Jabil Circuit Inc. (
surged 5.6% ($1.03) after the electronic manufacturing services
provider reported first quarter 2013 earnings of 53 cents
(including stock- based compensation of $21.3 million), which
beat the Zacks Consensus Estimate by 6 cents.
Revenue jumped 7.2% year over year to $4.64 billion. This was
slightly better than management's guided range of $4.3 billion to
$4.5 billion as well as the Zacks Consensus Estimate of $4.42
The better-than-expected result was attributable to a strong
performance from the Diversified Manufacturing and Enterprise
& Infrastructure segments, which fully offset a weak
performance from the High Velocity segment.
Diversified Manufacturing revenue (47.0% of the total revenue)
jumped 20.0% year over year to $2.2 billion (much better than the
management outlook of 12.0% growth). The growth was driven by
continued strength in specialized services, which fully offset
weakening demand in instrumentation, clean tech, solar & wind
Enterprise & Infrastructure revenue (30.0% of the total
revenue) was up 17.0% year over year to $1.4 billion (much better
than the management's outlook of 14.0%).
High Velocity sales (23.0% of the total revenue) decreased
20.0% year over year to $1.0 billion (slightly narrower than the
forecasted 23.0% revenue decline), primarily due to continued
weakness in handset volumes.
Gross profit increased 3.1% year over year to $350.6 million,
reflecting better-than-expected revenue growth in the quarter.
Gross margin contracted 30 basis points ("bps") year over year to
7.6%, primarily due to unfavorable product mix.
Operating expenses increased 7.8% year over year to $176.9
million. Research and development (R&D) expense in the
quarter jumped 15.8% year over year to $7.3 million (slightly
higher than the management guidance of $7.0 million), while
selling, general and administrative (SG&A) expense increased
7.5% to $169.6 million. SG&A as a percentage of revenue was
3.7%, 40 bps higher than management guidance.
Higher operating expenses had a negative impact on
profitability in the quarter. Operating income (including
stock-based compensation of $18.8 million) decreased 1.2% year
over year to $173.7 million. Operating margin contracted 40 bps
to 3.7% in the reported quarter.
Net income (excluding stock-based compensation and one-time
items) was $127.8 million or 61 cents compared with $136.2
million or 65 cents in the year-ago quarter.
Balance Sheet & Cash Flow details
Exiting the first quarter of 2013, cash and cash equivalents
were $1.03 billion, down from $1.22 billion in the prior quarter.
Total debt, as of November 30, 2012, remained flat sequentially
at $1.67 billion.
Cash flow from operations was $152.0 million compared with
$115.0 million in the year-ago quarter. Capital expenditure was
$165.0 million in the quarter.
Jabil repurchased approximately 7.3 million shares at an
average price of $17.58, totaling $129.0 million in the quarter.
GAAP return on invested capital was 21% in the first quarter
compared with 26% in the comparable year ago quarter.
Jabil expects net revenue in the range of $4.3 billion to $4.5
billion for the second quarter of 2013 (approximately 4.0%
year-over-year). Diversified Manufacturing is expected to grow
7.0% year over year, Enterprise and Infrastructure is anticipated
to jump 15.0% year over year, while High Velocity is forecast to
decline 13.0% on a year-over-year basis for the second
Jabil projects operating income in the $165.0 million to
$185.0 million range for the second quarter of 2013. Operating
margin is expected to be in the range of 3.8% to 4.1%. The
company expects R&D expense of $7.0 million and SG&A
expense to be 3.3% of revenue for the second quarter of 2013.
Jabil expects non-GAAP earnings to be between 50 cents and 58
cents per share for the second quarter.
Capital expenditure is expected to be $200.0 million for the
Although Jabil's top-line and bottom-line figures comfortably
surpassed the Zacks Consensus marks, the margin growth was not
satisfactory. Sluggish macro-economic environment, higher mix of
low margin products and continued increase in operating expenses
continued to hurt profitability in the reported quarter.
We believe that Jabil will continue to face these headwinds in
the near term. The company continues to invest in the diversified
manufacturing segment, which will increase its capital
expenditure. However, Jabil's increasing exposure to
and the upcoming Blackberry 10 launch from
Research In Motion (
, boosts its growth prospects for fiscal 2013.
We believe that Jabil is well positioned to grow over the long
term, driven by increasing exposure to non-traditional and
emerging sectors such as industrial, renewable energy, clean tech
and medical, aided by improving technology spending. Moreover,
increasing production capacity in the low-cost regions will boost
profitability over the long term.
Thus, we remain Neutral over the long term (6-12 months).
Currently, Jabil has a Zacks #3 Rank (Hold).
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