Jabil Circuit Inc.
) reported first-quarter of fiscal 2014 earnings of 51 cents per
share, which decreased 16.4% from the year-ago quarter. Shares
dropped approximately 15.0% in after-hours trading due to weak
However, excluding reversal of stock-based compensation worth
$40.0 million, earnings of 63 cents per share surpassed the Zacks
Consensus Estimate by 16 cents.
Revenues decreased 0.6% from the year-ago quarter to $4.61
billion, toward the high-end of management's guided range of
$4.35 billion to $4.65 billion. Revenues were slightly better
than the Zacks Consensus Estimate.
Diversified Manufacturing revenues (50.0% of revenues) increased
5.0% year over year to $2.3 billion. The strong year-over-year
growth was driven by better performance from Nypro.
Enterprise & Infrastructure revenues (29.0% of revenues) were
down 6.0% year over year $1.3 billion. High Velocity (21.0% of
revenues) decreased 5.0% year over year to $1.0 billion (lower
than 25.0% year-over-year growth expected earlier), due to lower
Gross margin increased 40 basis points (bps) on a year-over-year
basis to 8.0%, primarily due to favorable product mix.
Operating expenses as a percentage of revenues decreased 20 bps
from the year-ago quarter to 3.6%. Selling, general and
administrative expense as a percentage of revenues decreased 30
bps on a year-over-year basis.
As a result, operating margin (excluding stock-based compensation
reversal) expanded 70 bps from the year-ago quarter to 4.4%.
Net income margin (excluding stock-based compensation reversal)
increased 40 bps on a year-over-year basis to 2.8%.
Balance Sheet & Cash Flow
Exiting the first quarter of 2014, cash and cash equivalents were
$769.2 million, down from $1.01 billion in the previous quarter.
Total debt, as of Nov 30, 2013, was $1.80 billion compared with
$1.91 billion as of Aug 31, 2013.
Cash flow from operations was $117.7 million compared with $404.0
million in the previous quarter. Capital expenditure was $203.0
million compared with $280.0 million in the previous quarter.
Jabil's disengagement from
) is expected to result in restructuring charge of approximately
$35.0 million to $85.0 million. The company recorded
approximately $15.0 million of these charges in the first
quarter. Jabil also incurred $6.0 million related to its
manufacturing capacity alignment program.
Jabil also announced that the company is selling after-market
business to iQor Holdings for $725.0 million. The divestiture
anticipated to close in the third quarter of fiscal 2014, will
allow Jabil to focus more on its core manufacturing business.
Jabil expects net revenue to be in the range of $3.5 billion to
$3.7 billion for the second quarter of fiscal 2014, down 17.0%
from second-quarter 2013.
Revenues from Diversified Manufacturing are expected to decrease
25.0% year over year, while Enterprise and Infrastructure are
expected to be at par with the year-ago period. High Velocity
revenues are forecasted to decrease 25.0% on a year-over-year
basis for the second quarter.
Jabil projects operating income in the $40.0 million to $80.0
million range for the second quarter of 2014. The company expects
non-GAAP earnings to be between 5 cents and 15 cents per share
for the second quarter. Currently, the Zacks Consensus Estimate
is pegged at 42 cents.
Management expects free cash flow to be around $400.0 million to
$500.0 million for 2014. Jabil also announced a new share buyback
program worth $200.0 million to be completed over the next 12
We believe that a weak second-quarter revenue guidance and
lowered earnings outlook will remain an overhang on the stock in
the near term. The disengagement from BlackBerry is expected to
negatively impact top line and margins over the next couple of
Jabil's increasing association with
) is expected to boost its growth prospects, going forward.
Additionally, estimated strong growth from the Nypro acquisition,
restructuring benefits and new customer wins will help Jabil to
compete with the likes of
), going forward.
Nonetheless, we believe that Jabil will continue to face
macroeconomic headwinds in the near term. Moreover, the company
continues to invest in the diversified manufacturing segment,
which will increase its capital expenditure. The
asset-reallocation in the segment is also expected to increase
uncertainty in the near term.
Currently, Jabil Circuit has a Zacks Rank #4 (Sell).
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