Q3 2020 Jabil Inc Earnings Call
Welcome to the table third quarter fiscal year 2020 earnings conference.
At this time all participants are in listen only mode. A question answer session with all the formal presentation.
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As a reminder, this conference is being recorded it is now my pleasure to introduce your host.
Barry Investor Relations. Thank you you may begin.
Good morning, and welcome to jail third quarter fiscal 2020 earnings call. Joining me on today's call, our Chief Executive Officer, Mark Hello.
Chief Financial Officer, Mike desktop.
Please note that today's call is being webcast live and during our prepared remarks, we will be referencing slide.
To follow along with the discussion of view the slides you will need to be locked into our webcast fungible dotcom.
At the end of today's call, but the presentation and a replay of the call will be available on Jabils Investor Relations website.
During today's call, we will be making forward looking statements, including among other things those regarding our outlook for our business unexpected fourth quarter and physical 20, net revenue and earnings.
These statements are based on current expectations forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.
An extensive list of these risks and uncertainties are identified in our <unk> annual report on form 10-K for the fiscal year ended August 31st 2019 and other filings.
People disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
With that it's my pleasure to turn the call over to Mark Mondello.
Thanks.
Good morning.
I appreciate everyone, taking time to join our call today.
I'll begin.
By providing a brief business update before turning the call over to Mike.
For Hill off for details on our Q3 performance and address our guidance for the balance of the year.
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So before I get into the business at hand, I'd like to extend a warm thanks to our people here at Jay will.
For their hard work and commitment.
Especially during these train times.
[music].
I tend to think.
Successful and sustainable organizations are evaluated.
Not only on their ability to deal with what they can control but also.
On their ability to react and adapt to the environment.
Especially environments that shifts suddenly.
And shift unexpectedly.
So this I give our team high marks.
The response to covert 19.
Let me confidence and demonstrates our resiliency.
Hi, Jane.
We hope design develop and bring to life numerous products.
Products that the world depends on.
In many ways.
This pandemic has reinforced that Jay will itself is an essential business.
If I may.
I'll now take you back to our second fiscal quarter.
For proper context specific Dakota.
As our teams in China attempted to return from Chinese new year in mid February.
They were faced with travel Lockdowns quarantines and the need for social distancing.
Add to this.
The fact that our sites in China were operating at less than 50% capacity.
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Given the ambiguity that was fast unfolding, we responded our financial outlook for the fiscal year.
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As we moved into the third quarter.
Cobot quickly spread.
Impacting regions in countries that are home to our many factories.
March quickly turned into April.
And April to me.
And why many of us were hunkered down.
Following stay at home orders.
Transforming kitchens four bedrooms are garage is into new found work spaces.
Our factories by and large continued to build and ship product.
Most importantly throughout it all.
The global incident rate of confirmed Cobot cases are cross Jabil remained remarkably low.
I want to offer a special thanks to all of our frontline workers.
Those of you that work, so hard and keeping our people safe.
Well take an amazing care of our customers directly from the factory floor.
Your ability to execute and perform.
Has been nothing short of spectacular.
And on top of at all.
Together, you created a kobin playbook that we used today across all sites.
A playbook of protocols and best practices that we open the share with suppliers.
Customers communities and competitors.
Moving on.
To the critical business catalyst for the quarter.
We saw strong demand in health care in packaging.
Cloud.
Devices and mobility.
And our health care sector.
We joined the fight against Cobot.
As it was simply the right thing to do.
Our teams quickly transform manufacturing lines around the world.
Contributing to the production of critical products, such as ventilators specialized manifolds threed printed components, they shields protected masks and test kits.
In terms of our packaging business, which serves many of the world's top consumer brands.
Demand was strong in areas like cleaners and disinfectants.
Much less dispensers.
Anti bacterial products.
And eat at home food products.
At the same time.
Internet usage was exploding.
Prompted by remote learning and video conferencing.
Teams from our cloud sector.
Along with the teams from our mobility and edge device sectors were in full blown customer care remote.
As end users sought digital access.
The family.
Friends.
Business colleagues and patients.
A trend likely to be part of the world New normal.
During the quarter these areas of strength were offset by weakness.
And our automotive and transport and print and retail sectors.
Nonetheless, our well diversified commercial portfolio.
How does to deliver $6.3 billion in revenue.
In line with our expectation.
To me.
This is quite meaningful.
With each passing here.
The blend of our revenues become better balanced and far less dependent on any single product or product family.
Quite simply greater diversification increases the reliability of our revenue.
Having said this and as we sit here today.
The impact of Cobot will cost us roughly $160 million to $170 million for fiscal year 20.
Therefore.
We're taking aggressive actions to reshape the organization.
And ready ourselves for fiscal <unk> 21.
Well reduce our workforce and in return lower our cost structure by roughly $50 million.
I'll now take a minute.
And express my appreciation.
For those impacted by this difficult decision.
You had a decision that's correct for the business.
In taking this decision we've done our very best.
To ensure that everyone is treated.
With complete respect.
Care and dignity.
As we make our way through the summer months, there's considerable work ahead.
As we prepare to host a call with investors this coming September.
For lack of a better description.
We look at this call as having a conversation with investors.
A conversation about.
How cable management is thinking about fiscal 21 during these uncertain times.
It's important to note.
Throughout this macro uncertainty.
We remain steadfast and prioritizing free cash flow and expanding core operating margins.
In closing.
You can be assured that we're navigating today's issues, while being thoughtful about tomorrow's challenges.
Looking ahead, I believe our business landscape and how we choose to conduct our business.
Hey, look and feel a bit different.
You know, possibly be more efficient.
Possibly be more optimized.
I think this could have real benefits as long as we don't lose a single ounce.
Of our customer intimacy or customer care.
Also I believe key secular trends will remain.
And remain in our favor.
Lastly, plenty of stuff will still need to be built.
And building stuff is exactly what we do.
Thank you I'll now hand, the call over to Mike.
Thanks, Bob Good morning, everyone. Thank you for joining us today.
Before I cover our Q3 financial results I thought it would be helpful to provide a brief update.
Hi, good at 19 has impacted our business and the end markets. We serve since we last spoke on March 13th.
Following up all in much clip in 19 quickly spread across the globe.
However, as Mark indicated for most of the quarter our operations managed to remain largely open.
Our teams would with local authorities and a large majority about that trees were deemed essential so that we continue to build and ship products throughout Q3.
In fact since the end of March we have largely been operating at 95% capacity. Despite a handful of one to two week closures in areas like Malaysia, India and California.
Putting it all together at an enterprise level demand largely held in Q3.
However, the makeup of this demand bettered extensively by end market and region as the pulpit 19 outbreak and stay at home orders around the world impacted each in a unique way.
Let me walk you through what we're seeing in the different end markets today.
Within mobility the out of seasonal launch, which began in February is going extremely well.
In tandem with this the team has also started working on the launch for upcoming seasonal Nexgen mobility products and this too is on track.
Moving to edge devices and lifestyles.
As more people work and learn from home, we're seeing good demand for certain products, such as tablets headphones and smart watches.
In health care, what experiencing strong demand in the markets most critical into fight against Corbett 19.
Ventilators, and ventilator splitters oxygen and temperature sensing equipment.
Diagnostic systems, including analyzers, and test kits and mess ranging from protect to face masks to re usable and 95 mess.
This trend is being offset by reduced demand for trauma and elective surgery products.
Moving to packaging.
As a reminder, packaging business as a supplier to the world's leading consumer packaged goods companies.
Corporate 19, as exerting enormous pressure on our customers to ship unprecedented levels of cleaning and food products.
Because of this we're seeing increasing demand in packaging for laundry products hard surface cleaners, touchless dispensers and antibacterial wipes.
In addition, we're also seeing good demand before packaging spurred on by more people dining at all.
Moving to SMS.
Within automotive on near term results and outlook have been diminished due to lower forecasted worldwide unit sales and OEM factory closures.
However, looking forward, we expect weakness in the traditional automotive markets to be partly offset by additional growth in electrification, which continues to gain overall share of this market.
In semi cap, we're seeing solid demand driven by the ongoing recovery in this end market as infrastructure spending continues.
New fab plant investments, our multiyear investments and soap our customers are marching ahead with that Twentytwenty and 2021 Roadmaps.
In wireless and Fiveg consistent with prior quarters, we continue to see growth in Fiveg that is being offset by fourg as the market transitions to newer technology.
In the near term, we expect Fiveg infrastructure Rollouts to continue as network operators upgrade their services.
In cloud our teams are seeing an increased demand for cloud infrastructure created by stay at home autos around the world, which is translating to higher growth.
Moving to print in retail.
We expect continued pressure in these end markets in the near term driven mainly by office closures and stay at home orders.
Turning now to industrial and energy.
Demand has been relatively consistent today.
But moving forward, we are seeing signs up newbuilding starts being delayed.
This could have an impact on future demand.
And then finally within the enterprise end markets, we're seeing increased demand for networking products due to work from home dynamics offset by cautious overall enterprise spread.
We anticipate this demand dynamic to continue over the next few quarters.
From a cost perspective during Q3, we incurred approximately $60 million in direct and indirect costs associated with the corporate 19 outbreak.
The makeup of these costs consisted mainly of lower factory utilization due to lucked out restrictions supply chain inefficiencies and BP any costs to keep up people say.
Turning now to Q3 financial results.
The combination of our ability to largely remain open efficiently navigate sporadic factory shutdowns and the diverse nature by end markets allowed us to deliver $6.3 billion in net revenue during the quarter in line with internal forecasts.
To me this is a meaningful and further illustration that diversification strategy is working.
GAAP operating income was $59 million and GAAP diluted loss per share was 34 cents.
Core operating income during the quarter was $172 million.
Net interest expense during the quarter came in better than expected at $49 million due to better working capital efficiency and lower interest rates.
Our core tax rate for the quarter it was 53.7%.
At the end of April a non us entity stacks incentive was extended by the government for an additional 10 years, which resulted in a revaluation of certain notice entities deferred tax assets.
While this resulted in a onetime charge of $21 million in Q3.
Moving forward. We this tax incentive extension will continue to benefit our effective tax rate for another 10 years.
Core diluted earnings per share with 37 cents.
It's worth noting that the revaluation of deferred tax assets negatively impacted our core diluted earnings per share by approximately 14 cents.
Next I'd like to call your attention to an item, which impacted our GAAP results during the quarter.
Over the past three years, we've experienced tremendous growth, adding in excess of $7 billion revenue to our results.
Importantly, the growth has been intentional and targeted at end markets that offer accretive margin and cash flow profiles.
With the success in diversifying the business, we feel it is an appropriate time, especially amidst the current economic landscape to take steps to proactively optimize our cost structure and improved operational efficiencies.
Therefore during Q3, we've taken steps to reduce our worldwide workforce.
For Q3, we incurred approximately $50 million related to this inclusive of severance costs and extended healthcare benefits to those impacted.
We anticipate these costs will result in the net benefit to core operating income of $40 million to $50 million end up by 21.
This is an addition to the anticipated savings associated with the Twentytwenty restructuring plan, we announced last September.
Now turning to a third quarter segment results.
Revenue for our Dms segment was $2.4 billion up 13% year over year, while core operating income for the segment increased 27% year over year.
This resulted in core margins, expanding 30 basis points to 2.9%.
Moving to MMS.
Revenue for our Dms segment was $3.9 billion down 2% year over year.
From an end market perspective, we saw year over year strength in the cloud and semi cap space offset by declines in automotive Brent and retail.
Core margins for the segment came in at 2.6%.
Turning now to a cash flows and balance sheet.
As anticipated in Q3 inventory levels contracted sequentially would that days in inventory coming in at 67 days, a decline of three days quarter over quarter.
Cash flows provided by operations were $487 million in Q3, and net capital expenditures totaled $143 million.
As a result of the strong third quarter performance in cash flow generation adjusted free cash flow for Q3 came in stronger than expected at approximately $344 million.
It's worth noting why did we recorded approximately $50 million of expenses in Q3 associated with the aforementioned workforce reductions the associated cash outflow will largely be in Q4.
We exited the quarter with total debt to quarter bundle levels of approximately 1.6 times and cash balances of $763 million.
During Q3, we took steps to bolster our balance sheet, adding over $625 million in liquidity, bringing our available committed capacity under the global credit facilities to $3.7 billion.
With this additional capacity along with our quarter end cash balance Jay will ended Q3 with access to more than $4.5 billion available liquidity, which we believe provides us ample flexibility to navigate the current market environment, all while maintaining our investment grade rating.
We repurchased approximately 800000 shares for $21 million in Q3, bringing our total year to date repurchases to $190 million.
Turning now to a fourth quarter guidance that includes approximately $45 billion to $55 billion and cobot 19 related costs.
Dms segment revenue is expected to increased 1% on a year over year basis to $2.5 billion, while the M.S. segment revenues expected to decreased 8% on a year over year basis to $3.8 billion.
We expect total company revenue in the fourth quarter of fiscal 2020 to be in the range of $5.8 billion to $6.6 billion put a decrease of 5% at the midpoint of the range.
Core operating income is estimated to be in the range of $145 million to $245 million.
Core diluted earnings per share is estimated to be in the range of 46 cents to 86 cents.
GAAP diluted earnings per share is expected to be in the range of four cents to 50 cents.
Next I'd like to outline our updated expectations for revenue in fiscal year 20 by end market.
Within Dms today's revenue outlook is largely unchanged.
Our diversification within Dms continues to pay dividends, even in the current environment.
We expect full margins for Dms to be 3.8% for the fiscal year on revenue of approximately $10.3 billion.
Turning now to MMS.
Within MMS, we've reduced our revenue outlook for Fytwenty, driven by automotive industrial and energy and Brinton retail, which has been partly offset by continued strength in cloud.
We expect margins for CMS to be 2.6% on the year on revenue of approximately $15.9 billion.
Putting it all together for the year, we now anticipate revenues will be $26.2 billion and core operating income to be $805 million.
This outlook translates to core earnings per share up approximately $2.60 for the year.
We also expect to deliver free cash flows in the range of $400 million to $450 million for the fiscal year.
Considering this outlook to me, it's clear that our diversification strategy continues to work and has positioned us well to navigate an incredibly challenging market environment.
In closing I'm very proud about able to team and their collective efforts over the past several months.
Our early on focused efforts are working to protect the health and safety of our employees and we continue to be vigilant and increasing our efforts in this area.
I'm also very proud of innovative ways in which jabils teams have collaborated to join the global fight against Global 19.
I'll now turn the call over to Adam.
Thanks, Mike.
As we begin to Q and a session I'd like to remind our call participants that per our customer agreements, we cannot address customers product specific questions. We appreciate your cooperation operator, we're now ready for Q Annette.
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First question is coming from ruble.
Got a charge of bank of America. Please go ahead.
Hi, Thanks for taking my questions and congrats on the strong quadrant and guidance.
Mark for my first question I wanted to ask you about your thoughts on Dms segment seasonality in a typical year youre November quarter or or fiscal one Q is a strong quarter for the mobility segment, given the new phone launches that happen.
But if the world moves to a scenario where every year. We have two main phone launches maybe one in the may quarter or fiscal Threeq.
Then how should we think about.
The impact to Dms segment seasonality and also you also have a healthcare segment that is having strong revenues. So.
At a high level can you just help investors understand how you think about Vms revenue and margin seasonality.
Sure revoke I think I think what I'd prefer to do is get into some of that detail during our discussion in September.
I mentioned on the on the prepared remarks.
Even in this crazy environment, we're going to do our best to to get together with with all investors in September and at least just let you know how we're thinking about everything for fiscal 2001.
On the surface today.
I I'd be careful not to and I know you Didnt mean that spread for the group right I'd be careful not to interchange Dms with GGP.
Our Dms business again is.
Got it a number of components to it I would if I had to think about what we may say in September.
Is.
With the shape of of our Green point business.
With the shape of mobility with our significant diversification.
Inside of GGP, and then you add to it the tremendous growth we've had in the healthcare packaging side I would say over time that maybe some of the cyclicality used you saw in the business.
Specific to Dms, two three years ago will flatten out of that.
Okay that makes sense.
And then just for my last question. If you can talk about any component shortages that you're still seeing are you being impacted in terms of being able to ship any revenues because of component shortages. Thanks I'd characterize it. This way just so you just so you have some relativity if.
If let's say pre coded.
Let's say the supply chain activity behavior pre coated December January timeframe was a 10.
I think we hit our biggest.
Did that probably in the.
In the March April timeframe, I'd call that maybe maybe five to six.
I'd say today, we're back to 2.8 or nine and I think it stays there until we get to the backside uncommon whenever that is.
Great. Thank you so much and that congrats again on giving guidance for the next quarter. Thank you yes. Thanks.
Thank you. Our next question is coming from Adam Tindle of Raymond James. Please go ahead.
Thanks, and good morning, Mark before the pandemic you were thinking about just under 1 billion of non-GAAP operating income and the new guidance looks like you'd end up just under 800 million at the midpoint vast majority seems like it's related to covert costs and I wanted to dig into this I think you mentioned $160 million to $170 million.
Covered related costs expected for fiscal 20. So if you could just touch on maybe some of the nature of the costs and really help permanent these costs are I'd imagine there's at least a portion of that that is nonrecurring and should not impact fiscal 21, so any sort of break down between what recurs and what is more of a permanent increase to the cost structure.
All right Adam I'll take a shot at it and if I don't if I don't get it right come back happening so.
I think pre covance so.
Take let's go way back to September in September I think we said for flight 20, we do Ninesixty in core op income.
Then I think into December call, we pick that up to 980, if I remember correctly and today, we're sitting with a model. If you take midpoint of Q4 were about eight all five something like that give or take.
So if I if I go back.
Let's not go back all the way to September I don't think Thats fair, because we took the numbers up in December so.
The go to the December number call. It 980 today, we're at eight to five the deltas 175, and I think in my prepared remarks, I said that koby related cost would be for the year would be a 160 to 170.
So the the gap between December and now 175 co related call. It 160 to 170 the rest of it is is almost immaterial.
And a bunch of puts and takes in noise.
In terms of the Colgate expense specifically.
We talk a little bit about this in March when we talked about a $53 million charge in February alone.
Thank the nice thing that is happening here is.
The March car, we did we had a $53 million charged to cobot largely in partial February so on a monthly basis, we were cobot. It was costing as 60 65 million a month.
When we move then we move to April May June timeframe.
I think.
Mike alluded to it in Q.
Q3, cobot it was about 60 million.
Give or take and then I think Mike and his prepared remarks were suggesting that code for Q4 would be 50 million. So the nice thing is touch with today trends coming down a bit I think that has to do with the fact that.
We're becoming more optimized in our process and protocols, giving people in and out of factories by the way with our number one objective is.
And all of our factories keeping them say.
And then and then how those costs breakout Adam is.
We have direct costs, which is largely around our protocols temperature testing PE around all of our factories very consistent to our cobot playbook.
Again protocols processes.
We've we've had some disruptions in Threeq you in terms of either government shutting down factories state shutting down factories.
Where we've had.
Im confirm koby cases, we close our factories until we can get testing completed.
Through all that.
We're paying the idle labor.
I think thats the right thing to do and this time in place and then also.
We're just there's just a general pockets of disruption so.
Today, our entire factory networks running that.
Call. It 90, 95% and I think revenue reflects that.
That could lead to the question EMG factory network seem to be running at a normalized pace why still the cobot costs and the truth is is is threeq you and we anticipate a fourq you will still have some off some one off pockets of disruption and we've kind of trying to handicap as best we could for for the fourth quarter.
Okay. That's helpful and it sounds like generally to summarize kind of on track versus your initial plan at the analyst day. If you were to exclude the cobot costs and I don't want to get too far ahead, but as we think about the fiscal 2001 plan that you laid out that had that $4 EPS number.
If I think about what's going on today, you've got an incremental 50 million dollar cost optimization on top of it seems like Dms ramp as well on track what would be maybe the headwinds.
Today versus that initial $4 EPS number plant.
Let's talk about that in September and I say that and I don't want to be evasive, okay, but.
Man our team our team is a bit tired, but boy and I I just talked about it in my prepared remarks intentionally.
Our frontline workers are the folks at the factories.
Im always proud of our folks.
The folks we have on the factory floor today's dealing with this stuff every hour everyday and what they've done and give us the ability to at the beginning of the year, Adam we talked about revenue being 26 billion.
In December we took that up to like 26, and a half 26.7 and if we if we're fortunate enough. That's the world doesn't go completely haywire in the next 60 to 75 days and we're close to the midpoint of guidance for Fourq you.
We'll do over 26 million. This year I think the numbers are coming in around 26, two that's all that's all our our people at factories, who are just amazing to me, especially through all this because they are exhausted.
I think what we'll try to do our best is in September.
And I refrain there or.
We have stayed away from in my prepared remarks, I forget exactly what I said, they didn't really call. It a formal investor day, because they just don't with the world's going to look like you had as Mike or Adam well, but we felt like it is important in September to go beyond normal earnings call and try to lay out for you in a very descript way, how we see the world.
And we'll provide you a fairly comprehensive assumption set.
Matt I.
I think and I say this all the time and I've said it for the four or five year journey, we've been on.
The companys.
So diversified and our diversification in terms of our top line.
It's somewhat.
Kind of the main deal here and and allowing us to hold revenue at what I think is a.
A very very.
Solvent level, all things considered and again in the most simplistic terms and you alluded to this with the opening of your question which is.
Ill.
If you if Tobin would have never occurred I think sitting here is a leadership team.
We feel very good that we would have delivered to nineeighty.
Makes sense congrats on the results despite everything going on and thanks to the detailed yeah. Thanks.
Thank you. Our next question is coming from Jim Suva of Citigroup. Please go ahead.
Thank you very much and congratulations on all the agility and hard work for your teams.
Maybe a bigger strategic question as you looked at the world getting back close chroma virus.
There are changes for more like localized manufacturing just from customers wanting to mitigate risks, meaning not be so concentrated in certain regions enough. So I.
I assume you probably have to talk about profitability colds, putting together something then.
<unk> Petersburg may have a different cost profile than putting it together in a different country and then shipping units.
The lowest cost maybe little more expensive, but can you talk about are you seeing weren't having discussions and they've got really impact your profitability. Thank you.
Thanks, Jim maybe I could could you clarify for me Sir you asking are you asking are we seeing specifically, saying are we seeing people are they moving business around the movie business on a China or his business moving back to the U.S. are you asking all of those or or one of the three or.
Okay.
Yeah kind of just in general are those discussions happening and all the material or they can you spend maybe I could go read about the political trade Wars. We then we layer on a a pandemic of health care on top of that I'm. Just wondering if this is facilitating less about concentrated footprint Jay will have the.
Very strong worldwide footprint and if so I assume that we opt out some discussions about cost is just kind of overall the topic. That's all okay. So.
I'll give my past I think.
I don't recall I think it was the September call, where we were we were in this trade Terra deal.
That was kind of the headlines of a day and then koby took over in Threeq tariffs, it's kind of taking it back seat.
In terms of headlines.
I believe what we said is is there would be some cost our budgeting if you will.
For F why 20.
Had suggested that the first half a 20 there was cost in there.
Around trade tariffs as as some customers, we're looking to hedge China not a lot of customers were leaving in China. In fact, as we sit today not a lot of customers have left China. We've had a number of customers that have hedged China new products.
And that's played out largely.
As we thought give or take.
So Ben.
Hope it hits and.
I would say everything's been in a little bit a lock up in terms of conversations with customers strategically because customers are just trying to figure out.
Which weighs out as are we.
So I.
If I if I had to think about.
Maybe the discussion in September.
That's a little bit more strategic I would say not allots changed since.
Since what we said.
September of 2019 at the beginning this year I think people will will be a little bit more cautious.
In terms of having their product built at a single site.
That could be trade tariff that could be just because that could be because of mother nature concerns.
I don't know how much of that links to cope with the good news and all that Jim is.
Oil boy.
Hi, I'm, a real believer that.
Theres a lot of stuff that will need to be bill.
A few of us on the planet today that have lots of scale have a huge it down a advantage.
I put our footprint in that for sure Mike talked about our balance sheet and.
And the liquidity, we have in terms of continuing to invest.
And then just overall leverages supply chain, so as the these dynamics ebb and flow as they change.
I think we're in a in a reasonably good position.
Thank you so much for the details and congratulations to you on all your employees. Thanks, Jim.
Thank you. Our next question is coming from Paul Coster update P. Morgan. Please go ahead.
Hi, This is Paul selling our third posture. Thanks for taking my question.
So first just on on Dms can you give us a sense for you know the relative strength between healthcare packaging and mobility.
From your prepared remarks, the starting soon quite broad, but judging by are unchanged fiscal year guides segments assume health care was a large driver, which obviously makes sense, but if you could comment there and how these trends extend into a 42.
[music].
Okay I would so I think what you asked is kind of a breakdown of Dms strains weaknesses.
I would say.
Tactically and maybe strategically depending on how the whole new world order is postcode it.
Both Mike and I spoke in our prepared remarks on I think companies are going to do things a bit differently going forward.
I've had the good fortune to talk to lots of our customers and their Ceos and.
Lots of conversation around jeez, you going to travel as much are you going to conduct business the same.
I think our new normal as a proxy is.
Don't want to give up one inkling of of.
As I said in my prepared remarks care intimacy for customers. So I think thats rule spend our travel dollars I think net net our travel dollars.
On an annual basis will come down.
Equal use more digital tools I bring all that up because.
I think when it comes to our mobility business in our edge device business.
And people using digital tools and working remotely for an extended period of time, I think that business will or will be in relatively good shape and then.
Health care and packaging.
Both with our strategic plan around health care, and then with doing some PPD anchor getting a little bit of an extra boost boost there I don't remember the exact numbers, but if you.
On the for lack of better word on the chart that we provided in September the Blue Green chart. I think we had healthcare packaging for Efrain 19, and just a little over 3 billion and and now the healthcare packaging is a little over 4 billion and I would say if things continue to go well for us.
I see health care and packaging at a at a number greater than.
The four 4.2 billion that you might see on the charts today.
Gotcha, and then just a quick follow up on on healthcare specifically about.
Back to surgeries and other products is that nature. They are kind of related to two Kobe spur demand.
How did those products during the quarter and do you see ramps from maybe pent up demand, possibly in the coming quarters. Thank you.
Yup.
I would say from our observation so don't take this is.
Again, a data point for the industry, but from our from our vantage point elective surgery demand was down.
I don't think Thats any secret I think that.
But but yet on a net net basis, we saw strength in health care. So what you could surmise from that is.
There was a strong offset to our health care business, so elective surgery demand down.
Both PE and other areas of our healthcare we're actually.
Greater than the downtick, we saw an elective surgeries on a net net basis for Threeq you.
Here's what's interesting I think an observation might be.
Gee over time.
You know maybe the pp he starts to fall off a little bit.
We know how does that impact health care again, we'll talk about that in September.
But I also believe that theres going to be a significant pent up demand for elective surgeries because a lot of these elective surgeries don't go away just logistically people can't get them done in the middle income of it.
So the puts and takes on that are if you look at our healthcare packaging business for fiscal 18, then you move to 19, then you move to 2021 and 22 I think that.
Sector of our business is is on a really good trajectory.
Thank you so much.
Thank you. Our next question is coming from Steven Fox Fox Advisors. Please go ahead.
Thank you good morning, I'm just following up on some of those comments Mark can you maybe step back and talk about the progress you've made.
During this period in improving the margins on some of the health care programs and maybe broadly as well and then just as a follow up could you talk about.
Some of the consumer packaging trends you mentioned to pick up in that I know you were sort of improving sort of the operations of that business going into the cobot pandemic and so is this is there a longer term adjustment, we should think about with that business going forward. Thank you.
Okay.
Yeah.
So in terms of margins in healthcare I think we talked about that in September.
We talked about the addition, the wonderful strategic addition of J.J.M.B.
We gave you gave some color around that if you go back and look at our comments in September I think those still hold so we talked about Oh.
A multi year transition with JJ MD.
Both with top line bottom line margins I think.
I think that is in a trap tracking like we expected in September.
Hi, envision that tracking that on that same path as we move to fiscal 21 and 22. So net net I think thats positive in terms of.
Our consumer packaging business.
Brenda who runs that for US has a ed just a ton of experience.
And.
Although that business historically in the big picture of J ball.
Hasn't been overly material I think it will be.
Not just not just thinking about topline, but bottom line I think I think thats, a I think that has potential to be a margin rich environment for us.
And with Brenda and her team the things that are looking at is the stickiness and or how to lead with technology and engineering in a market that in many ways is just simplistic molding.
That's not the area, we're playing and so if I think about to trajectory of that business.
I'm every bit as bullish on that if not more than my bullishness around healthcare and then Steve in terms of margins in general.
Obviously.
Margins this year than handicapped by Covance, but I think it was Adam and it was asking the questions and prompted the discussion around geez.
Toplines holding pretty good again proxy for our diversification.
If you if you can kind of handicap for the closing costs I think margins. This year I think at the beginning of the year, we said that.
Last year last couple of years margins have been 3.43, 0.5%.
I think net net it coded this year if if you adjust I think this year, we would have done again, the 3637 and we'll talk in September about how we're thinking about margins for for 21 and I do recognize that.
Have a guide post out there that $4 a share and 4% I will address that in a and another couple of months.
Great. That's very helpful. Thank you very much yep.
Thank you. Our next question is coming from Shannon Cross of Cross Research. Please go ahead.
Hi, Thank you very much for taking my question and you may want to address I'm sure. Some of this in September but I'm curious.
When you look at the revenue that was generated even be on health care could you talked about it significantly during the quarter from increased demand for company. So you know whether it was some of the luck and mine come home or packaging and that.
I guess, what I'm trying to understand what.
Underlying businesses.
Whether some pockets of strength that that's the price do even beyond.
You know what you saw that I don't want to get a one timers, but that obviously, there's been sort of a shifting and where production has been so I'm curious you know in five years. So many other areas are you seeing incremental strength that sort of.
Driving the fundamentals even beyond the upside that you saw some kind of it. Thank you.
Areas I was surprised in.
I would say that.
The uptick we had around co bid.
Directly for health care was probably stronger than we anticipated if we go back to the March call.
Is that sustainable.
I think it's going to be sustainable for why all at some point that runs its course starts to fall off but then my comment about.
Collectors elective surgeries and things.
That are pent up I think fill a little bit of that give it. So maybe that was a little bit as of a surprise our cloud business.
What's kind of as expected we saw good continued strength there, but that was that was more on the expected side.
I would say.
Other area of surprise for us or at least speaking for me I don't want to speak for the whole management team is as I think maybe maybe we under estimated how.
How broad based this digital learning digital schools, and and video conferencing would be especially when you consider cobot usages grossly underestimate the impact of the whole world.
And I.
I don't think thats going to be so temporary so I mentioned it and one of the responses earlier. So in terms of our edge device business things that anything to do with with people communicating differently. I think is human beings connection is really really important so people are going to want to whether its augmented reality.
Webex, Microsoft team zoom whatever tools people are using.
They're going to want to have tools that continue to advance and allow them to have a level of really good human connection.
So any device.
That has to do with that being maybe part of the new normal I thought I think we saw some upside in that three to you I think we'll continue to see some strength in that in the fourth quarter and and my guess is that strength of carry on through 21 and beyond.
Thank you and I was just curious on Threed printing technology in terms of manufacturing are you see more interest in that or was it sort of a nice to have because of the need for some of the P. P and not that they generate it because I know you've been one of the leaders and manufacturing with three D. Thank you.
I would I would never as we sit today never characterize Threed is a nice to have I think I think three d. additive.
Is finally that technology forget about Covance I think that technology is a secular trend in certain areas and and I think we're going to be lenient hard into that especially in areas of.
Health care, and defense and aerospace and automotive to start.
Thank you.
Yes.
Thank you. Our next question is coming from Matt.
C N of Stifel. Please go ahead.
Yes, thanks, good morning, and thanks for all that the color so far and my question Mark regarding the $50 million an incremental.
<unk> cost.
Cutting remote moves that you mentioned this morning.
Could you talk again about sort of the reasoning for that are there certain end markets within yeah mass for Dms that you expect just slower growth rate in your adjusting.
Or are there some mix issues.
Well.
Thanks, Matt It's got nothing to do at any of that it.
So so.
Uh huh.
Throughout my long time at Jabil, We go through we go through different pockets in the company.
Where growth rates change there up there down.
We've we've we've.
We went through a significant growth spurt.
Nearly doubling the size of the company over over a fairly short period of time.
I think every four or five years I think it's important for leadership teams to really reflect on what's worked well what hasn't worked well.
What we can do better off said differently being adaptable and flexible change I think our org structure that we had in place the last four or five six years has served as really well hence the.
The tremendous growth and.
So we actually started talking in our strategic discussions in the fall.
Okay.
What's next in terms of the next three four years in the company, we've done a wonderful job diverse diversifying our our topline.
We've made it clear to investors that.
Our focus we're going to take a little bit of a slight a slight yep.
Pause a deep breath and focus hard on the cash flows in the margins as such.
Pre told that we were having lots of discussions about how to optimize the structure how to remove any friction points and accompany the size how to be sure that everybody has access seamlessly and quickly to all of our capabilities. So this was underway through the fall and into the winner.
And then Kobin hit and.
And added to our thinking around.
Maybe taking some cost out of the business. So it's not really in a reaction I think I think Mike and I, both said in our prepared remarks.
Threeq you provided us some pockets of strength that was offset in a in a few pockets of weakness.
This action had nothing to do with any of that it just had to do it's more structural in nature, it's more permanent.
I could suggest you these costs aren't going to come back when Provence Dover and.
And I really like how it positions the company.
For 21 22 and beyond.
The decision point, we had to make is a as a leadership team is with everybody working remotely did we think this would be a good time to go do this because things like this or not easy and.
We made a decision to do it because if we can do it properly and get to the other side of this with the new structure as Kogut starts to clear up.
I think it gives us a really really nice foundation to run the company.
Okay, Great that was very helpful and just as my follow up Mike regarding the balance sheet.
It's like your inventory days were down.
Sequentially, which is a credible regarding.
Certainly I'm taking into account the supply constraints that you and your customers saw.
You are still up.
Year over year in terms of where you think that inventory is appointed Directionally do you expect to stay somewhat elevated.
As customers look to keep some buffer stocks in this dose supply constraints or do you see that coming down overtime.
So in Q2, Matt the inventory shut up to less 70 days I think we had some issues in China, there wasn't anything being shipped out so.
70 days was unnaturally high we've come down to 67 this quarter, so progress, but a lot.
Not as much as I would like to see so my my target right now as they let's get to that 60 in the in the medium to long term.
We need to be in the mid low mid to high Fiftys. That's that's the eventual dotted blue we get that right away next quarter or the answer is no but over time I feel good that we will get them.
Okay. Thanks very much.
Thank you. Our next question is coming from Mark Delaney of Goldman Sachs. Please go ahead.
Yes. Good morning, Thanks for taking my questions.
I was hoping to better understand if jabils able to pass on the extra costs from Cobrand mitigation two customers on your existing projects and you already costs related to cobot mitigation factored into the pricing discussions you're having for new business.
Hey, Mark.
The 160 to 170 million for the year I spoke to the net cost. So those conversations are going on all the time.
All of our 400 plus relationships.
80, 90% of those are are highly strategic long term.
And those conversations.
They have endless dimensions to on so, let's just say that we've kind of business to run our customers understand we have a business to Ron we also want to be very very thoughtful to all of our customers because they're going through tough times as well, but.
The rest assure that.
I think those discussions for the most part that have taken place through the third quarter and will continue through Fourq moving into 21, I would characterize as being very fair conversations.
Okay. That's helpful.
Second question.
Yes, I know last earnings report the company didn't have enough visibility to provide guidance and there was uncertainty is at that time related to both production and customer demand on this call you have already spoken at length about how to production side has improved in terms of component availability in factory utilization.
Hoping to better understand the demand side of the equation.
Not so much in terms of different end markets and what you're seeing but just the visibility that you have it customer demand.
And ordering and how much.
And visibility has improved and how that may be but to your comfort and being able to provide guidance as we as we sit today for this call. Thanks.
So let me try dissuade you know the processes the processes and tools and analytics, we use for for understanding demand haven't changed at all and in fact, I really am glad we have the tools and analytics, we have because they are helpful. When.
When the horizon gets a bit foggy.
Those tools are helpful. I would say that into so so so net net the visibility we have.
It is unchanged the issue is how much hard data analytics and our resources on line or misaligned with some customers outlooks and I think thats, where the tools are most beneficial because if there's a disconnect from what we're seeing are we believe we should be seen.
Versus the feeds that we're getting the demand fees, it's driving lots of really constructive.
Conversations I think that.
You know, there's still going to be quite a bit of choppiness in the business.
Through the fourth quarter and into early F. why 21.
I think that.
I have this feeling like cope it's behind us the stock markets doing great the world's getting back on its fee I don't I don't think Thats the case.
With that said the reason, we decided to give guidance for the fourth quarter as is.
We've tried our best to handicap multiple scenarios.
We've kind of taken an average of I'm, saying, a dozen or so different scenarios and.
I think we have a degree of confidence that justifies the guidance for the for the fourth quarter.
Thank you.
You're welcome.
Your next question is coming from Robert Mueller of RBC capital markets. Please go ahead.
Hi can you just talk a little bit about your share repurchase and capital allocation plans do you plan on resuming the pace that you expected pre cobot units. So by what timeframe and are there any rough targets for when you'd like to last year authorization.
Oh, we do have a 600 million dollar authorization out there we've done about 190.
Of that already Oh look and continue to be sort of caught pull up on our capital allocation be opportunistic I do want to balance of buybacks with cash and make sure.
That that our balance sheet.
Isn't a isn't a very strong position, which it is today. So the answer is we will be looking at it.
Opportunistically for sure.
Great. Thank you.
Thank you at that time I'd like to turn the call back over to management for any additional or closing comments.
Thank you for joining us please reach out to us with any questions. Thank you.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines have all got the webcast at this time and have a wonderful day.
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