Jabil Circuit, Inc. (JBL)
Q2 2009 Earnings Call Transcript
March 24, 2009, 4:30 p.m. ET

Executives

Beth Walters – VP, Communications & Investor Relations
Timothy Main – President and Chief Executive Officer
Forbes Alexander – Chief Financial Officer

Analysts

Brian Alexander – Raymond James
Amit Daryanani – RBC Capital Markets
Sherri Scribner – Deutsche Bank
Jim Suva – Citigroup
Matthew Sheerin – Thomas Weisel Partners
Joe Wittine for Shawn Harrison – Longbow Research
William Stein – Credit Suisse

Presentation

Operator

Good afternoon. My name is Christina and I will be your conference operator today. At this time, I would like to welcome everyone to the Jabil Second Quarter 2009 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. (Operator instructions) If you’d like to ask a question during this time simply press * then the number you’re your telephone keypad. If you’d like to withdraw your question press the pound key. Thank you. Ms. Walters, you may begin your conference.

Beth Walters – Vice President Investor Relations

Thank you. Welcome to our second quarter and fiscal 2009 conference call. Joining me on the call today are President and Chief Executive Officer, Tim Main, and Chief Financial Officer, Forbes Alexander. This call is being recorded and will be posted for audio playback on the Jabil website in the Investors section, along with today’s press release and a slide show presentation on the quarter. You can follow our presentation with the slides that are posted on the web site, and begin with slide one now, our second quarter forward-looking statements.

During this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected third quarter of fiscal 2009 net revenue and earnings results, our long-term outlook for our company and improvements in our operational efficiency, and in our financial performance.

These statements are based on current expectations, forecasts, and assumptions, involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2008, and subsequent reports on Form 10-Q and Form 8-K and our other security filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now turn the call over to Tim Main for some opening remarks.

Timothy Main – Chief Executive Officer

Thanks, Beth. Over the course of the second fiscal quarter, our first focus was managing working capital and adjusting our infrastructure to the lower demand levels across the board. In this respect, I think we were successful. We generated cash flow from operations of $343 million. We paid down $100 million of debt, reduced inventory levels to $200 million, and ended the quarter with $775 million in cash. We also successfully renewed our AR securitization facilities of $450 million. Our liquidity position has been enhanced by $224 million in the first quarter. We''re reducing our cost structure having announced a $65 million dollar rationalization program in January. This process is under way, and we still expect roughly one-year payback on the cash cost of that rationalization. The overall business environment remains poor with limited visibility. As expected and previewed in our December earnings call, customers reduced schedules significantly, especially from mid-January to the first two weeks of February. Although the erosion in demand has abated a bit, we remain cautious and wary of further deterioration.

I will turn the call over now to Beth and Forbes before I close with some additional comments.

Beth Walters

Thanks, Tim. If everyone could turn now to slide two and three, the results for our second quarter of fiscal 2009, on revenues of $2.89 billion, our GAAP operating income was a loss of $500,000. This compares to 1.6 million GAAP operating income on revenues of 3.06 billion for the same period in the prior year. Core operating income excluding amortization of intangibles, stock-based compensation and restructuring charges for the quarter was 51.2 million or 1.8% of revenue as compared to 67.8 million or 2.2 for the same period in the prior year. Core earnings per diluted share were $0.13 as compared to $0.20 for the same period in the prior year. On a year-over-year basis for the quarter, revenue declined 6% while core operating profits declined 25%. On a sequential basis, revenues declined by 15% while core operating income declined 49% reflecting the seasonal nature of the consumer sectors we serve and a reduction in schedules as a result of the global economic recession in which we are operating.

Please turn now to slide four and five. Turning to a discussion of revenue by division and sector for the second fiscal quarter, the EMS division represented approximately 68% or $1.67 billion, a decline of 16% as compared with the first quarter of fiscal 2009. Core operating income for the division in the quarter was 1.3% of revenue. Sector movements are as follows. Production levels in the automotive sector declined by 31% sequentially and represented 3% of revenues. Computing and storage sectors decreased by 6% in the first quarter and represented 12% of revenues. Industrial instrumentation and medical sector declined 10% from the prior quarter and represented 19% of revenues. Networking decreased by 20% from the previous quarter and represented 17% of revenues. Telecommunications decreased by 32% sequentially and represented 5% of revenues in the second quarter. And the consumer division represented approximately 36% of overall revenues of 1.04 billion in the second fiscal quarter, a sequential decrease of 15%, reflecting seasonal declines offset by the ramp of new business wins in the mobility sector. Core operating income for the division in the quarter was 1.3% of revenue.

Sequential sector movements are as follows. Display sector decreased by 52% from the first quarter representing 4% of revenues. The mobility sector increased by 13% from the prior quarter and represented 21% of revenues. The peripheral sector decreased by 29% in the second fiscal quarter and represented 11% of revenues. The aftermarket services division represented approximately 6% of overall company revenues in the second fiscal quarter. Core operating income for the division in the quarter was 9% of revenue and revenue grew by 4% from the prior quarter.