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Jabil Circuit Q3 Earnings Call Transcript
Author: 123jump.com Staff
123jump.com
Last Update: 8:53 PM ET June 29 2009

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Jabil third quarter earnings dropped 13.3% to $2.6 billion with a loss of $28.8 million as against profit of $38.4 million a year ago. Earnings per share were a loss of 14 cents against profit of 19 cents in the prior year quarter.


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For Q1, yeah, that’s reasonable. We’ve got ongoing restructuring activity. We expect about $15 million of cash expenditures associated with that in Q4, so yeah.

Sean Hannan - Needham & Company

That’s great. Thank you.

Operator

Your next question comes from the line of Brian Alexander with Raymond James.

Brian Alexander - Raymond James

Good afternoon. Just going back to the comment that you expect to see the $0.15 of each incremental revenue dollar drop to the operating line, what are the key assumptions embedded in that expectation as you think about mix shifts, utilization levels, et cetera? And what segments are most responsible for driving that? I’m just trying to understand what would have to happen for that leverage to not materialize on the revenue where the revenue would actually get to that level?

Timothy L. Main

Let’s be clear on, there was a range. It was $0.10 to $0.15. So in that range, there were assumptions around mix, a more materially intensive revenue stream that we might find in low-end consumer electronics or highly commoditized activities like high volume printed circuit board assembly, will produce fewer operating income dollars per incremental dollar revenue. If we were to see that revenue increase slanted more towards our vertical integration activities, our higher margin sectors, then we’ll be at the high-end of that range, maybe a little bit better. So there’s a mix. So if you were to take that midpoint, same thing, company grew all sectors at the same rate, at the same time, we’d expect to see $0.12, $0.13, $0.14 of operating leverage, depending on how we go.

What do we need to assume? We need to assume that the company manages what it can manage, which are things like SG&A expense, that we absorbed the fixed costs that we have in place today and that pricing doesn’t collapse, and I think that’s one of the reasons that Forbes discussed, all of the value-add to the revenue stream today versus a year ago, because I think it’s very important to note that the value add on our revenue stream today is within a half a percentage point of where it was a year ago, which is like very confusing to talk to investors about what the price environment is like as there’s a fairly good proxy for what’s happening in terms of value-added pricing and the overall business. So we don’t think that price will be necessary to drive additional revenue or a significant determinant of how we are able to grow revenue. So what would it take for that not to happen? I’m not sure. It would have to be something which would be outside of our control. I think the only thing to really keep that from happening is the revenue doesn’t grow. We simply can’t seem to move from $2.6 billion a quarter back to $3 billion and I don’t think, I don’t know if that will happen in Q1 or later. That depends on the overall economic environment and how we continue to do in terms of new business awards. I can tell you from the management team standpoint, we have very, very high levels of confidence that in a stable economic environment, really our GDP growth of 1% to 2% a year will give us a platform that we’ll be able to grow the business significantly year over year, if there is new out-sourcing because there is new business awards because we are gaining market share.

Brian Alexander - Raymond James

I guess I was thinking back to the mobility segment where the leverage didn’t materialize because you had to end up adding capacity where you thought you’d be able to utilize existing and I wasn’t sure if that was a risk going forward.

Timothy L. Main

That operating leverage actually occurred. It didn’t occur at the high rate that we thought it would. So we’ve given ourselves maybe a little bit more conservative range in terms of that operating leverage than we gave ourselves a couple of years ago but in truth, I mean, even though the operating leverage is a little less than we expected on the mobility ramp-up a year ago, it’s still there.

Brian Alexander - Raymond James

Great, thanks, Tim.

Operator

At this time, there are no further questions.

Beth A. Walters

Great. Thank you very much for joining us on the call today and we appreciate your time. Thank you.
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