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A leading electronic parts manufacturer, Jabil Circuit Inc. (NYSE:JBL) is scheduled to release its third quarter 2011 results on June 21, 2011, after the market closes.

Jabil shares have declined 3.1% following the second quarter 2011 results. However, Jabil’s second quarter results beat the Zacks Consensus Estimate as well as management’s expectation.

Jabil provided an upbeat third quarter guidance driven by stable business trends and growth across all business segments. Management also pointed out that continued focus on diversification and a differentiated business model will help the company grow throughout fiscal 2011.

However, we believe that intense competition and a slowdown at Jabil’s customer, Cisco Systems Inc. (NASDAQ:CSCO) (15% revenue share in 2010) are the primary areas of concern going forward.

Jabil posted an average earnings surprise of 1.49% over the trailing four quarters, implying that it outperformed the Zacks Consensus Estimate by the same magnitude on average.

Second Quarter Synopsis

Jabil reported pro forma earnings of 45 cents per share, edging out the Zacks Consensus Estimate by a penny. Revenue increased 30.8% year over year to $3.92 billion from $3.00 billion reported in the year-ago quarter. The better-than-expected results were driven by solid top-line growth in the quarter and higher operating margin arising from lower cost of operations.

Jabil achieved strong growth in the quarter based on market share gains, new customer wins and strong growth from emerging markets. The year-over-year growth was driven by strong results across all its segments.

Jabil expects net revenue in the range of $4.1 billion to $4.2 billion for the third quarter of 2011. Jabil expects non-GAAP earnings per share in the 55 cents to 59 cents range for the third quarter. The Zacks Consensus Estimate is currently pegged at 50 cents (The Zacks Consensus Estimate includes stock-based compensation). For further details please see Jabil Beats, Shares Soar.

No Movement in Estimates

We believe that the EMS industry is well positioned to demonstrate strong growth over the next few years, driven by non-traditional or emerging EMS sectors such as industrial and medical, and aided by improving technology spending.

According to the research firm iSuppli, EMS industry revenue in 2011 will increase approximately 10%, reaching about $202.0 billion. The estimates assume that the Asian market will rise by more than 10%, driven by yet another year of strong growth in China, thereby making it the world’s fastest-growing EMS region, beating the Americas, where revenue is expected to expand by more than 7.0% in 2011.

We believe Jabil’s significant exposure to Asian markets will boost its top-line growth in 2011. We also believe the strong performance of non-traditional sectors, diversity in its revenue channels and a global customer base should help Jabil deliver much higher revenues and improved profitability.

Although no change was witnessed in the Zacks Consensus Estimate for the third quarter earnings over the last 60 days, we maintain our Outperform rating (6-12 months) based on the belief that Jabil will beat the Zacks Consensus Estimate driven by strong top-line growth and operating performance.

Currently, Jabil has a Zacks #2 Rank, which implies a Buy rating on a short-term basis.

Source: Jabil Circuit: Earnings Preview

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