terms of our strategy and operational excellence. This is well-illustrated by our performance in the first half of the fiscal year,” he added.

Second Quarter of Fiscal Year 2019 Highlights:

  • Net revenue: $6.1 billion
  • Diversified Manufacturing Services (DMS) year-on-year revenue decrease: 7 percent
  • Electronics Manufacturing Services (EMS) year-on-year revenue growth: 33 percent
  • U.S. GAAP operating income: $154.0 million
  • U.S. GAAP diluted earnings per share: $0.43
  • Core operating income (Non-GAAP): $191.1 million
  • Core diluted earnings per share (Non-GAAP): $0.64

Healthcare Business Update:

During the second fiscal quarter, Jabil successfully transitioned the first two sites from Johnson & Johnson Medical Devices Companies (JJMDC) as part of the previously announced strategic collaboration between the companies.

“I’m honored to welcome our new employees from these outstanding healthcare facilities,” said Mondello. “Our new team members bring forward terrific experience, elevating and expanding Jabil’s capabilities in our healthcare business,” he added.

General Business Update:

“As we move into the back half of our fiscal year, our outlook for revenue and core EPS remain strong, supported by strength in our healthcare, retail, cloud and industrial businesses,” said Mondello.

Third Quarter of Fiscal Year 2019 Outlook:

• Net revenue         $5.7 billion to $6.3 billion
• U.S. GAAP operating income         $106 million to $167 million
• U.S. GAAP diluted earnings per share         $0.19 to $0.46 per diluted share
• Core operating income (Non-GAAP) (1)         $150 million to $200 million
• Core diluted earnings per share (Non-GAAP) (1)         $0.47 to $0.67 per diluted share
• Diversified Manufacturing Services revenue         Decrease 12 percent year-on-year
• Electronics Manufacturing Services revenue         Increase 27 percent year-on-year
• Total company revenue         Increase 10 percent year-on-year

(1) Core operating income and core diluted earnings per share exclude anticipated adjustments of $7.0 million for amortization of intangibles (or $0.05 per diluted share), $15.0 million for stock-based compensation expense and related charges (or $0.09 per diluted share), $6.0 to $3.0 million for restructuring and related charges (or $0.04 to $0.02 per diluted share) and $16.0 to $8.0 million for acquisition and integration charges (or $0.10 to $0.05 per diluted share).

(Definitions: “U.S. GAAP” means U.S. generally accepted accounting principles. Jabil defines core operating income as U.S. GAAP operating income before amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges, distressed customer charges, acquisition and integration charges, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges and business interruption and impairment charges, net. Jabil defines core earnings as U.S. GAAP net income before amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges, distressed customer charges, acquisition and integration charges, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges, business interruption and impairment charges, net, impairment on securities, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations and certain other expenses, net of tax and certain deferred tax valuation allowance charges. Jabil defines core diluted earnings per share as core earnings divided by the weighted average number of outstanding diluted shares as determined under U.S. GAAP. Jabil calculates its core return on invested capital ("ROIC") by annualizing its after-tax core operating income for its most recently ended quarter and dividing that by a two quarter average net invested capital base. The Company calculates its after-tax core operating income as its core operating income less a certain tax effect (the amount is determined by applying the core effective tax rate to core operating income less interest expense). The Company calculates its average net invested capital base as the sum of the averages of its stockholders’ equity, current and non-current portions of its notes payable and long-term debt less the average of its cash and cash equivalents. The calculation of the averages discussed in the previous sentence is based on the addition of the account balance at the end of the most recently-ended quarter to the account balance at the end of the prior quarter and dividing by two.Jabil defines adjusted free cash flow as net cash provided by (used in) operating activities plus cash receipts on sold receivables less net capital expenditures (acquisition of property, plant and equipment less proceeds and advances from sale of property, plant and equipment).Jabil reports core operating income, core earnings, core diluted earnings per share, core ROIC and adjusted free cash flow to provide investors an additional method for assessing operating income, earnings, diluted earnings per share and free cash flow from what it believes are its core manufacturing operations. See the accompanying reconciliation of Jabil’s core operating income to its U.S. GAAP operating income, its calculation of core earnings and core diluted earnings per share to its U.S. GAAP net income and U.S. GAAP earnings per share and additional information in the supplemental information.)

Forward Looking Statements: This release contains forward-looking statements, including those regarding our anticipated financial results for our second quarter of fiscal year 2019 and our guidance for future financial performance in our third quarter of fiscal year 2019 (including, net revenue, total company and segment revenue, U.S. GAAP operating income, U.S. GAAP diluted earnings per share, core operating income (Non-GAAP), core diluted earnings per share (Non-GAAP) results and the components thereof, including but not limited to amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges and acquisition and integration charges). The statements in this release are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially from our current expectations. Such factors include, but are not limited to: our determination as we finalize our financial results for our second quarter of fiscal year 2019 that our financial results and conditions differ from our current preliminary unaudited numbers set forth herein; unexpected, adverse seasonal impacts on demand; performance in the markets in which we operate; changes in macroeconomic conditions; the occurrence of, success and expected financial results from, product ramps; our ability to maintain and improve costs, quality and delivery for our customers; whether our restructuring activities and the realignment of our capacity will adversely affect our cost structure, ability to service customers and labor relations; reliance on a limited number of suppliers for critical components; changes in technology; competition; anticipated growth for us and our industry that may not occur; managing rapid growth; managing rapid declines in customer demand and other related customer challenges that may occur; our ability to successfully consummate acquisitions and divestitures; managing the integration of businesses we acquire; risks associated with international sales and operations; retaining key personnel; our dependence on a limited number of large customers; and adverse changes in political conditions, in the U.S. and internationally, including, among others, adverse changes in tax laws and rates and our ability to estimate and manage their impact. Additional factors that could cause such differences can be found in our Annual Report on Form 10-K for the fiscal year ended August 31, 2018 and our other filings with the Securities and Exchange Commission. We assume no obligation to update these forward-looking statements.

Supplemental Information Regarding Non-GAAP Financial Measures: Jabil provides supplemental, non-GAAP financial measures in this release to facilitate evaluation of Jabil’s core operating performance. These non-GAAP measures exclude certain amounts that are included in the most directly comparable U.S. GAAP measures, do not have standard meanings and may vary from the non-GAAP financial measures used by other companies. Management believes these “core” financial measures are useful measures that facilitate evaluation of the past and future performance of Jabil’s ongoing operations on a comparable basis.

Jabil reports core operating income, core earnings, core diluted earnings per share, core ROIC and adjusted free cash flows to provide investors an additional method for assessing operating income, earnings, earnings per share and free cash flow from what it believes are its core manufacturing operations. Among other uses, management uses non-GAAP financial measures to make operating decisions, assess business performance and as a factor in determining certain employee performance when determining incentive compensation. The Company determines the tax effect of the items excluded from core earnings and core diluted earnings per share based upon evaluation of the statutory tax treatment and the applicable tax rate of the jurisdiction in which the pre-tax items were incurred, and for which realization of the resulting tax benefit, if any, is expected. In certain jurisdictions where the Company does not expect to realize a tax benefit (due to existing tax incentives or a history of operating losses or other factors resulting in a valuation allowance related to deferred tax assets), a reduced or 0% tax rate is applied. Detailed definitions of certain of the core financial measures are included above under “Definitions” and a reconciliation of the disclosed core financial measures to the most directly comparable U.S. GAAP financial measures is included under the heading “Supplemental Data” at the end of this release.

Meeting and Replay Information:Jabil will hold a conference call to discuss its second quarter results today at 4:30 p.m. ET. To access the live audio webcast and view the accompanying slide presentation, visit the Investor Relations section of Jabil's website, located at https://investors.jabil.com. An archived replay of the webcast will also be available after completion of the call.

About Jabil:Jabil (NYSE: JBL) is a product solutions company providing comprehensive design, manufacturing, supply chain and product management services. Operating from over 100 facilities in 29 countries, Jabil delivers innovative, integrated and tailored solutions to customers across a broad range of industries. For more information, visit jabil.com.

JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
    February 28, 2019    
    (unaudited)   August 31, 2018
ASSETS        
Current assets:        
Cash and cash equivalents   $ 749,057     $ 1,257,949  
Accounts receivable, net   2,543,615     1,693,268  
Contract assets   832,889      
Inventories, net   3,248,273     3,457,706  
Prepaid expenses and other current assets   532,223     1,141,000  
Total current assets   7,906,057     7,549,923  
Property, plant and equipment, net   3,279,505     3,198,016  
Goodwill and intangible assets, net   901,735     906,876  
Deferred income taxes   194,015     218,252  
Other assets   195,282     172,574  
Total assets   $ 12,476,594     $ 12,045,641  
LIABILITIES AND EQUITY        
Current liabilities:        
Current installments of notes payable and long-term debt   $ 175,186     $ 25,197  
Accounts payable   4,900,070     4,942,932  
Accrued expenses   2,676,604     2,262,744  
Total current liabilities   7,751,860     7,230,873  
Notes payable and long-term debt, less current installments   2,482,387     2,493,502  
Other liabilities   132,882     94,617  
Income tax liabilities   133,066     148,884  
Deferred income taxes   117,547     114,385  
Total liabilities   10,617,742     10,082,261  
Commitments and contingencies        
Equity:        
Jabil Inc. stockholders’ equity:        
Preferred stock        
Common stock   260     257  
Additional paid-in capital   2,264,966     2,218,673  
Retained earnings   1,966,100     1,760,097  
Accumulated other comprehensive loss   (13,253 )   (19,399 )
Treasury stock, at cost   (2,370,898 )   (2,009,371 )
Total Jabil Inc. stockholders’ equity   1,847,175     1,950,257  
Noncontrolling interests   11,677     13,123  
Total equity   1,858,852     1,963,380  
Total liabilities and equity   $ 12,476,594     $ 12,045,641  
                 
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
(Unaudited)
         
    Three Months Ended   Six months ended
    February 28, 2019   February 28, 2018   February 28, 2019   February 28, 2018
Net revenue   $ 6,066,990     $ 5,301,101     $ 12,573,265     $ 10,886,633
Cost of revenue   5,612,116     4,903,968     11,598,741     10,020,215
Gross profit   454,874     397,133     974,524     866,418
Operating expenses:                
Selling, general and administrative   282,142     243,940     560,268     536,995
Research and development   10,155     8,344     21,298     17,453
Amortization of intangibles   7,777     9,890     15,423     19,869
Restructuring and related charges   817     5,427     6,842     16,815
Operating income   153,983     129,532     370,693     275,286
Interest and other, net   53,157     43,270     104,980     81,585
Income before income tax   100,826     86,262     265,713     193,701
Income tax expense   33,219     48,734     74,032     92,254
Net income   67,607     37,528     191,681     101,447
Net income attributable to noncontrolling interests,                      
net of tax   253     220     727     344
Net income attributable to Jabil Inc.   $ 67,354     $ 37,308     $ 190,954     $ 101,103
Earnings per share attributable to the stockholders                
of Jabil Inc.:                
Basic   $ 0.44     $ 0.21     $ 1.21     $ 0.58
Diluted   $ 0.43     $ 0.21     $ 1.19     $ 0.57
Weighted average shares outstanding:                
Basic   154,725     174,635     158,160     175,792
Diluted   156,737     176,953     160,413     178,578
                       
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
    Six months ended
    February 28, 2019   February 28, 2018
Cash flows provided by (used in) operating activities:        
Net income   $ 191,681     $ 101,447  
Adjustments to reconcile net income to net cash provided by (used in) operating        
activities:        
Depreciation and amortization   381,510     382,322  
Restructuring and related charges   (3,212 )   9,263  
Recognition of stock-based compensation expense and related charges   32,946     59,938  
Deferred income taxes   23,921     (24,535 )
Provision for allowance for doubtful accounts   5,598     17,271  
Other, net   38,559     (792 )
Change in operating assets and liabilities, exclusive of net assets acquired:        
Accounts receivable   (365,192 )   (1,245,493 )
Contract assets   (815,144 )    
Inventories   225,036     (418,307 )
Prepaid expenses and other current assets   (4,895 )   (95,187 )
Other assets   (10,170 )   (19,272 )
Accounts payable, accrued expenses and other liabilities   407,127     369,346  
Net cash provided by (used in) operating activities   107,765     (863,999 )
Cash flows (used in) provided by investing activities:        
Acquisition of property, plant and equipment   (537,140 )   (544,401 )
Proceeds and advances from sale of property, plant and equipment   144,968     236,316  
Cash paid for business and intangible asset acquisitions, net of cash   (80,778 )   (95,858 )
Cash receipts on sold receivables   96,846     1,162,184  
Other, net   (13,504 )   (2,360 )
Net cash (used in) provided by investing activities   (389,608 )   755,881  
Cash flows used in financing activities:        
Borrowings under debt agreements   6,182,931     4,690,570  
Payments toward debt agreements   (6,046,181 )   (4,555,233 )
Payments to acquire treasury stock   (350,323 )   (225,108 )
Dividends paid to stockholders   (27,422 )   (30,431 )
Net proceeds from exercise of stock options and issuance of common stock under            
employee stock purchase plan   14,587     12,838  
Treasury stock minimum tax withholding related to vesting of restricted stock   (11,204 )   (22,343 )
Other, net   (1,500 )   (11,237 )
Net cash used in financing activities   (239,112 )   (140,944 )
Effect of exchange rate changes on cash and cash equivalents   12,063     (61 )
Net decrease in cash and cash equivalents   (508,892 )   (249,123 )
Cash and cash equivalents at beginning of period   1,257,949     1,189,919  
Cash and cash equivalents at end of period   $ 749,057     $ 940,796  
                 
JABIL INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
RECONCILIATION OF U.S. GAAP FINANCIAL RESULTS TO NON-GAAP MEASURES
(in thousands, except for per share data)
(Unaudited)
 
    Three months ended   Six months ended
    February 28, 2019   February 28, 2018   February 28, 2019   February 28, 2018
Operating income (U.S. GAAP)   $ 153,983     $ 129,532     $ 370,693     $ 275,286
Amortization of intangibles   7,777     9,890     15,423     19,869
Stock-based compensation expense and related charges   15,697     15,039     32,946     67,784
Restructuring and related charges   817     5,427     6,842     16,815
Distressed customer charge       14,706         14,706
Business interruption and impairment charges, net       4,002     (2,860 )   11,356
Acquisition and integration charges   12,785         21,675    
Adjustments to operating income   37,076     49,064     74,026     130,530
Core operating income (Non-GAAP)   $ 191,059     $ 178,596     $ 444,719     $ 405,816
Net income attributable to Jabil Inc. (U.S. GAAP)   $ 67,354     $ 37,308     $ 190,954     $ 101,103
Adjustments to operating income   37,076     49,064     74,026     130,530
Adjustments for taxes(1)   (4,219 )   29,771     (17,962 )   29,054
Core earnings (Non-GAAP)   $ 100,211     $ 116,143     $ 247,018     $ 260,687
Diluted earnings per share (U.S. GAAP)   $ 0.43     $ 0.21     $ 1.19     $ 0.57
Diluted core earnings per share (Non-GAAP)   $ 0.64     $ 0.66     $ 1.54     $ 1.46
Diluted weighted average shares outstanding (U.S.                      
GAAP and Non-GAAP)   156,737     176,953     160,413     178,578
 

(1)The six months ended February 28, 2019 includes a $13.3 million income tax benefit for the effects of the Tax Act recorded during the three months ended November 30, 2018. Includes $30.9 million, which is comprised of the provisional one-time transition tax as required by the Tax Act and the provisional impact of the Tax Act to the re-measurement of U.S. deferred tax attributes for the three months and six months ended February 28, 2018, respectively.

JABIL INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
ROIC & Core ROIC
(in thousands)
(Unaudited)
     
    Three Months Ended
    February 28, 2019   February 28, 2018
Numerator:        
Operating income (U.S. GAAP)   $ 153,983     $ 129,532  
Tax effect (1)   (35,525 )   (51,827 )
After-tax operating income   118,458     77,705  
    x4   x4
Annualized after-tax operating income   $ 473,832     $ 310,820  
Core operating income (Non-GAAP)   $ 191,059     $ 178,596  
Tax effect (2)   (39,338 )   (19,730 )
After-tax core operating income   151,721     158,866  
    x4   x4
Annualized after-tax core operating income   $ 606,884     $ 635,464  
Denominator:        
Average total Jabil Inc. stockholders' equity (3)   $ 1,869,546     $ 2,305,917  
Average notes payable and long-term debt, less current installments (3)   2,485,149     1,937,456  
Average current installments of notes payable and long-term debt (3)   100,190     227,089  
Average cash and cash equivalents (3)   (776,733 )   (843,527 )
Net invested capital base   $ 3,678,152     $ 3,626,935  
         
Return on Invested Capital (U.S. GAAP)   12.9 %   8.6 %
Adjustments noted above   3.6 %   8.9 %
Core Return on Invested Capital (Non-GAAP)   16.5 %   17.5 %
             

(1) The tax effect is calculated by applying the U.S. GAAP effective tax rate for the three months ended February 28, 2019 and 2018 to U.S. GAAP operating income less interest expense.

(2) The tax effect is calculated by applying the core effective tax rate for the three months ended February 28, 2019 and 2018 to core operating income less interest expense.

(3) The average is based on the addition of the account balance at the end of the most recently-ended quarter to the account balance at the end of the prior quarter and dividing by two.

JABIL INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
ADJUSTED FREE CASH FLOW
(in thousands)
(Unaudited)
     
    Six months ended
    February 28, 2019   February 28, 2018
Net cash provided by (used in) operating activities (U.S. GAAP)(1)   $ 107,765     $ (863,999 )
Cash receipts on sold receivables   96,846     1,162,184  
Adjusted cash provided by operating activities (Non-GAAP)   $ 204,611     $ 298,185  
Acquisition of property, plant and equipment   (537,140 )   (544,401 )
Proceeds and advances from sale of property, plant and equipment   144,968     236,316  
Adjusted free cash flow (Non-GAAP)   $ (187,561 )   $ (9,900 )

(1) In fiscal year 2019, the adoption of Accounting Standards Update ("ASU") 2016-15, "Classification of Certain Cash Receipts and Cash Payments" resulted in a reclassification of cash flows from operating activities to investing activities for cash receipts for the deferred purchase price receivable on asset-backed securitization transactions. The adoption of this standard does not reflect a change in the underlying business or activities. The effects of this change are applied retrospectively to all prior periods.

 

Source: Jabil, Inc.

Investor Contact:
Adam Berry
Vice President, Investor Relations
(727) 803-5772
Adam_Berry@jabil.com


Media Contact:
Michelle Smith
Vice President, Corporate Communications
(727) 803-3534
Michelle_Smith@jabil.com

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