Jabil(JBL)2023-09-28 04:39Financial Data and Key Metrics - Q4 revenue was $8.5 billion, meeting the midpoint of guidance [6] - Core operating income for Q4 was $477 million, or 5.6% of revenue, up 60 basis points YoY and 80 basis points sequentially [6] - GAAP diluted EPS was $1.15, while core diluted EPS was $2.45, a 5% improvement YoY [6] - DMS segment revenue was $4.4 billion, up marginally YoY, with core operating margin at 6.1%, up 100 basis points YoY [7] - EMS segment revenue was $4 billion, down 13% YoY, with core margins at 5.2%, up 40 basis points YoY [8] - FY23 DMS revenue was $18 billion, up 8% YoY, with Automotive and Healthcare growing 42% and 12% respectively [8] - FY23 EMS revenue was $16.7 billion, with core margins at 5%, up 70 basis points YoY [9] - Q4 cash flow from operations was $686 million, with adjusted free cash flow for the year at $1 billion [10] - The company ended Q4 with $1.8 billion in cash and a total debt to core EBITDA ratio of 1.1x [10] Business Segment Performance - DMS segment saw strength in Auto and Healthcare, offset by weakness in Connected Devices [7] - EMS segment faced a revenue shift due to the transition to a customer-controlled consignment model, impacting cloud business revenue [8] - Industrial and Semi-Cap markets drove growth in renewables, with Industrial revenue expected to grow over 20% in FY24 [23] - Semi-Cap demand is expected to remain muted in FY24, with a focus on preparing for future growth [24] - Automotive and Transport business is expected to grow over 20% in FY24, driven by the global transition to EVs [25] - Cloud solutions are expected to grow over 20% in FY24, despite revenue headwinds from consignment [28] - Healthcare revenue is expected to grow 9% YoY in FY24, driven by digital healthcare trends [29] - Digital Print and Retail saw slower demand in legacy markets but growth in warehouse and retail automation [31] - Networking and Storage demand is expected to remain muted in FY24, with long-term growth expected from advanced optical networking [32] Market and Strategic Direction - The company is focusing on key growth areas such as electric vehicles, AI cloud solutions, renewable energy, and healthcare [12][15] - The pending sale of the Mobility business to BYD Electronics for $2.2 billion is expected to close in Q2 FY24 [13][35] - The company plans to accelerate share repurchases in FY24, with a $500 million accelerated buyback planned for October [40] - FY24 revenue guidance is $33 billion to $34 billion, with core operating margins expected to improve by 30 to 50 basis points [37] - The company expects to generate over $1 billion in adjusted free cash flow in FY24 [38] - Long-term, the company aims to achieve core operating margins of 5.6% or higher in FY25, with core EPS of $10.65 [43] Management Commentary on Operating Environment and Future Outlook - The company highlighted resilience in its business model, with core margins up 40 basis points to 5% and EPS up 13% in FY23 [14] - Management emphasized the importance of investing in high-growth areas like EVs, AI, renewables, and healthcare [15][16] - The Mobility divestiture is seen as a strategic move to focus on higher-margin businesses and improve capital allocation [17][18] - The company expects to benefit from long-term secular growth trends in key end markets, with 70% of FY24 revenue expected to come from EVs, AI cloud, renewables, and healthcare [33] - Management expressed confidence in navigating the current economic environment, citing diversification and resilience [43] Other Important Information - Inventory days improved by four days sequentially to 80 days, with net inventory days down to 58 [9] - The company repurchased 6.7 million shares for $487 million in FY23, with $776 million remaining in the repurchase authorization [11] - CapEx for FY24 is expected to be 2.2% to 2.5% of revenue, with a focus on strategic investments in automotive, healthcare, and renewable energy [38] - The company expanded its share repurchase authorization to $2.5 billion, with plans to execute $1.5 billion to $1.7 billion in buybacks by the end of FY24 [40][66] Q&A Session Summary Question: Margin Improvement Drivers - The margin improvement is driven by a mix shift towards higher-margin businesses like EVs, AI cloud, renewables, and healthcare, as well as footprint optimization post-Mobility divestiture [47][48] Question: Automotive Growth Sustainability - The company expects 20%+ growth in Automotive, driven by increasing content per vehicle and expanding OEM partnerships, with confidence in maintaining competitiveness [50][51][52] Question: CapEx and Footprint for Growth - The company has expanded its footprint in North America and Europe to support growth in energy storage and data centers, with CapEx expected to remain in the 2.2% to 2.5% range [55][56] Question: Cloud Business Growth and OSAT Packaging - The cloud business is expected to grow over 20%, driven by AI workloads and investments in liquid cooling and photonics, with OSAT packaging being a new area of focus [59][60][61] Question: Share Repurchase Plans - The company plans to execute $500 million in accelerated buybacks in October, with $1.5 billion to $1.7 billion in buybacks expected by the end of FY24 [65][66] Question: Networking and Storage Optimization - The company is optimizing its Networking and Storage portfolio, with some softness in demand and discussions with customers about program fit [70][71][72] Question: Inventory and Supply Chain - Inventory days improved to 55-60, with some supply chain constraints remaining in automotive and healthcare [75][76] Question: Interest Expense Guidance - FY24 interest expense is expected to be $290 million to $300 million, driven by variable rates [79] Question: Mobility Divestiture Impact - The Mobility divestiture will free up management bandwidth and capital to focus on higher-growth areas like EVs, healthcare, and AI cloud [81][82] Question: AI and Cloud Business Growth - AI represents 20%-25% of the cloud business, with expectations for growth in FY24 and beyond [85] Question: Consignment Model Impact - The consignment model is expected to stabilize, with no significant further increases in consignment levels [88] Question: Share Gains and Regional Growth - The company is gaining share in automotive, healthcare, and renewables, with growth opportunities in China, Europe, and North America [102][103][104] Question: Semi-Cap Business Outlook - Semi-Cap demand is expected to remain muted in FY24, with investments focused on optimizing footprint and capabilities for a rebound in late 2024 or early 2025 [109][110]