Jabil Posts Third Quarter Results

June 18, 2019

Operational Excellence Drives Strong Results

ST. PETERSBURG, Fla.--(BUSINESS WIRE)--Jun. 18, 2019-- Today, Jabil Inc. (NYSE: JBL), reported preliminary, unaudited financial results for its third quarter of fiscal year 2019.

Third Quarter of Fiscal Year 2019 Highlights:

  • Net revenue: $6.1 billion
  • Diversified Manufacturing Services (DMS) year-on-year revenue decrease: 6 percent
  • Electronics Manufacturing Services (EMS) year-on-year revenue growth: 26 percent
  • U.S. GAAP operating income: $140.9 million
  • U.S. GAAP diluted earnings per share: $0.28
  • Core operating income (Non-GAAP): $185.8 million
  • Core diluted earnings per share (Non-GAAP): $0.57

“I’m extremely pleased with our third quarter performance, highlighted by solid operational excellence and strong financial results. The team delivered 20 basis points of core margin expansion on double-digit revenue growth, culminating in an impressive 24 percent core EPS growth, year-over-year,” said CEO Mark Mondello. “Our strong year-to-date results validate that our diversification strategy has firmly taken hold,” he added.

Healthcare Business Update:

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

“Our overall healthcare business achieved another important step during the third quarter with the acquisition of three new sites, located in Brandywine, Elmira and Monument,” said Mondello. “I’d like to welcome our new employees at these outstanding healthcare facilities, which further expand our talent and capabilities in this area of our business,” he added.

General Business Update:

“In the fourth quarter, our outlook for revenue, core EPS and cash flow is solid as we see robust demand in 5G / wireless, cloud, industrial, healthcare and packaging,” said Mondello. “Over the longer-term, we remain relentless in our commitment to drive margin expansion and strong cash flows through a well-balanced, diverse stream of income,” he added.

Fourth Quarter of Fiscal Year 2019 Outlook:

• Net revenue   $6.3 billion to $6.9 billion
• U.S. GAAP operating income   $169 million to $235 million
• U.S. GAAP diluted earnings per share   $0.47 to $0.71 per diluted share
• Core operating income (Non-GAAP) (1)   $215 million to $275 million
• Core diluted earnings per share (Non-GAAP) (1)   $0.76 to $0.96 per diluted share
• Diversified Manufacturing Services revenue   Increase 4 percent year-on-year
• Electronics Manufacturing Services revenue   Increase 22 percent year-on-year
• Total company revenue   Increase 14 percent year-on-year

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(1) Core operating income and core diluted earnings per share exclude anticipated adjustments of $8.0 million for amortization of intangibles (or $0.05 per diluted share), $16.0 million for stock-based compensation expense and related charges (or $0.10 per diluted share), $2.0 million for restructuring and related charges (or $0.01 per diluted share) and $20.0 million to $14.0 million for acquisition and integration charges (or $0.13 to $0.09 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 third quarter of fiscal year 2019 and our guidance for future financial performance in our fourth 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), cash flow, 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 third 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 third 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)
         
    May 31, 2019    
    (unaudited)   August 31, 2018
ASSETS        
Current assets:        
Cash and cash equivalents   $ 694,086     $ 1,257,949  
Accounts receivable, net   2,696,599     1,693,268  
Contract assets   899,482      
Inventories, net   3,159,369     3,457,706  
Prepaid expenses and other current assets   524,833     1,141,000  

Total current assets

  7,974,369     7,549,923  
Property, plant and equipment, net   3,335,837     3,198,016  
Goodwill and intangible assets, net   890,679     906,876  
Deferred income taxes   202,556     218,252  
Other assets   205,336     172,574  
Total assets   $ 12,608,777     $ 12,045,641  
LIABILITIES AND EQUITY        
Current liabilities:        
Current installments of notes payable and long-term debt   $ 454,830     $ 25,197  
Accounts payable   4,826,333     4,942,932  
Accrued expenses   2,586,052     2,262,744  
Total current liabilities   7,867,215     7,230,873  
Notes payable and long-term debt, less current installments   2,476,842     2,493,502  
Other liabilities   145,750     94,617  
Income tax liabilities   136,400     148,884  
Deferred income taxes   115,370     114,385  
Total liabilities   10,741,577     10,082,261  
Commitments and contingencies        
Equity:        
Jabil Inc. stockholders’ equity:        
Preferred stock        
Common stock   260     257  
Additional paid-in capital   2,279,409     2,218,673  
Retained earnings   1,996,901     1,760,097  
Accumulated other comprehensive loss   (50,005 )   (19,399 )
Treasury stock, at cost   (2,371,592 )   (2,009,371 )
Total Jabil Inc. stockholders’ equity   1,854,973     1,950,257  
Noncontrolling interests   12,227     13,123  
Total equity   1,867,200     1,963,380  
Total liabilities and equity   $ 12,608,777     $ 12,045,641  

 

JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
(Unaudited)
         
    Three months ended   Nine months ended
    May 31, 2019   May 31, 2018   May 31, 2019   May 31, 2018
Net revenue   $ 6,135,602     $ 5,436,952     $ 18,708,867     $ 16,323,585
Cost of revenue   5,691,803     5,038,725     17,290,544     15,058,940
Gross profit   443,799     398,227     1,418,323     1,264,645
Operating expenses:                
Selling, general and administrative   274,482     252,487     834,750     789,482
Research and development   11,449     10,082     32,747     27,535
Amortization of intangibles   7,610     10,040     23,033     29,909
Restructuring and related charges   9,340     12,647     16,182     29,462
Operating income   140,918     112,971     511,611     388,257
Interest and other, net   57,840     41,818     162,820     123,403
Income before income tax   83,078     71,153     348,791     264,854
Income tax expense   39,046     28,451     113,078     120,705
Net income   44,032     42,702     235,713     144,149
Net income attributable to noncontrolling interests, net of tax   550     161     1,277     505
Net income attributable to Jabil Inc.   $ 43,482     $ 42,541     $ 234,436     $ 143,644
Earnings per share attributable to the stockholders of Jabil Inc.:                
Basic   $ 0.28     $ 0.25     $ 1.50     $ 0.83
Diluted   $ 0.28     $ 0.25     $ 1.47     $ 0.81
Weighted average shares outstanding:                
Basic   152,889     170,514     156,384     174,013
Diluted   155,678     173,279     159,036     176,997

 

JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
     
    Nine months ended
    May 31, 2019   May 31, 2018
Cash flows provided by (used in) operating activities:        
Net income   $ 235,713     $ 144,149  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Depreciation and amortization   574,922     583,646  
Restructuring and related charges   (3,555 )   14,838  
Recognition of stock-based compensation expense and related charges   47,452     74,977  
Deferred income taxes   14,008     (39,762 )
Provision for allowance for doubtful accounts   10,734     20,577  
Other, net   34,204     (4,059 )
Change in operating assets and liabilities, exclusive of net assets acquired:        
Accounts receivable   (528,597 )   (1,692,208 )
Contract assets   (865,408 )    
Inventories   349,252     (379,658 )
Prepaid expenses and other current assets   6,910     (98,160 )
Other assets   (16,700 )   (21,542 )
Accounts payable, accrued expenses and other liabilities   253,721     20,897  
Net cash provided by (used in) operating activities   112,656     (1,376,305 )
Cash flows (used in) provided by investing activities:        
Acquisition of property, plant and equipment   (789,226 )   (819,167 )
Proceeds and advances from sale of property, plant and equipment   167,653     246,370  
Cash paid for business and intangible asset acquisitions, net of cash   (153,239 )   (109,664 )
Cash receipts on sold receivables   96,846     1,571,156  
Other, net   (26,129 )   (2,360 )
Net cash (used in) provided by investing activities   (704,095 )   886,335  
Cash flows provided by (used in) financing activities:        
Borrowings under debt agreements   9,482,468     6,847,756  
Payments toward debt agreements   (9,073,684 )   (6,472,728 )
Payments to acquire treasury stock   (350,323 )   (316,394 )
Dividends paid to stockholders   (39,736 )   (44,274 )
Net proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan   14,582     12,844  
Treasury stock minimum tax withholding related to vesting of restricted stock   (11,898 )   (22,526 )
Other, net   (1,500 )   (11,876 )
Net cash provided by (used in) financing activities   19,909     (7,198 )
Effect of exchange rate changes on cash and cash equivalents   7,667     (15,259 )
Net decrease in cash and cash equivalents   (563,863 )   (512,427 )
Cash and cash equivalents at beginning of period   1,257,949     1,189,919  
Cash and cash equivalents at end of period   $ 694,086     $ 677,492  

 

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   Nine months ended
    May 31, 2019   May 31, 2018   May 31, 2019   May 31, 2018
Operating income (U.S. GAAP)   $ 140,918     $ 112,971     $ 511,611     $ 388,257
Amortization of intangibles   7,610     10,040     23,033     29,909
Stock-based compensation expense and related charges   14,506     15,038     47,452     82,822
Restructuring and related charges   9,340     12,647     16,182     29,462
Distressed customer charge               14,706
Business interruption and impairment charges, net       (634 )   (2,860 )   10,722
Acquisition and integration charges   13,391         35,066    
Adjustments to operating income   44,847     37,091     118,873     167,621
Core operating income (Non-GAAP)   $ 185,765     $ 150,062     $ 630,484     $ 555,878
Net income attributable to Jabil Inc. (U.S. GAAP)   $ 43,482     $ 42,541     $ 234,436     $ 143,644
Adjustments to operating income   44,847     37,091     118,873     167,621
Adjustments for taxes(1)   125     (16 )   (17,837 )   29,037
Core earnings (Non-GAAP)   $ 88,454     $ 79,616     $ 335,472     $ 340,302
Diluted earnings per share (U.S. GAAP)   $ 0.28     $ 0.25     $ 1.47     $ 0.81
Diluted core earnings per share (Non-GAAP)   $ 0.57     $ 0.46     $ 2.11     $ 1.92
Diluted weighted average shares outstanding (U.S. GAAP and Non-GAAP)   155,678     173,279     159,036     176,997

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(1) The nine months ended May 31, 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. The nine months ended May 31, 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.

 

JABIL INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
ROIC & Core ROIC
(in thousands)
(Unaudited)
     
    Three months ended
    May 31, 2019   May 31, 2018
Numerator:        
Operating income (U.S. GAAP)   $ 140,918     $ 112,971  
Tax effect (1)   (42,490 )   (30,717 )
After-tax operating income   98,428     82,254  
    x4   x4
Annualized after-tax operating income   $ 393,712     $ 329,016  
Core operating income (Non-GAAP)   $ 185,765     $ 150,062  
Tax effect (2)   (41,150 )   (29,951 )
After-tax core operating income   144,615     120,111  
    x4   x4
Annualized after-tax core operating income   $ 578,460     $ 480,444  
Denominator:        
Average total Jabil Inc. stockholders' equity (3)   $ 1,851,074     $ 2,227,618  
Average notes payable and long-term debt, less current installments (3)   2,479,615     2,152,478  
Average current installments of notes payable and long-term debt (3)   315,008     149,024  
Average cash and cash equivalents (3)   (721,572 )   (809,144 )
Net invested capital base   $ 3,924,125     $ 3,719,976  
         
Return on Invested Capital (U.S. GAAP)   10.0 %   8.8 %
Adjustments noted above   4.7 %   4.1 %
Core Return on Invested Capital (Non-GAAP)   14.7 %   12.9 %

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(1) The tax effect is calculated by applying the U.S. GAAP effective tax rate for the three months ended May 31, 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 May 31, 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)
     
    Nine months ended
    May 31, 2019   May 31, 2018
Net cash provided by (used in) operating activities (U.S. GAAP)(1)   $ 112,656     $ (1,376,305 )
Cash receipts on sold receivables   96,846     1,571,156  
Adjusted cash provided by operating activities (Non-GAAP)   $ 209,502     $ 194,851  
Acquisition of property, plant and equipment   (789,226 )   (819,167 )
Proceeds and advances from sale of property, plant and equipment   167,653     246,370  
Adjusted free cash flow (Non-GAAP)   $ (412,071 )   $ (377,946 )

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(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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