Jabil Bounces Back: A Closer Look at Q1 Results and FY24 Outlook

Jabil (JBL) recently released its Q1 (Nov) results, which triggered a brief backpedaling in its stock price. However, the company quickly regained its footing, and its shares are now displaying strength above their flatline. In this article, we delve into Jabil’s Q1 report, its financial performance, and the outlook for FY24. Despite initial concerns, Jabil appears to be on track with its internal expectations, signaling optimism for the future.

Q1 Report Overview

Jabil’s Q1 report did not set the world on fire, but it managed to eke out earnings and sales beats. The company also reiterated its previously adjusted FY24 (Aug) outlook. While these results may not be overly impressive at first glance, they offer valuable insights into Jabil’s resilience and the broader economic landscape.

A Brief Look at Economic Conditions

One of the key takeaways from Jabil’s Q1 report is that economic conditions do not seem to be deteriorating. This is a significant relief for investors who were concerned about Jabil’s late-month guidance adjustment in FY24 due to softening demand resulting from short-term inventory corrections. The company has remained steadfast in its belief that these inventory adjustments are temporary.

Jabil’s Prestigious Customer Base

Jabil boasts a prominent customer base, providing manufacturing and design services for tech giants such as Apple (AAPL), NVIDIA (NVDA), and Amazon (AMZN). Apple, its largest customer, accounts for 17% of FY23 revenue. Therefore, Jabil’s reduced outlook last month signaled a broader slowdown in end-customer demand across the tech industry, a trend that other electronics manufacturing services (EMS) peers had warned about even before Jabil adjusted its forecasts.

Maintaining Investor Confidence

Despite the meaningful selling pressure following Jabil’s revised financial targets, the company’s shares managed to remain above the levels seen before its upbeat Q4 (Aug) report in late September. This steady performance reflects ongoing investor optimism as Jabil heads into 2024 with customer inventory adjustments progressing as anticipated.

Q1 Performance Breakdown

The inventory corrections were clearly reflected in Jabil’s Q1 results. The company reported a 13% year-over-year drop in revenue, amounting to $8.39 billion. This decline marks one of the widest quarterly drops in years. Notably, Diversified Manufacturing Services (DMS) fared better than Electronics Manufacturing Services (EMS), with a 6% decline to $4.8 billion compared to a 21% drop to $3.6 billion for EMS. Weaknesses were primarily observed in connected devices, 5G, networking, and digital print, while the automotive and healthcare end markets showed relative strength.

A Silver Lining in Operating Margins

One silver lining in Jabil’s Q1 performance was its operating margins, which expanded by 50 basis points year-over-year to reach 5.3%. This expansion played a pivotal role in achieving a 13% increase in adjusted earnings per shareEarnings per share (EPS) is a fundamental financial metric that provides valuable insights into a company's profitability. This widely used indicator helps investors and analysts g... More (EPS) year-over-year, totaling $2.60. Once again, DMS was the driving force behind this improvement, with its operating margins growing by 180 basis points year-over-year. EMS also managed to achieve some margin expansion, albeit to a lesser extent, with a 30 basis point increase.

FY24 Outlook and Beyond

Looking ahead, Jabil remains committed to its previously announced FY24 targets. The company expects adjusted EPS of $9.00 and revenues of $31.0 billion for the fiscal year. Moreover, Jabil aims to deliver adjusted free cash flowThe cash flow statement provides a detailed overview of the cash inflows and outflows of a company over a specified period of time. It includes cash received from operations, inves... More above $1.0 billion in the current year.

While end-market demand has seen fluctuations in recent months, Jabil’s Q1 results and its reaffirmed FY24 targets indicate that the situation is progressing in line with internal expectations. The company anticipates that the next couple of quarters will continue to endure inventory corrections but expects a less challenging market environment in the latter half of FY24.

Bottom-line: Jabil’s recent performance and outlook suggest that the company is weathering the storm of short-term inventory corrections and is poised to regain its footing. With a prestigious customer base and a commitment to its financial targets, Jabil remains an essential player in the electronics manufacturing services industry. As it continues to navigate the evolving economic landscape, investors can find reassurance in the company’s resilience and long-term prospects.