Jabil Circuit: Shares Are Under Margin Pressure

| About: Jabil Circuit (JBL)

Shares of Jabil Circuit Inc. (NYSE:JBL) fell some 4% in after-hours trading on Tuesday. After the close, this provider of electronic manufacturing services and solutions reported its fourth quarter results for its fiscal 2012.

Fourth Quarter Results

Jabil Circuit reported fourth quarter revenues of $4.34 billion, up 1.4% on the year. Revenues comfortably beat analysts consensus of $4.23 billion.

Operating income fell from $165.6 million last year to $144.3 million in the past quarter. Excluding a distressed customer charge of $5.9 million and stock-based compensation, operating earnings came in at $175 million, or $0.54 per diluted share. Earnings fell short of analysts consensus of $0.58 per share.

Net income fell from $115.5 million to $82.5 million. Diluted earnings per share fell from $0.52 last year to $0.39 in the final quarter of 2012.

CEO Timothy L. Main commented on the results:

"In this environment, posting another record fiscal year in revenue, income and earnings was quite an achievement. Results for the fourth quarter were negatively impacted by a challenging new program ramp in our Specialized Services sector. Additionally demand remained weak in most of our business segments."

Outlook

For the first quarter of its fiscal 2013, Jabil now anticipates revenues to come in between $4.3-$4.5 billion. GAAP operating earnings are expected to come in between $140-$175 million, resulting in GAAP earnings per share of $0.37-$0.50 per share.

Core earnings for the first quarter are expected to come in between $170-$200 million, or $0.51-$0.62 per share.

The outlook is a little soft compared to analysts expectations. On average, analysts expected the company to guide for first quarter revenues of $4.5 billion and "core" earnings of $0.67 per share.

For the full year, Jabil expects earnings per share to increase between 5 and 10% compared to 2012's annual earnings of $1.87 per share.

CEO Main commented on the near future:

"We are fortunate to have a healthy balance sheet, strong operations, dedicated employees and a roster of market-leading customers heading into fiscal 2013. While the macro economic climate remains challenging, our long-term goals and competitive position are intact."

Valuation

Jabil Circuit ended its final quarter of its fiscal 2012 with $1.22 billion in cash and equivalents. The company operates with $1.68 billion in short- and long-term debt for a net debt position of roughly $450 million.

Full year revenues came in at $17.2 billion. The company net earned $396.1 million for 2012, or $1.87 per diluted share. Factoring in a 4% drop in after hours trading, the market values the firm at $4.2 billion. This values Jabil at just 0.2 times annual revenues and 11 times annual earnings.

Currently, Jabil Circuit pays a quarterly dividend of $0.08 per share, for an annual dividend yield of 1.5%.

Investment Thesis

Year to date, shares of Jabil Circuit have risen a mere 2%, including the fall in after-hours trading. Shares quickly advanced to $27 in March as the global equity markets rallied, only to fall back to $18 in early summer as investors were fearful of an economic slowdown. Shares have recovered a bit, and are now changing hands at around $20 per share.

Over the past five years, the company's shares have traded largely unchanged. The share price hit rock bottom at $4 in the beginning of 2009 in the darkest days of the financial crisis. The shares gradually rebounded, peaking at $27 earlier this year.

In the meantime, the company did grow its business. Annual revenues rose from $12.8 billion in 2008 to $17.2 billion in 2012. Net income rose from $134 million to $396 million over the same time period. In 2009, Jabil took a large $1.2 billion loss, as the industrial company was hit hard by the global recession. The company maintained its annual dividend payout of $0.28 over the years, raising dividends to an annualized payout of $0.32 at the moment.

Investors are not impressed with Jabil's latest results and the soft outlook. Fourth quarter profits came in below expectations and the earnings outlook for the first quarter of its fiscal 2013 is a little promising. Investors are fearful of a margin squeeze, as the company operates with incredibly small margins, amidst emerging signs of a global economic slowdown.

On the other hand, the financial position of Jabil is solid and valuation multiples are very reasonable. An investment in Jabil is much a bet on the fortunes of the global economy. I remain on the sidelines as I find the global economic prospects hard to judge at the moment.

I like to take a position in a stock with the expectation of share price outperformance or underperformance, irrelevant of the market circumstances. I cannot accurately make an estimate for Jabil's relative performance at the moment, therefore I remain on the sidelines.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.