This summary is based on the third quarter fiscal 2007 earnings call conducted by Jabil Circuit (JBL) on June 21, 2007.
Key Investors Issues
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- Revenue increased 15.8% from a year ago to $3 billion.
- Net income decreased 90% from a year ago to $6.2 billion.
- Earnings per diluted share decreased to 23 cents from 26 cents a year ago.
- Cash flow from operations for the quarter was approximately $192 million.
- A dividend of 7 cents per share was paid out.
- Sales cycle improved from 29 days in the second quarter to 26 days.
Third Quarter Financial Highlights
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Revenues increased to $3 billion from $2.6 billion in 2006.
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Net income decreased to $6.2 million from $64.2 million a year ago.
- Decrease in income was due to a 50% increase in administrative expenses from $93.5 million to $140.7 million and restructuring and impairment charges of $25 million.
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Operating income dropped by 56.5% from the prior year to $33.6 million.
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Earnings per share decreased to 23 cents versus 36 cents a year ago.
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Stock-based compensation and restructuring charges constituted 2.9% of revenue or $87.1 million versus 3.6% of revenue or $93.4 million in the prior year.
Sector Performance
- Automotive contributed 5% of revenue. Production levels increased 16% from the prior quarter, reflecting strength in assemblies for European-based customers.
- Computing and storage constituted 11% of revenue, consistent with the second quarter and the company’s expectations.
- Consumer products represented 26% of revenues and decreased by 9% from the second quarter, reflecting the transition of business mix.
- Instrumentation and medical contributed 18% of revenues and increased 7% from the second quarter as a result of strength across multiple customers in this diversified sector.
- Networking amounted to 21% of revenue as levels of production increased 6% from the previous quarter.
- Peripherals represented 9% of revenues and increased by 19% over the second quarter, reflecting new business awards with an existing customer.
- Telecommunications increased 4% sequentially and contributed 5% towards revenue.
Research and development expenses amounted to $10.5 million reflecting the addition of Green Point resources.
Stock-based compensation expense increased by $7.6 million to $19.4 million due to costs associated with the internal revenue code. Stock-based compensation expense is estimated to be approximately $15 million in the fourth quarter.
Inventory days improved by three days to 47 days a reduction of $90 million.
- Debt increased by 20.8% to $398 million from $329.5 million in August 2006.
- Capital expenditures amounted to $88 million, with $22 million related to assets previously applied under an operating lease.
- The management is optimistic about the company’s ability to produce positive cash flows from operations while producing incremental returns on capital deployed.
Acquisitions and restructuring activities:
- The company finalized the acquisition of Green Point.
- Electro-mechanical drilling capability is expected to have an immaterial impact on fourth fiscal quarter.
- Overall rationalization plan is in line with announcements, recording charges of approximately $25 million.
- Total restructuring charges are expected to be at the high-end of the $200 million to $250 million range.
- Additional square footage in capacity is currently being added in China, Poland, the Ukraine and India.
Fourth Quarter Outlook:
- Revenue is expected to amount to $3 billion.
- Core earnings per share are expected to range between 25 cents and 31 cents.
- Automotive sector is expected to decrease by 10% reflective of normal, seasonal lower levels or production.
- Telecommunication sector is estimated to decrease by 10%.
- Capital expenditures are estimated to be approximately $65 million.
Management highlighted the following challenges:
- Distracting inquiry and review process;
- End markets largely were stalled;
- Demand has been tough;
- Pricing environment was more severe in the consumer area.
The management is rationalizing the company’s capacity and infrastructure and taking efforts to improve productivity and quality across the board.
Key questions from the third quarter fiscal 2007 earnings call conducted by Jabil Circuit on June 21, 2007.
Louis Miscioscia (Cowen & Company):
Could you clarify on legal expenses for both this quarter and the next one?
Forbes Alexander: The numbers reported today include legal expenses, so our core operating margin was 2.9%. Our forward-looking guidance of 3% to 3.5% includes those expenses which amounted to $4.1 million. For the fourth fiscal quarter, they should range between $2 million and $3 million. In terms of overall costs to date as a result of the inquiries and reviews, including our estimates for the fourth fiscal quarter, it is somewhere in the region of about $17 million, $17 million to $18 million.
Louis Miscioscia (Cowen & Company):
Could you talk about restructuring and how you plan to get operating margins in excess of 4%?
Timothy L. Main: We believe we can get to 4% and above. There are things that have a more permanent impact on margins, such as additional material revenue taken on in order to do increased order performing activities.
Jim Suva (Citigroup):
Considering the flat revenues, new program ramps declining operating numbers, can you help us triangulate about why you are taking it down about 25 basis points on both ends?
Timothy L. Main: The guidance provided in March excluded the legal costs which are responsible for 10 basis points. Some of the additional costs ranging from $3 million to $5 million associated with some new business ramps will start occurring in fiscal fourth quarter and extend into fiscal first quarter.
