Jabil Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Hi. Thanks for taking my questions. Mike and Greg, congrats on your new assignments. Mike, what do you see as the biggest opportunity for Jabil over the next year? And what do you see as the biggest risk? And Greg, a similar question to you as CFO, what are your main focus areas for the next year?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Okay, got it. Mike, you talked about AI. I mean when I look at things, AI is getting to be a very competitive space. And so how do you see Jabil's investments in AI trending over the next few years? And do you think margins on the AI side trend lower or higher than the rest of the business, given the increased competition?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Okay. Maybe I'll try and sneak one more. You talked about some weakening of the auto and the healthcare space. And also on semi-cap, I think you've said that it's two weaker than expected. When do you expect a recovery in these? And if revenues continue to be week, what are some of the levers you have to continue to drive margins and free cash flow? I think you've said margins are a focus. So what are some of the levers you have on the margin and free cash flow side even if revenues are weak? Thanks for taking my questions.

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Okay. Thanks for all the details. Congrats again on the new assignments.

Question: Steven Fox - Fox Advisors LLC - Analyst : Hi, good morning and congrats, Mike and Greg, on your appointments. I guess I have two questions. First of all, just following up on your last comments, Mike, I mean the guidance for Q4 implies you hit that magical 6% operating margin number. So I'm just curious if you could put that number in that context. You just described a lot of seasonality and some mixed market. So like how sustainable is 6% as more of a Q4 number versus like something that's ongoing as you think out to next year? And then I have a follow-up.

Question: Steven Fox - Fox Advisors LLC - Analyst : Great. That's helpful. And then in terms of your prepared remarks, I guess there's one area I was hoping you could dig into a little bit. You mentioned with your second point some reshaping geographically end market is on the table now for next year. Can you just sort of expand on what you saw in your last six to eight weeks? That makes you want to sort of, I guess, change strategy just incrementally a little bit. Thanks.

Question: Steven Fox - Fox Advisors LLC - Analyst : Great. That's helpful. Thank you.

Question: George Wang - Barclays Investment Bank - Analyst : Guys, congrats on the new role. So I've got two parts. Firstly, you mentioned the 3Q driven by connected devices and networking storage, and you also raised the full-year forecast subsequently for the two segments, just kind of talk about kind of what's driving a better kind of results and outlook for the connected devices and networking. Just is this an industry growth or share gains?

Question: George Wang - Barclays Investment Bank - Analyst : Got you. Just a quick follow-up if I can. I just want to confirm, is it still $6 billion AI revenue for FY25? You guys talked about in the prepared remarks, you didn't really change the forecast. So I just want to confirm if it's still $6 billion, but also I just want holding on the power and the cooling, you guys talked about some of the value add, it all just -- power cooling has been massive shortage with higher margins. So can you talk about your differentiation and some of the initiatives on table from Jabil's standpoint to capture the coming hearings, shortage with the demand associated with power and cooling in the data center?

Question: George Wang - Barclays Investment Bank - Analyst : Okay. Thank you.

Question: Matt Sheerin - Stifel Nicolaus & Company, Inc. - Analyst : Yes, thanks. Good morning, everyone. I wanted to drill down a little bit more on your commentary on networking, the strength, but also the customer base. You indicated that you may -- to walk away from some of the legacy business, I'm guessing you're talking about the traditional OEM market. But I know that you've got a growing a data center hyperscale customer base, particularly on the server side. But are you also working with those customers on network products like switches? And could you tell us exactly what you're doing for those partners on networking side?

Question: Matt Sheerin - Stifel Nicolaus & Company, Inc. - Analyst : Okay. In the networking side, we're seeing some of your peers are having ODM model where they're actually doing custom work for customers and others are building to customers' design. Are you going through both routes or mostly on the more traditional EMS side?

Question: Matt Sheerin - Stifel Nicolaus & Company, Inc. - Analyst : Okay, great. Thank you. And just turning to the balance sheet in your forecast for that higher interest -- net interest expense next year or basically flattish. Could you just talk through the capital allocation? I know you've done aggressive buyback significant, but why not take down some of the short-term borrowings or some of your debt to reduce that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, JBL.N - Q3 2024 Jabil Inc Earnings Call And also, if you look at your inventory, inventory days, they've come down a lot, but there's still a well above where they were post-pandemic. So is there work to be done in terms of inventory or the working capital to bring that net interest expense down?

Question: Matt Sheerin - Stifel Nicolaus & Company, Inc. - Analyst : Got it. Okay. Thank you for that. And just if I can just sneak in a last question regarding the $800 million headwind you talked about for next year, most of that coming from end demand weakness. But is there a part of that also coming from deselecting customers, as you said, as you put in the portfolio, could you break that down for us?

Question: Matt Sheerin - Stifel Nicolaus & Company, Inc. - Analyst : That's very helpful and clarifying. And I would imagine that $800 million revenue is at that margin and return profile is below your company average. So that would be accretive in other words to the business.

Question: Matt Sheerin - Stifel Nicolaus & Company, Inc. - Analyst : Got it. Okay. Thanks so much.

Question: Mark Delaney - Goldman Sachs Group, Inc. - Analyst : Yes. Good morning, and thanks for taking my questions. First, a follow-up on the $800 million of revenue that the company is looking to deselect. Can you help us better understand what the margin profile is of that? I know you said it's below the corporate average, but is it just above breakeven, low single-digits, slightly below corporate average? Any more color on the EBIT margin associated with that $800 million would be helpful.

Question: Mark Delaney - Goldman Sachs Group, Inc. - Analyst : Helpful color. Thanks for that, Mike. And then my second question was around hybrids. You mentioned in the presentation that you have some ability to grow with hybrids, not just with BEVs. Can you double-click a little bit more, talk to us around where Jabil is participating in hybrids and REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 12:30PM, JBL.N - Q3 2024 Jabil Inc Earnings Call to what extent you have the design wins that would support growth in hybrids as some of the traditional OEMs are planning to grow faster in hybrids over the next few years? Thanks.

Question: Mark Delaney - Goldman Sachs Group, Inc. - Analyst : Thank you.