Jabil Circuit, Earnings Call Insights: No Macro Tailwind, Growth Estimates

On Tuesday, Jabil Circuit, Inc. (NYSE:JBL) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

No Macro Tailwind:

Amit Daryanani – RBC Capital Markets: A couple of questions from me. One, maybe I want to look at the August quarter, guys. Could you just talk about what do you guys perceive normal seasonality to be? I get it to be about plus 3%, and then if I look at the delta to a normal seasonality versus what you guided, which is down 1%, how much of that do you think is driven by the macro issues versus a pause ahead of a big ramp you have in the DMS segment?

Timothy L. Main – President and CEO: Amit, I think we are in a period where – just to make things simple, of our 10 largest customers, we’ve had two customers this year with revenue year-over-year that’s down about $1 billion. We have a customer with revenue that’s up about $1 billion, and the rest of the business is doing pretty well, growing at 5% to 10% depending on the business area. So, I’d say that the revenue headwinds have a lot to do with a couple of customer-specific issues, lack of a macro tailwind. I think end markets are relatively stable, but there isn’t much of a tailwind. In light of the circumstances that we are in today and the overall demand environment, I feel pretty good about having a flattish quarter this quarter with great spring-loading of opportunity for outstanding growth in FY’13.

Amit Daryanani – RBC Capital Markets: Maybe if I can just get some – can we just talk about the RIM relationship and given the fact you are actually picking up incremental share with them in fiscal ’13, it sounds like, how do we think about the fiscal ’13 objectives you laid out at the Analyst Day which I think assumed HVS would essentially be flat next year? Do we have to (indiscernible) for higher number in that segment and also on the margin line how do you think the 2%, 2.5% margin target shakes out in the segment?

Timothy L. Main – President and CEO: I think it’s premature for us to handicap what the mobility customers’ consolidation will mean to us in terms of prospective growth in FY ’13. Having said that we have reviewed in detail our FY ’13 plans and still feel confident with what was presented at the analyst meeting, which was growth of 25% and MTG 15% and other Diversified Manufacturing Services area 10% and Enterprise & Infrastructure, and zero in High Velocity. I think in terms of how you should look at this Amit and the rest of the analyst community going forward I think the granularity on revenue will be more difficult particularly in short-term time horizons, but we have increasing level of confidence around our ability to deliver consistency in earnings on a long-term basis and certainly in annual buckets. So while the revenues may shift around a bit from what we presented at the analyst meeting we feel very good about what that implies in terms of earnings for FY ’13.

Growth Estimates:

Brian Alexander – Raymond James: In terms of the Q4 guidance for DMS revenue, I think it implies up 6% sequentially. Could you just give us a little bit more granularity in terms of how you’re thinking about specialized services growth sequentially given the major product transitions you have and all the capacity you’re adding versus what you’re seeing in industrial and healthcare on a sequential basis?

Timothy L. Main – President and CEO: That’s not something we can discuss. I am not trying to be unhelpful Brian, I’d love to help you out, but there are – there is always sensitive customers issues within those three areas, and I don’t think it’s actually that meaningful looking at it from an investor’s perspective, because the margins structure, the health of the customers all that kind of stuff is just not that meaningful. I mean we’re delighted that even in a period where there’s such macro uncertainty and lack of end market tailwinds, that we’ve got Diversified Manufacturing Services, which we intend to rely on for our primary growth engines in the next four to five years growing within our targeted range of 20% to 30%, and I think the estimate is – Brian it will be 25% for the full year based on where we’ve guided. So, I think that’s pretty good. Well, we talked the Analyst Meeting, it might be useful to reiterate a little bit. Health and industrial grew at a slower rate this year. I think we’ve previewed that actually at the beginning of the year, in the outset of the year that we think this would be a year, in which we’d grow 7% to 8%, that may not be exactly that based on Q4, but the slower growth here – but with the pipeline of new product development opportunities, particularly in healthcare, we highlighted 20% to 21%, 22% important new programs in healthcare along with industrial. I think the sag in solar demand has attenuated the growth in industrial. We’ve actually had some very important new customer wins and program transfers in industrial. So, when I look forward in FY ’13, I think you’ll see industrial and healthcare grow at a much healthier clip, much closer to the low-end of the 20% to 30% range and we may choose to supplement that in certain areas with an acquisition, sometime in the close to this fiscal year or early next year.

Brian Alexander – Raymond James: And just a follow-up on the bridge back to 4% E&I margins versus what you outlined last quarter, given the slower environment. Any update there, how much quarters has had that been pushed out, do you think you can get there in that FY13?

Timothy L. Main – President and CEO: Well, we’re 20 basis points like this quarter. There are some revenue growth, as not quite as robust and we’ve had some inefficiencies in product groups, as I’ve said. I think the revenue levels there will be sequentially positive, which gives us an opportunity to drive margin particularly, if we can get after the cost side of it. We may need an extra quarter to get back to the targeted range, but I think we’ll maintain a positive trajectory.

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