Jabil Circuit: Earnings Preview

Sep.27.11 | About: Jabil Circuit (JBL)

Jabil Circuit Inc. (NYSE:JBL), a leading electronic parts manufacturer, is scheduled to release its fourth quarter 2011 results on September 27, 2011, after the closing bell. In the run up to the earnings release, two analysts made an upward revision to their estimates for the quarter.

Looking Back at 3Q11

Jabil reported earnings of 49 cents per share, which missed the Zacks Consensus Estimate by a penny.

However, earnings per share (EPS) increased 75.0% year over year from 28 cents (including stock-based compensation but excluding amortization) reported in the prior-year quarter.

The strong results were driven by solid revenue growth in the quarter (up 22.2% year over year to $4.23 billion).

Revenues surpassed management’s guided range of $4.1 billion to $4.2 billion in the third quarter. Higher quarterly revenues were attributable to 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.

Looking Ahead

Jabil expects net revenue in the range of $4.1 billion to $4.3 billion for the fourth quarter of 2011. The Zacks Consensus Estimate pins revenues at $4.18 billion.

On a sequential basis, Diversified Manufacturing is expected to grow 7.0%, Enterprise and Infrastructure is anticipated to increase 3.0%, but High Velocity is forecasted to decline 13.0% in the fourth quarter.

Jabil forecasts operating income for the fourth quarter (excluding stock-based compensation) in the $165.0 million to $185.0 million range (4.0% to 4.3% of the total revenue).

Jabil expects non-GAAP earnings per share to be between 52 cents and 60 cents for the fourth quarter. The Zacks Consensus Estimate is currently pegged at 49 cents (Zacks Consensus Estimate includes stock-based compensation).

Jabil expects to achieve revenues of $16.4 billion for fiscal 2011 (up approximately 22.3% year over year) and $20 billion by 2013. The Zacks Consensus projects Jabil to earn $16.4 billion in revenues, in line with management’s expectations.

Estimates Revision Trend

Among the seven analysts covering the stock, one analysts have made positive revisions for the quarter, in the last thirty days. Thus, the earnings per share has increased by a penny to 49 cents.

Similarly, for fiscal year 2011, of the seven analysts, one upward revision was noticed and the EPS estimate increased by a penny to $1.97.

Analysts are positive on Jabil, given its revenue growth opportunities, diversified business, relative stability in several key end markets, new program wins for the overall business and margin improvements from restructuring.

The analysts believe that Jabil’s strong working capital management, solid balance sheet, and operational efficiencies reflect a well-managed business that has the ability to emerge stronger when the economy recovers.

Recommendation

Jabil is anticipating strong top-line growth for fiscal 2011 on the back of a mix shift toward high-margin diversified manufacturing systems. We believe Jabil remains well positioned to grow from the increasing adoption of clean technology and alternative energy. Moreover, a lean cost structure, increasing cash flow generation capabilities and an improving balance sheet are positives for the stock.

However, the company faces strong competition from Flextronics Inc. (NASDAQ:FLEX) and Sanmina-SCI Corp. (NASDAQ:SANM), which along with the worsening economic conditions in Europe and the U.S.may act as headwinds going forward.

We maintain an Outperform rating on Jabil over the long term (6–12 months). Currently, Jabil has a Zacks #4 Rank, which implies a Sell rating on a short-term basis.