Jabil reported better-than-expected fourth-quarter 2014 results. Both revenue and earnings comfortably beat the Zacks Consensus. Forward guidance for 2015 was encouraging, driven by improving business trends and new bookings. Its increasing association with Apple is the only positive in the near term, with the impact of the Blackberry disengagement, intensifying competition, macroeconomic headwinds and investments in diversified manufacturing remaining largely negative. For the long term however, higher revenue contribution from Nypro, restructuring benefits and customer wins remain key catalysts Thus, we upgrade Jabil shares from Neutral to Outperform and set a price target of $25.00.
Founded in 1966 and headquartered in St. Petersburg, FL, Jabil Circuit, Inc. (JBL), is one of the largest global suppliers of electronic manufacturing services (EMS). The company offers electronics design, production, product management and after-market services to customers catering to aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, storage and telecommunications industries.
The company's customers include large technology firms such as Apple, Blackberry, Cisco, EchoStar Corp., Ericsson, GE, HP, IBM, Ingenico S.A. and NetApp. The company reported revenues of $15.8 billion in fiscal 2014. Jabil derived 86% of its revenues from international operations in fiscal 2013.
The top five customers accounted for approximately 53% of revenues. Apple was the largest customer in the fiscal year, accounting for 18% of the revenues. Jabil terminated its relationship with Blackberry in Mar 2014.
Jabil operates under two business groups, namely, Electronic Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS).
The Electronic Manufacturing Services (EMS) segment (56% of fiscal 2014 revenues) is focused on leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, sharing of large scale manufacturing infrastructure and serving a broad range of end markets. The EMS segment includes customers primarily in the automotive, computing, digital home, energy, industrial, networking, printing, storage and telecommunications industries.
The Diversified Manufacturing Services (DMS) segment (44% of fiscal 2014 revenues) is focused on providing engineering solutions, heavy participation in consumer markets, access to higher growth markets and a focus on material sciences and technologies. The DMS segment includes customers primarily from the consumer lifestyles, healthcare, mobility and packaging industries.
Jabil's main competitors include Hon-Hai Precision Industry (operating under the brand name Foxconn), Flextronics, Celestica, Sanmina, Benchmark Electronics and Plexus as well as internal EMS units of companies that prefer to manufacture their own products rather than outsource to EMS providers.