Jabil Inc.

Jabil Inc.

$125.03
2.09 (0%)
New York Stock Exchange
USD, US
Hardware, Equipment & Parts

Jabil Inc. (JBL) Q1 2006 Earnings Call Transcript

Published at 2005-12-23 17:00:00
Operator
At this time, I would like to welcome everyone to the Jabil Circuit first quarter 2006 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remark there will be a question and answer period. If you would like to ask a question during this time simply press, “*’, then the number “1” on your telephone keypad. If you would like to withdraw your question press the “#”. Thank you, I would now like to introduce Mr. Alexander, Vice President of Corporate Communications and Investor Relations at Jabil Circuit. Mr. Alexander, you may begin your conference. Forbes I. J. Alexander: Thank you, good afternoon. This is Forbes Alexander and with me this afternoon is Tim Main, our CEO and President. During the course of this conference call we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are just predictions and that actual events or results may differ materially. We refer you to the documents that the company files from time-to-time with the SEC, including our most recently filed 10-K that was filed on October 28, 2005. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This call is being recorded and will be posted for audio playback on the Jabil website in the Investor Relations section along with the press release and a slideshow presentation on the first quarter and fiscal year. Now I ask you to turn to slides 2 and 3. Results for the first quarter of fiscal ‘06 were as follows. On revenues of $2.404 billion, GAAP operating income increased 26% to $88.8 million. This compares to $70.3 in GAAP operating income for the same period in the prior year. Core operating income, excluding amortization of intangibles and stock-based compensation for the quarter was $111.8 million or 4.7% of revenue, as compared to $80.9 million or 4.4% for the same period in the prior year. Core earnings per share were $0.44. On a year-over-year basis, the quarter represents a 31% growth in revenue and 38% growth in core operating income. On a sequential basis, revenues increased 18% while core operating income increased 20%. Please turn to slide 4. Now I’d like to discuss results for the quarter and look at our revenues by sector. First quarter revenues increased 18% from the fourth quarter. Production levels in the Automotive sector increased 9% from the previous quarter. Computing and Storage sector increased 11% from the fourth quarter for fiscal 2005 as a result of higher production levels than forecast across a number of customers. Consumer Products sector increased by 46% in the quarter, reflecting seasonal higher levels of production and the ongoing ramp of existing and new products with our largest customers in this sector. The Instrumentation and Medical sector increased by 8% from the fourth quarter, reflecting the ongoing growth of assemblies across multiple customers in this sector. The Networking sector, increased by 2% from the previous quarter, Peripherals sector decreased by 7% over the previous quarter, and finally the Telecommunications sector increased 10% sequentially. If you’d now please turn to slide 5, our sector information for the quarter in percentage terms was as follows: Automotive, 6%; Computing and Storage, 10%; Consumer, 38%; Instrumentation and Medical, 16%; Networking, 12%; Peripherals, 7%; Telecom, 7%; Other sector was 4%. I’d now like to review our balance sheet and ratio trends. Please turn to slide 6. Inventory days reduced in the quarter by one day to 38 days. Turns were consistent with those of the fourth quarter at 9. In absolute dollar terms, inventory increased by $123 million, reflecting a pre-positioning of inventory for continuing strength in demand in the first half of our second fiscal quarter of ‘06. Days sales outstanding improved by one day to 41 days from the previous quarter. Accounts payable days were consistent with those of the previous quarter at 64 days or $1.573 billion. The company’s sales cycle was at its lowest point in our history at 15 days, an improvement of 3 days over the previous quarter. Our return on invested capital increased to 23% from 19% at the end of the August quarter and a rate of 17% from the same period in fiscal 2005. I’ll now ask you to turn to slides 7 and 8. Cash and cash equivalents were $876 million as compared to 796 million at the end of the last quarter. Our cash flows from operations were approximately $144 million in the first quarter, our 20th consecutive quarter of positive cash flow, continuing to demonstrate the ability to generate strong cash flows from operations in a significant growth environment. Our capital expenditures during the quarter were approximately $67 million. Depreciation for the quarter was approximately $42 million, amortization was approximately $6 million, and EBITDA in the quarter was approximately $154 million. On a year-over-year basis, we continue to maintain efficient control on capital deployed while increasing revenues and our operating earnings. Our business model continues to demonstrate the returns on invested capital in excess of our weighted average cost of capital, and operating cash flows are sustainable and predictable. Our net capital investment at the end of the quarter was consistent with that of the previous quarter at $1.67 billion. We’re pleased with this result. As outlined in our last quarter’s call, we believe we’re extremely well positioned to produce operating cash flows in excess of those in fiscal 2005. I’d now like to review our capacity and operations. We’re pleased with the operational execution of our business units and plants in the most recent quarter, in particular, those executing to a very steep ramp in consumer electronics. As we continue into fiscal ‘06, we should be challenged in numerous plants with ramping requirements, but do remain in the position to have adequate floor space capacity. During the first quarter, we’re pleased to note that our Wuxi, China facility commenced production operations. Our Ranjangaon, India, facility commencing begins at the end of the fourth quarter. We’re well positioned to see production levels continuing to ramp in both facilities throughout the remainder of fiscal ‘06, supporting customer demand across multiple sectors, such as peripherals, consumer, telecom and industrial instrumentation and medical sectors. Our investments in fiscal 2006 are expected to be related to the above locations and existing plants as we continue to see increasing levels of production across multiple sites and geographies. We estimate capital expenditures to remain in the range provided last quarter of $250 million to $350 million for the fiscal year. Depreciation is estimated to be in the range of $180 million to $200 million. I’d now like to discuss briefly stock-based compensation. As we discussed in our last earnings call, companies are now required to expense all costs associated with stock-based compensation as a result of the implementation of Financial Accounting Standard 123R on the first of September 2005, or our first fiscal quarter. Stock-based compensation for the first fiscal quarter was $17.1 million on a pre-tax basis, or $0.05 per diluted share. This was at the higher end of our previous guidance, as our out-performance in total shareholder returns to our peer group over the last two years triggered the accelerated investing of previously awarded options. For the full fiscal year, such compensation is expected to be approximately $0.12. Such costs, along with intangibles amortization, shall be excluded from our core earnings guidance to you as we wish to provide you with an alternative method for assessing operating income, earnings and earnings per share from what we believe to be are our core manufacturing operations. I’ll now ask you to turn to slide 9 and our business update, our second quarter guidance for fiscal ‘06. We estimate that our second fiscal quarter of 2006, our February quarter, to have revenues in the range of $2.1 billion to $2.3 billion, reflecting the seasonal decline in demand for consumer products. As a result, our core earnings per share forecast to be in the range of $0.34 to $0.38. As a percentage of revenue, we estimate operating margins to be in the range of 4.1% to 4.4%. Research and development costs are expected to increase by approximately $1 million to 7.5 million in the fiscal quarter, reflecting our continued success in design-related programs with existing and new customers. Capital expenditures are estimated to be in the range of $60 million to $90 million in the second fiscal quarter, and our tax rate is expected to be 16%, consistent with that of the first quarter. Please turn to slide 10 for our revenues by sector for the second quarter. The Automotive sector is estimated to decrease by 7% in the quarter, reflecting seasonal lower levels of production. The Computing and Storage sector is estimated to have increasing production levels by 10% from the first quarter. Our Consumer sector is expected to decrease by approximately 30% in the second quarter as we exit peak demand season for Consumer Products. The Instrumentation and Medical sector is anticipated to increase by 10% in the second quarter, reflecting the ongoing growth of assemblies within the sector across multiple customers. The Networking sector is expected to increase 2% in the second quarter. The Peripherals sector is estimated to increase by 5% in the quarter, and the Telecom is estimated to have consistent levels of production with the first fiscal quarter. Please now turn to slide 11, the full fiscal year update. As we have discussed in our previous calls, our strategy has been and continues to be position the company to capitalize on the trend to outsourcing. We are pleased with the start we have made to fiscal 2006, executing in our first fiscal quarter at the upper end of our previous guidance. As we move into our seasonally lower second quarter fiscal ‘06, the level of integration and product ramp activity is increasing in numerous factories as we expand our relationships with existing customers across multiple product platforms and industry sectors. This positions the company for a strong growth profile in the second half of our fiscal year. Our current estimates for fiscal ‘06 are to the upper end of the guidance we’ve previously given you, are revenues of 9.3 billion and core earnings per diluted share of $1.65. This represents a 24% growth in revenues and 29% growth in core earnings over fiscal 2005. I’d now like to hand the call over to Tim Main. Timothy L. Main: Thanks, Forbes. What a great start to an early year of outstanding growth and outsourcing services. Year-over-year operating results tell the story well. Year-over-year fiscal Q1 revenue increased 31% and core operating income increased 38%. We also improved core return on invested capital to 23% from 17% in fiscal Q1 of 2005. Demand for outsourcing services is clearly very good, and the solid performance of our people in this environment is delivering better financial returns. In calendar 2005, we expect the 25 largest providers of outsourcing services to post revenue growth of approximately $20 billion. Demand is increasing as OEMs around the world seek to reduce costs and accelerate time to market for broadening product lines. Demand is also increasing as OEMs change their approach to outsourcing from one which primarily utilizes suppliers to manage portions of the supply chain to one in which we are asked to manage an end-to-end solution from design through assembly, to delivering service of their electronic hardware. Even in mature outsourcing markets such as computing and communications, there remain significant levels of vertically integrated activity, for example, configurative order of operations. Jabil’s growth reflects our demonstrated ability to capture a share of the growing outsourcing revenue stream. We now expect revenue in fiscal 2006 to be approximately $1.8 billion higher than it was in fiscal 2005. About half of that growth will come from customers converting to an outsource supply chain model. Primary sectors contributing to growth are the Consumer, Instrumentation, Medical and the Computing and Storage segments. In fiscal 2006, we expect our two largest segments to be the Consumer and the Instrumentation Medical segments. These two segments combined will drive us well over $4 billion in revenue for fiscal 2006. The environment for growth along our long-term front line is better than ever. We’re off to a great start for 2006 and anticipate sustained growth in coming years. All in all it was a great quarter and good prospects looking forward. So operator, I think we can begin the question and answer session of the call.