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Jabil Circuit, Inc. F3Q10 (Qtr End 05/31/10) Earnings Call Transcript

Jabil Circuit, Inc. F3Q10 (Qtr End 05/31/10) Earnings Call Transcript

Jabil Circuit, Inc. (JBL)

F3Q10 (Qtr End 05/31/10) Earnings Call Transcript

June 22, 2010 4:30 pm ET


Beth Walters – VP, IR & Communications

Forbes Alexander – CFO

Tim Main – President & CEO


Steven Fox – CLSA

Louis Miscioscia – Collins Stewart

Amitabh Passi – UBS

Wamsi Mohan – Banc of America

Brian Alexander – Raymond James

Shawn Harrison – Longbow Research

William Stein – Credit Suisse

Jim Suva – Citi Financial

Sean Hannan – Needham & Company

Sherri Scribner – Deutsche Bank

Alex Blanton – Ingalls & Snyder



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Good afternoon. My name is Patrick and I will be your conference operator today. At this time, I would like to welcome everyone to the Jabil 2010 Third Quarter Earnings 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) Thank you. Ms. Walters, you may begin you conference.

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Beth Walters

Thank you. Welcome to our third quarter of 2010 fiscal year call. Joining me on the call today are President and CEO 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. The Q3 fiscal year 2010 press release and corresponding slides will also be posted there. In those slides you will find the financial information that we cover during this conference call as well as additional financial metrics and analysis that you may find helpful. You can follow our presentation with the slides that are posted on the website and begin with slide two now.

During this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected fourth quarter of fiscal 2010 net revenue and earnings results, our long-term outlook for our Company, and improvements in the operational efficiencies and in our financial performance. 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


, 2009; and subsequent reports on Form 10-Q and Form 8-K and our other Securities 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.

Today’s call will begin with some comments and highlights from Forbes Alexander on our third fiscal quarter as well as some forward guidance on our fourth fiscal quarter. Tim Main will then have some macro environmental and Jabil specific comments about our performance, our model, and our current outlook before we open it up to questions from call attendees. I would now like to turn the call over to Forbes.

Forbes Alexander

Thank you, Beth, good afternoon everyone. I now ask you to turn to slides three and four, our results for the third quarter of fiscal year 2010. On revenues of $3.5 billion, GAAP operating income was $96.5 million. This compares to a $7.8 million loss on revenue of $2.6 billion for the same period in the prior year.

Core operating income, excluding amortization of intangibles, stock-based compensation, restructuring charges for the quarter was $132 million or 3.8% of revenue as compared to $29 million, or 1.1% for the same period in the prior year. Core earnings per diluted share were $0.40 as compared to $0.04 for the same period in the prior year.

On a year-over-year basis for the quarter, revenue increased 32% while core operating net profits increased 355%. On a sequential basis, revenues have increased 15%. Our core operating income increased 38%.

I now ask you to turn to slides five to eight as I comment on our revenues. The EMS dividend grew $256 million sequentially or 14% versus an expectation of 8%. Strong double-digit sequential growth across all but one sector and a return to growth in our telecom (inaudible). Revenue was $2.1 billion, representing approximately 61% total company revenue in the third quarter. Core operating income for the division was 5% of revenue.

Our Consumer division represented approximately 33% of revenue or $1.15 billion in the third fiscal quarter; sequential increase of $118 million or 19% versus an expectation of 5%. Both the mobility sector and digital home office sectors producing strong double digit sequential growth. Core operating income for the division was 1% of revenue.

Our Aftermarket Services division increased by 8% in the prior quarter to $211 million and represented approximately 6% of overall company revenues in the quarter. Core operating income for the division is approximately 8%.

In the third fiscal quarter, two customers accounted for more than 10% of revenue and our top ten customers accounted for approximately 60% of total revenues.

Our selling, general, and administration expenses increasing by approximately $4 million to $124 million, research and development costs $6.3 million, while intangibles and amortization was $6.2 million in the quarter.

Stock-based compensation was $27.5 million in the quarter. The increase was primarily related to performance-based equity awards, which were previously deemed unlikely to vest in the fiscal year, but based on current expectations are now expected to fully vest.

Our net interest expense for the quarter was $20 million. And the tax rate on net core operating income was 22%.

I now ask you to turn to slides nine through 11 as I discuss our balance sheet and some of the key ratios. Our sales cycle in the third quarter contracted by one day to 16 days as a result of a one day reduction in days sales outstanding.

We continue to generate cash flow from operations, producing $37 million while revenue grew 15% sequentially. Our return on invested capital was 22% in the quarter, approaching all-time record levels of return. We are very well-positioned to cross that mark in the upcoming quarter. Our cash and cash equivalent was $600 million at the end of the third quarter with no sums outstanding on our $800 million revolving credit facility. Cash balances also reflect a reduction in overall debt levels of approximately $50 million in the quarter.

We are also pleased to know that during the quarter, we expanded our accounts receivable securitization facilities by $150 million providing us with continued cost-effective liquidity and flexibility as we continue to grow. Available liquidity at the end of the quarter on these facilities was approximately $175 million.

Our net capital expenditures during the quarter were approximately $127 million, but lower than our previous expectation of $150 million in the quarter. Our depreciation for the quarter was approximately $63 million with core EBITDA at $195 million, or 5.6% of revenue.

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