Q4 2020 Jabil Inc Earnings Call and Investor Briefing
Hello, and welcome to the Jabil Fourthquarter fiscal year, 2020th earnings colon Investor briefing at this time, all participants or any listen only mode.
Anyone should acquire operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. As a reminder, this conference is being recorded it's not my pleasure to turn the pull over to your host Adam Berry, Vice President Investor Relations. Adam. Please go ahead.
Good morning, and welcome to <unk> fourth quarter of fiscal 20th 20th earnings call an investor briefing.
Joining me on today's call, our Chief Executive Officer, Mark Mondello, and Chief Financial Officer, Mike Desk door.
We'll begin today with Mike who will review, our fourth quarter and physical 2020 results. These.
These slides are currently posted on our website at <unk> Dot com.
Following those comments, we will transition to our third annual Investor briefing, where Mark will review, our business overview and Mike will provide an outlook for our first quarter and physical 2021.
We will then opened it up for your questions.
Please note to view, our investor briefing slides during today's session you will need to be logged ignore web cast at Gmail Dot com.
Following today's session you will find our entire slide deck for both our fourth quarter earnings an investor briefing on our website.
The entirety of today's call will be recorded and posted for audio playback on <unk> dot com within the investors section.
Our fourth quarter press release slides and corresponding webcast are also available on our website.
In these materials you will find the earnings information that we cover during this conference call.
Before handing the call over to Mike I'd now asks that you follow our earnings presentation with slides on the website beginning with our forward looking statement.
During this conference call, we will be making forward looking statements, including among other things those regarding the anticipated outlook for our business such as are currently expected first quarter net revenue and earnings.
These statements are based on current expectations forecast 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 in our anger report on form 10-K for the fiscal year ended August 31st 2019 and other filings.
Cable 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 now my pleasure to turn the call over to Mike.
[noise], Thank you Adam and good morning, everyone.
I'm very pleased with a fourth quarter performance would segments execute extremely well and deliberate financial results that came in well about the guidance we provided on June 19th.
The older performance has driven mainly by two factors burst during cupel the experienced fewer corbridge related disruptions then we anticipated in June which is.
Which resulted in higher than expected to put in a plants.
Fishing supply chain and Lola goldfish related expenses.
And second.
Our teams and both segments quickly moved to capitalize on upside demand mainly in the mobility five G wireless and cloud and markets.
The compounding effects of higher than expected sales improved productivity and lower costs allowed us to deliver strong revenue cooperating income and cold diluted earnings per share in Q4, well above expectations in June.
With that I will not reveal Q4 and physical 20 financial results.
And that's what's happening for the fourth quarter was $7.3 billion, an increase of 11% yearly yeah.
Gap operating income was hundred and $97 million and a gap diluted earnings per share was 44 cents.
Score operating income during the quarter was $255 million.
[noise] above our expectations in June tripping, mainly by the aforementioned highest sales and Lord Coke related impact that came in approximately $25 million lower than anticipated.
Net interest expense during the quarter was $46 billion [noise].
[noise] tax straight for the quota was 24%.
Quote diluted earnings per share it was 98 cents, an 11% improvement over the prior quarter.
But the full fiscal year net revenue was $27.3 billion up 8% year over year.
F Y 20, GAAP operating income was $500 million with GAAP net income of $54 million.
Gap near diluted earnings per share it was 35 cents for the year.
Cool are operating income was $864 million, representing our core operating margin a 3.2%.
God diluted earnings per share for the year was $2.90.
Now turning to a fourth quarter and FY 22nd results.
Revenue for a D. M. S segment was $2.8 billion up 17% year over year.
This growth was mainly due to a mobility and health care and markets.
Hello margins for the segment improved 60 basis points ear over here to 3.5%.
Revenue for a E. M. S segment increased by 8% year over year to $4.5 billion, driven mainly by the semi cap five G wireless and cloud and markets.
Full margins for the segment with 3.5% during the quota.
Well the year a D. M. S segment Rep, and he was $10.7 billion up 8% ear of the mainly due to a health care business.
<unk> for the segment with 3.9%.
Moving to E M S.
In FY 20 revenue increased by 8% year over year to $16.6 billion as a value proposition continues to be well received in the areas of five G wireless cloud and semi cat.
Horror margins for the segment with 2.7 per cent.
Turning now to a cash frozen balance sheet.
And Q for inventory days came in better than expected at 56 days a decline of 11 days sequentially.
[noise] net capital expenditures for the fourth quarter of $241 million and for the full fiscal year came in as expected at $796 million.
A fourth quarter cashless from operations were very strong coming in at $687 billion.
As a result of the strong fourth quarter performance and Cashflow generation adjusted free cash flow for the fiscal year came in higher than expected at approximately $461 million.
We exited the quarter with total debt to Corbett ER levels of approximately 1.7 times and cash balances of $1.4 billion.
To further strengthen a balance sheet. During Q4, we issued a 600 million 3% senior note maturing in January of 2031.
We use the proceeds to redeem a $400 million 562, 5% senior notes do in December 2020.
We ended Q4 with committed capacity under the global credit facilities are $3.8 billion.
But this available capacity along with a quarter and cash balance cable ended Q4 with access to more than five $2 billion of available liquidity, which we believe provides us ample flexibility to navigate the current market environment.
[noise] during Q4, we repurchased approximately 760000 shares for $25 million, bringing a total year to date repurchases to $215 million.
In closing I am very pleased with a strong execution and resiliency and a challenging environment and I'm encouraged by the positive momentum mcgary into physical 21.
With that I'll now turn the call over the month.
Thanks, Mike.
Good morning.
I appreciate everyone, taking time to join our call today.
I'll begin by offering my sincere gratitude to all of you here at <unk>.
Thanks for hanging in there during these trained times, while never compromising the safety of our people.
Your response stamina, an attitude had been amazing.
So appreciated.
Again, thank you all.
Today is our third consecutive year.
Where we not only sure of results and.
And give a quarterly guide.
But we also provide a complete outlook for the year ahead.
So I'll get a started with thoughts on her outlook and.
And Mike will offer additional detail during his follow on remarks.
Moving to slide 11.
I'll offer a few thoughts on our approach <unk>.
Beginning with diversity and inclusion.
Being the tables a service business.
We know that each employee is critical to our success.
We also know the each employee has the right to be treated with dignity and respect.
All day and everyday.
We operate our business and 30 plus countries.
Employing people that don't look the same.
Talk the same.
People that practice different religions.
Have different sexual orientations.
People with physical limitations and <unk>.
And Nero diversities.
Diversity and inclusion is top of mind.
As we employee folks all around the world.
But we've got more work to do.
We won't abide racism or lack of human rights.
We won't accept discrimination or social injustice.
Our team challenges the status quo and we have.
And we hold ourselves accountable through action.
Most recently reformed a nine person counsel.
To assist and guide our internal DNI efforts.
This council will provide advocacy as we pushed to improve our own shortcomings.
These now nine council leaders are talented.
And without a doubt we'll make us better.
Consistent with this focus repeat.
We're pleased to be a premium sponsor for the upcoming Special Olympics U S games.
The sponsorship has evolved into a partnership.
Granting our employees the remarkable opportunity to engage with the athletes and their coaches.
This will also make us better.
In summary, or.
Our team continues to safeguard our work environment and it.
And ensure that everyone can be their true self.
Without fear or anxiety.
Without harm or recourse.
And with full acceptance of our individual differences.
A second aspect of our approach pertains to ESG and sustainability.
A gerbil, we aim to always do what's right.
This includes doing right by our planet.
And doing right and helping others.
We will expand our use of clean energy.
As we strive to reduce our greenhouse gas emissions.
25% within the next five to six years.
Equally important.
Is the pursuit of our sustainability goals as.
Is influenced by the United Nations decade of action.
We are determined to lead our industry.
Bye attaining highest standards in the areas of employee safety.
Water usage has it.
Hazardous waste and supply chain management.
Also we understand.
What gets measured gets done.
So we've applied this mantra to our people and they are incredible generosity.
Which allows us to quantify their contributions is.
As they volunteer their personal time.
Let's now turn to slide 13.
This slide painted terrific picture undersea.
Underscoring the effectiveness of our team and the strength of our commercial portfolio.
What you see is two segments.
Where one plus one equals three.
Two segments that compliment one another both in terms of and markets and capabilities.
Relevant capabilities that when properly combined.
Fuel our services and our solutions.
Two segments that when placed side by side so.
Suggest resiliency at scale.
So let's break down each segment.
Please flip to slide 14.
Roughly 50% of our DNS segment is comprised of Jabil businesses that operate in a regulated type environment.
Businesses, such as healthcare an automotive.
These and markets share similar certification invalidation requirements.
And must meet certain standards as they bring products to market.
At the same time.
Capital investments aligned with the longer more stable product life cycles.
The other half of our DMF segment is also comprised of two divisions.
Are connected devices and mobility divisions.
These divisions excel.
At high volume production.
Advanced material Sciences.
Aesthetically complex molding.
Precision mechanics, and flexible automation.
We're excited about the balanced portfolio within our D. M S segment.
With a focus on expanding margins, while offering reliable cashflows.
Let's now move to slide 15, we're all.
Where I'll share a few thoughts on R. E M S segment.
<unk> ability to combine years of manufacturing Knowhow and process standards with data analytics set us apart.
Our longstanding customers leveraged jabil is unique I T network as we manage all types of sophisticated global supply chains.
Today, we serve a wonderful blend in markets across our EMF segment.
Markets that include five Jean cloud.
Industrial and semi cap.
Digital printing retail.
Networking and storage.
We're excited about the broad range of customers in our <unk> segment with a focus on growing cash flows while offering stable margins.
Putting this all together.
Let's look at our outlook on slide 16.
For fiscal 21.
We plan to deliver a core operating margin a 4%.
On revenues of 26 $5 billion.
This mirrors, what we committed to you.
One year ago.
It's important to note that the 4% operating margin on the $26 billion.
Correlates to $4 and core EPS.
Again, Marianne what we said last September.
Three primary actions give us confidence in our.
And our outlook.
One.
The improved makeup of our commercial portfolio.
Two.
Reduce levels of overhead.
And three <unk>.
Lower costs associated with Covid.
These three actions some to roughly $180 to $190 million of additional income year on year F.
F Y 20 to FY 21.
If I step back and think about where we're at today.
Much of our success here at Jabil.
Is because we place the needs of the customer first.
And we do so.
Through non parochial sharing.
Of all resources and all capabilities.
I think about this sharing is frictionless collaborations.
When is collaboration is combined with the experienced and actions of our team.
You have a winning recipe.
A recipe, which delivers optimize solutions and services.
To our customers.
I ask that you know please turn to slide 18.
In closing our outlook for fiscal 21 is indicative of the positive momentum or carrying into the year.
It's an outlet that's grounded by the continuation of.
Are are straightforward strategy.
A strategy built on five basic pillars.
Ensuring our business mixed remains well diversified.
Obsessing over our customers, while leading with engineering.
Driving growth through sharing and integrating our capabilities.
Expanding margins by contour in our portfolio.
And leveraging are varied and markets to deliver reliable cash flows.
Lastly to our entire leadership team.
Once again, thank you for making Jabil jabil.
Most importantly.
Thank you for being your true self.
As CEO I'm honored to serve you year in and year out.
I will now turn the call back over to Mike.
Thanks, Bob.
I would also like to thank our employees for their hard work dedication an excellent execution during a challenging FY 20.
Over the next few minutes I plan to provide you with a framework that highlights how we will execute on a strategy and deliver on our financial commitments in the coming in.
As we turn our focus to 2021, a financial priorities remain unchanged.
First we're fully focused on expanding margins.
To position the company to deliver higher margins over the last few years, we've targeted growth in areas of a business that up higher return profiles at Harper accretive margins and strong cash flow streams.
At the same time, we're focused on optimizing costs to ensure we deliver SG&A leverage across the worldwide cable footprints.
Secondly in FY 21, we're forecasting core earnings per share to improve nearly 40% over at 520.
And finally, we have focused on generating strong free cash flow throw optimization of working capital and disciplined Capex management.
Next let's take a look at each of our operating segments and I'd like to walk you through what we're seeing in the different and markets, We show and how each of these plays a role in delivering our financial targets.
D M. S team strong performance over the last few years reflects out of improving business mix as a result of our intense focus on that.
On diversifying our end markets products and customers to create a more sustainable business.
The team continues to do a tremendous job leveraging a deep capabilities in this segment like tooling physician mechanics acoustics.
<unk> upticks automation and material Sciences took.
To capture new opportunities in high value adjacent markets.
Nowhere is as clear then and health care in packaging businesses, which have grown tremendously over the last few years through several key wins, including a transformational strategic healthcare collaboration.
Today, we have one of the largest healthcare manufacturing solutions companies in the world and we're well positioned to capture future similar opportunities.
And packaging, we are uniquely positioned to benefit from the convergence of electronics and smart and eco friendly packaging.
As we move to automotive the bulk of our business focuses on electrification of auto based on a nearly 10 year relationship with the leading electric automotive company in the world.
In the near term this market is recovering faster than we expected just a few months ago.
Looking forward, we remain well positioned as demand for increase safety governmental emission regulations and the race towards electrification and autonomous vehicles are all playing a significant role.
In shaping the future of driving as we know it.
Moving to connected devices as <unk>.
Is more people worked alone from home we saw good demand for products, such established headphones and smart watches in FY 20.
As we move forward into FY 21, we expect this dynamic to remain.
Beyond these devices. We're also continuing to shape the portfolio products that meet a margin and cash flow profiles.
Consequently, this will result in lower revenue for FY 21.
Beyond FY 21, we believe the adoption or <unk> would provide a further catalyst for future growth.
And finally within mobility.
We remain extremely well positioned across all models and components as we continue to benefit from a diversification strategy.
The out of season launch continues to perform extremely well.
Intended with this the upcoming next generation launch, which began in Q4 is going extremely well.
Our team technical expertise and focus on operational efficiencies continues to contribute to a very strong customer relationship.
In summary for D. M. S to me the key takeaway. This year is the considerable mixed shift underway.
And FY 21 health care in packaging is expected to be more than a third of idms business with estimated revenue growth of approximately $600 million in FY 21.
Putting it all together for D. M. S. In FY 21 were expecting an impressive 80 basis points a margin expansion on mid to high single digit revenue growth.
Turning now to Emas.
The trends and technologies disrupting the I T industry stay on numerous and accelerating at a rate never seen before.
The interplay between a dramatic increase in bandwidth brought about by five G and the evergreen power of computing in the cloud is creating a technology and business ecosystem that is changing at faster rates than earlier generations.
All of this is happening in the context of increased consumption of silicon chips unprecedented change in the retail landscape additive manufacturing and software driven architectures.
And digital printed retail we continue to expect softness during the first half of FY 21, driven by office and retail closures.
However longer term, we're well positioned in these and markets as we partner with our customers to bring next generation print and retailers technologies to market.
Shifting gears industrial.
Man has been relatively consistent a date, but moving forward with seeing signs that new building starts are being delayed which could have an impact on demand in the first half of our fiscal year.
However, in the medium to longer term, we are well positioned to take advantage of favorable macro tailbones through capturing growth and the smart metering power conversion and energy storage spaces.
And semi cab during the slow down the team did an excellent job of aggressively managing a cost while capturing market share and diversifying our business across both the front and add backend.
With the ongoing recovery in this space our efforts over the last 18 months and manifesting and stronger results.
We are seeing solid demand and sofa customers continue to March ahead, with new fab plan investments executing to that 2020 and 2021 Roadmaps.
And cloud a unique offering continues to resonate with the hyperscale as evidenced by the significant growth over the last three years.
And this growth has only accelerated in the near term as work and learn from home has significantly increased the demand for cloud infrastructure.
Our customers are looking for much more flexibility in their server and storage hardway supply chains, while greatly reducing their cycle times.
The message that is resonating with our customers is designed to dust capability to provide a consistent experienced across capabilities functions and geographies.
Keep in mind that when we talk about are designed to dust value prop. We can design create make and recycle all within the same four walls, which is incredibly powerful as security and transparency at every step of the hardware lifecycle become continually more important to our customers.
Coupled with a vertical integration strategy this level of engagement creates very sticky relationships with our customers.
It's worth reminding everyone a cloud business is a bit unique and has been deliberately structure has a geocentric asset light service offering.
With this in mind in FY 21, approximately 1 billion and components, we procure and integrate will shift from the current purchase and resale model to our consignment service model.
We will benefit from higher margins and lower cashews in this business as a result of the transition which will further bolster the asset like nature of are offering.
At the other area undergoing rapid disruption as the <unk> wireless and market.
Over the last several years, we have invested in accelerated NPI test processes and R&D <unk>.
Increasing a stickiness with customers and so maintaining a leadership role in the manufacture of base stations and radios as we transition to a <unk>.
We continue to see growth in <unk> upset by legacy wireless as the market transition to newer technology.
In FY 21, we expect <unk> infrastructure rollout to continue as network operators upgrade their services.
And then finally within the legacy networking and storage and markets, we expect consistent networking demand, but reduced storage demand driven by cautious overall enterprise spend and the ongoing shifted the cloud.
In FY 21 does demand dynamic coupled with a decision not to pursue other products that do not meet a margin in cash flow profiles will result in lower revenue.
Following three is a tremendous growth as part of Biodiversification efforts, we expect emf's revenues to be down year over year, mainly due to the consignment shift within a cloud business and lower networking and storage revenue.
With the current mix of business and <unk>, we expect a healthy 80 basis points of cold margin expansion and fiscal 21.
Turning to the next slide.
As I mentioned earlier, we expect to expand overall poor margins through cost optimization and targeted growth.
We also anticipate corbridge related negative impact of approximately $30 million to $50 million for the year significantly less than FY 20, due to fewer covered related disruptions in our plans and the supply chain.
Long with lower BB any costs.
As a result at an enterprise level, we are well positioned to deliver a 4% and core margins for FY 21.
Turning now to a capex guidance for FY 21.
Net capital expenditures are expected to be in the range of $800 million consistent with FY 20.
This will come through a combination of both maintenance and strategic investments for future growth.
Let's talk about a maintenance capex for a moment.
We now have or.
Over 100 sites in 31 countries.
At this scaleup batteries required approximately $550 million in annual maintenance investments. This.
This is inclusive of investments in areas, such as IP automation and factory, Digitization, which will drive optimization across a footprint and position us to deliver higher profitability.
We are also investing in strategic growth in targeted areas up our business that are expected to develop a strong margin expansion and free cash flow.
The bulk of our strategic growth Capex will be in the healthcare automotive <unk> wireless semi gap and packaging and markets.
Turning now to free cash flow.
And FY 21, we intend to continue generating strong cash flows as a result of earnings expansion, along with our team's ability to execute and efficiency manage working capital.
Working capital improvements will come mainly through improved inventory levels.
These factors coupled with a discipline Capex gives me confidence in our ability to deliver adjusted free cash flows of more than $600 million in FY 21.
Turning now to a capital allocation framework.
A capital return framework beyond organic investments will prioritize a commitment to our dividend share repurchases and the combination of targeted M&A and optimizing a capital structure.
We are comfortable with our ability to generate strong cash flows which will allow us to continue to return capital to shareholders maintain investment grade ratings and ensure we maintain an optimal capital structure.
Turning now to our first quarter guidance on the next slide.
D. M. S segment revenue is expected to increase 1% on a year over year basis to three $8 billion. While the Emf's segment revenue is expected to decrease 15% on a year over year basis to three $2 billion.
We expect total company revenue in the first quarter of fiscal 21 to be in the range of 6727 $3 billion.
Core operating income is estimated to be in the range of 295 $335 million with core operating margin in the range of four four to four 6%.
GAAP operating income is expected to be in the range of $238 million to $283 million.
Core diluted earnings per share is estimated to be in the range of one dollar and 15.
To one dollar and 35 cents.
Gap diluted earnings per share. It you expect to be in the range of 79 to one dollar and two.
The tax rate on core earnings in the first quarter is estimated to be in the range of 26% to 28%.
As we transition to my final slide you can really begin to see the earnings power up a diversified and balanced table.
Today, a business serves a diverse plan of Ed markets and areas that provide confidence in future earnings and cash flows <unk>.
We have deep domain expertise complemented by investments being made and capabilities.
All of which gets it gives us confidence in our ability to deliver a 4% in coal margins at FY 21, along with $4 and core ABS and more than $600 million in free cash flow.
And importantly, a balanced capital allocation framework approach is aligned and focused on driving long term value creation to shareholders.
I would like to thank you for your time today and thank you for your interest in <unk>.
I will now turn the call back over to Adam.
Thanks, Mike as we begin our Q&A session I'd like to remind our call participants that per our customer agreements, we will not address customer or product specific questions. We appreciate your understanding and cooperation operator, we are now ready for Q&A.
Thank you will not be conducting your question and answer session, if you'd like to be place in the question Q. Please press star 100 telephone keypad, a confirmation tone will indicate your line is hymnal question Q you may prefer to if you'd like to move your question from the queue for participants using speaker equipment.
May be necessary to pick up your handset before pressing star one one moment, please while we pull for questions.
Our first question today is coming from Adam Tyndall from Raymond James Bond with our lives.
Okay. Thanks, good morning, and congrats on a strong finish the fiscal 20.
Mark I just wanted to start on Covid costs.
Thank you said $25 million lower than expected and the quarter. So I think in the quarter, a little under $10 million a month.
Thinking about where you sit here towards the end of September is that still getting better I'm just trying to understand how much.
You have to go to get to this $30 million to $50 million that you talked about for the full year and fiscal 21, and secondly, just to clarify is the $50 million or so restructuring program. The reason that this came down or is that separate and on top of it. So I just want to make sure I'm not double counting.
Adam Thanks for the nice comment Olive Mike talk about.
The restructuring and maybe maybe we'll ask you to clarify that a little bit in terms of covid.
Jeeze I am really.
Really happy with how we handle it all in a really really kind of opaque murky deal I mean it.
Take you back to February things are blowing up I think.
I think our Covid constant February on.
On a total monthly basis relate 50 $560 million for the month and then we moved into Q3 in Covid costs were around $50 million and then Q4.
As we were sitting in the June call I think either Mike or I said Q4 would be around 40 50 million and as <unk>.
As we got into <unk>.
Four Q.
June was still kind of along that run right that it started to dissipate a bit in July and and <unk>.
And a more normalized run.
Run right when compared to FY 21 is weird, leaving August and as we continue to index through September our run rate in September looks to be much like much like August so.
Assuming that the whole world doesn't blow up again.
At that point, all bets are off but.
With everything kind of the way, we see it we feel pretty confident in the 30 to 50.
Lincoln way to think about those costs are maybe.
60, 65% in the first half of the year and something like 35% to 40% in the bag.
In the back half of the year.
With that maybe you could expand a little bit on the restructuring question I'll, let Mike address that.
Yeah, I was just trying to understand with the restructuring is that what is helping the covid cost to get better or is the restructuring program on top of this and going to it's going to.
Going to help in Q1.
The restructuring effort is on top of that nothing to do with the Covid reduction at all Adam.
Okay, and maybe just as a quick follow up I wanted to understand from Ah seasonality perspective, as we think about fiscal 21, it's just a little bit unusual based on your Q1 guidance to see revenue down sequentially in November quarter for a cable. So maybe you could touch on why that's occurring is that the full move to the consignment shift.
In Q1.
And what it means for the out quarters and also the cadence of margin is that occurs you. It looks like you're starting at such a high point about mid 4% range in Q1, but the full year is guided tour around 4% just trying to understand the cadence of that drop off and.
Margins as well thank you.
Yeah. So.
There's a couple of things and that one is if I.
If I take a look at it.
A R D M S business I think.
Kind of year on year Q1, 20% to 21.
21, and the range of around 1% so.
On the BMS Q1 to Q1, and I would think about our Dmf's business, Adam more kind of first have to first have just based on timing of some products. So if I take a look at and.
And I don't know I don't know the exact numbers, but rough numbers would be.
Kind of D. M. S. First have first half of 20 to first half of 21.
We'll probably see growth in 6% to 8% range and then.
I think if you look at the Blue Green Slide overall for the year Dmso will be up about $800 million.
From call it.
13, 13 to up to around 14, so I wouldn't get too caught up in Q1 revenue numbers and then overall for.
The enterprise.
If we execute well in Q1 like Mike said in his prepared remarks, we expect margins to be around the four 5% range if we.
With that same execution kind of kind of <unk>.
Total comparison.
We can do we can have a six handle on our margins for Dmf's in Q1 so.
Off to.
<unk> strong start which is typically how are yours.
Kick off and.
Would say is I think about.
Kind of Q2, Q3, Q for if I'm thinking about shaping the year and and <unk>.
And an enterprise level.
Margins should be pretty stable. So if we kick off with a four and a half I think Q4.
We could end somewhere around four and then Q2 Q3 in between in the high threes something like that maybe some all that up.
On a weighted average basis emf's to BMS.
We're shooting for 4% overall for the enterprise for 21.
Thank your next question today is coming from <unk> from Bank of America, you line is not alive.
Thank you for taking my questions and congrats on the strong guide and the $4 target for fiscal 21, which is pretty much what you had guided and physical 419. So that's.
Congrats on the guide.
Just my first question conceptually mm mm.
I'm wondering why add automotive and transport into D. M. S. So just your thoughts on why that segment was added into the D. M S.
<unk>.
I think it's because every couple of years <unk>.
<unk> been on we've been on and off 5456 year journey and.
We disengaged Blackberry back in the day, we sold our services business, we're really successful with and the mobility Shafter and we've been working really really hard to continue to diversify the portfolio I don't think that works ever done.
But where we sit today, if you just kind of sit back and look at the.
For lack of a better word.
Portfolio slide on the Blue and the Green.
Cheese, we've got we've got a eight areas of our business reflected there and.
I just love the way it looks I said something like that in my prepared remarks.
As part of his part of kind of always reshaping there I think I use the word contura in the portfolio.
We like to have businesses together that makes sense from a capability perspective and market perspective and.
We just felt like automotive and transport.
It's really well with our health care business in terms of overall regulated markets and then and then the other shift we made and again I noticed it can be aggravating to investors because it ends up being a lot to follow that's not our intention our intention is to give us a good platform again for the next 24 to 36 months we took.
We took our.
Are smart home business.
Which had been in our networking storage because a lot of devices and home were network together and we move some of that over to connected devices, just because of five G coming on board and when we think about things throughout the home.
From our capabilities and and and market perspective, it fit really well into connected devices. The good news is.
Those modest shifts.
Don't change the enterprise level numbers, but that's the logic behind it.
Okay. Thanks, Thanks for the clarification on that.
And for my follow up just on the EMF segment.
Just looking at industrial and semi kept your guiding year on year flat at three 5 billion.
That just seems a little conservative given industrial and market should improve next year and and <unk> is not that target revenue or margins. It should be improving so just just your thoughts on what are the puts and taken that segment. Why why are you gaining flat revenues year on year.
I don't want to get into all the kids can takes only only because root blue.
Our industrial business has all kinds of puts and takes I'd say.
If I were to.
Knowing that we're not going to be right on any of these numbers exactly.
If I had to handicap industrial and semi cap I would say I agree with your comments if there is if.
If we're going to handicap that one way or the other sitting here today for the year, there's probably more upside than not I would say certainly and.
Certainly in semi cap and that's offset by some softness at the moment and industrial and I think Mike talked in his prepared remarks about construction starts both residential and commercial we think will soften a bit certainly through the first half of the year and then.
Gained some momentum towards the back half of the year, but I think you are thinking about that the right way.
Okay. Thanks for taking my questions and congrats again on the strong. Thank you thanks root blue.
Baker next question today is coming from him to move from Citigroup. Your line is alive.
Could you spend a little bit of time talking about the shift to consignment model and.
Not that there's anything wrong with doing that but wasn't.
Cost all your customers are particular customer driving that and is it all completed in calendar Oh, I'm, sorry can scope Q1, and the revenue impact because I believe it would be a rare.
Revenue comes out of the model Court and I'm, just wondering impacts seasonality going forward.
Thanks, Jim sure so.
I think it's really important for everybody to understand that our move to consignment wasn't reactionary it wasn't something that we just thought of.
If you go if you go back and I don't I don't remember when we first started talking about our cloud business.
456 earnings calls ago.
I remember that point in time, we gave it enough attention we were doing the <unk> and <unk>.
We also in one of those calls we had to separate slides one talking about our <unk> engagement and collaboration which by the way is going very well and and then we had a slide on cloud there was a.
There was a lot of questions at the time about are we getting into white box manufacturing and this that and the other and we've been very very consistent in our approach strategically.
The cloud business that we.
We're going to go into this into geocentric service model is going to be a very asset light very agile model.
Both on the fixed asset and networking capital side as.
As that business is scaled through.
Call back half of 19, all through 20.
We've always had a thought process in terms of.
Again, keeping the networking capital asset light as well. So this has been.
In the works for quite some time and and I would say.
The consignment model that we went to is largely around our cloud business and it's it's largely in place so.
If you look at the shape of our <unk> business I think.
I think our guide for Q1 per Mike's comments in the press releases like three 2 billion for Emf's you can.
You compare that to three seven.
Three seven Q1, 20 Q1 to 21.
That's just reflective largely around.
Simon and then we also have some intention reshaping of our of our networking storage business.
On top of that but I would say you can consider it.
In place and it'll be reflective quarter to quarter throughout the year.
Okay, I can still use it effectively in place in Q1, so that would mean the.
Revenue impact, it's pretty much all absorbed in Q1 and going App beyond Q1, it sounds like revenue seasonality should be closer to normal because it seems like Q1 would be.
Hindered a little bit because the ship to consignment model, if I understand consignment correctly, where you won't recognize the revenue.
I want to I want to be excellent I want to be I want to be careful that I understand your comment because this is kind of an important topic.
The three two Saint <unk>.
Straight up right. The three 2 billion guide for Emf's in Q1 is fully reflective of the consignment models. So.
There's no.
There's no cheese, we're going to come back and go the three two turned into.
Two five because of consignment, it's all in.
So again, if you take that new and you take a look at our Q1 20.
21.
Relative to our Q1 20, Emf's I think you'll see the distinction there Q1 <unk> around three seven or something like that Q1 of 21 is three two so again, it's fully reflected in addition to that gym.
I believe that.
The Blue Green slides that we shared I spoke to a bit Mike went a bit deeper shows.
Our overall.
<unk> revenue for the year around 26 5 billion.
The EMF segment, which which is where our cloud business sets.
<unk> 12, and a half billion.
So again overall for the company for the year 26 5 billion mid point.
About $14 billion of that is R. D. M. S segment, 12, and a half billion is R. E. M. S segment, that's where our cloud business. It's those numbers also are fully reflective of any in our consignment.
Okay. Thank you so much and my last follow up is.
The U S.
Political and to Daedalus can't build too can't ship two things.
Things like that is any of that impacting your company and how should we think about that.
While we talked about that last year that was that was a hot topic as we were coming out of 19 into 20, and covid kind of dominated everything but.
That's something we watch every week every month and.
We had talked about the fact that.
The first half of 19, I may I may I may.
Be off a quarter to Jim, but directionally as we exited.
Fiscal 19 going into first half of 20 some.
Somewhere in that timeframe when the tariff talk to her hot and heavy and relatively new in front of headlines. We had said we're going to we're going to have a two to three quarter.
A portion of our business, where we're going to spend upwards of 2000 25 million Bucks in terms of moving product around for customers.
At that point in time, we had.
<unk> suggested that if the macro holds or even weekend is a little bit all of this product needs to get bill and I can't think of a better place for cut.
For customers to build it then it jabil just because of our global footprint. So we can continue to keep an eye on that I've mentioned previously that.
If we kind of cholate up all of our <unk>.
Business in mainland China, as we sit today and I've said this in the past there are certain parts of that business that we just don't think we'll move based on the indigenous supply chain and other factors. We've also said that there is a significant amount of our shiner revenue today that China for other parts of the World Nine U S.
And then the China revenue that we have that happens to be products to be consumed and shipped to the U S.
Some of that has already shifted.
And some of its customers look at it and and they're comfortable keeping it in China for now.
Thank you so much for the details and clarification, it's greatly appreciate it thanks.
Thanks, Jim.
Thank you. Our next question is coming from Steven Fox from cross researcher logging into our lives.
Good morning, Mark I was wondering if you could talk a little bit about.
Not to put the carpet for the horse and actually hitting four bucks, but.
You've been messaging that that wasn't.
Major topline driver to getting a $4 over the last couple of years. It was more about improving margins on the different new programs. You win have one. So can you just talk about how much of that is still holding true and then as you transition through those new programs. What it is the messaging to the go to market team beyond this year is it to return to growth let.
More internally et cetera, and then I had to follow up.
Okay, well, there's a couple of questions in there and I appreciate you putting the card before the horse, although I think we kind of asked for it because we came out with the four and the four so we got we got a lot of work to do to to deliver the four and the floor, but we wouldn't have put it out there if we if we didn't see a clear path.
Yes for the last for the last three four years, we've been <unk>.
<unk> been talking about diversifying the topline, but at the same time, we've been caveat.
Those comments with the fact that we're not going to chase revenue for the sake of chasing revenue.
We're going to diversify incoming cash flows which is which is exactly what I think we've been up to.
I would suggest our team has been quite successful in that.
If I think about FY 21, we're certainly not chasing revenue because on an absolute basis. Some of this is consignment.
Revenue is going down.
But again.
I would say overall it is about us kind of continually taking a file and not a chisel.
And finally in the portfolio with with a real kind of no.
No kidding focused on the margins in the cash flows so.
So that's what we're up to and we're going to work really hard to do our best to deliver the four on the floor.
Thanks for that and then just as a quick follow up I understand.
Accounting math behind the consignment shift, but what does it mean in terms of your ability to drive better <unk>.
Better engagements with those cloud customers is that does that.
A competitive advantages is something everyone stealing or what would you say that means and sort of at the customer level for for this I would say it's neutral.
One aspect is neutral.
There's there's.
In our geocentric asset light service business, there's high dollar components, where we don't provide much value and so having those pass through materials is distortive to the real returns you should be getting on the value add we provide the customer.
I would say are cloud business is founded.
On the services are team provides the geocentric nature of it the flexibility of the agility I mean I think about.
Covid was unplanned.
And Covid hits and all of a 70 people are working remotely working from homes and the ability of our cloud seem to react oh by the way as well as our mobility team and are connected devices team I mean, those those volume spiked up so.
So I would say it's.
The most important part of our approach to that model is the is or that businesses is the model itself and really.
Relationships that we have Steve.
That's helpful and good luck in game four.
Yeah, I won't need it it was a good win by Lightning last night to thank you all right.
Right.
Thank you. The next question is coming from work the Lady from Goldman Sacralized in our lives.
Good morning, and thanks for taking the questions and congratulations on the strong quarter.
Alright. My first question I was just following up on now let's see if I'm just talking about in the cloud business and.
The company has been driving in terms of very nice growth and cloud I think one customer particulars and been good but you have always talked about having a handful customers and cloud and some opportunities to grow.
That's a market I should should inhibit growth, but but but grow as J a will become stinker within the pod market you'd have a little bit more what sort of opportunity jfc's, either in FY 21 or or longer term to continue to take sure within the business.
Mark I really really appreciate the question I'm not trying to Doctor question, but we're in the process now of.
Very conversation is going on with.
Current customers hyperscale customers smaller customers.
So I just I don't want to get into it on a customer by customer basis, I think what we have said in the past is is.
We've got reasonably good confidence in our approach to the to what we're doing in that market overall and.
And we certainly expect that market to be kind of multi customer faceted. If you will and that's still still our path and still are intent.
Okay.
Helpful and I understand.
Festivities.
One other question I wanted to understand I think is on the minds of a lot of investors, who I speak to his thinking through some cyclical bye now.
Cyclical dynamics and the rest of that either because.
The geopolitical tensions with China, or just with Covid supply chain uncertainties, there is potentially Ben <unk> taking place.
And markets, you're talking about how <unk> I'm thinking about that risk and what you may have factored and you were 20 or 2021 outlook.
Which risk in particular.
Well I think if you're in a few areas won't one is sent your helping there's any customers in China and they're worried about some of his geopolitical attention how have they pulled in but even just more broadly with there's been some uncertainties around what ability has the supply chain.
I've been able to service customers and customers worried.
Customers worried about companies and.
Somebody has not been able to manufacturer thinking maybe they are pre building products because they they should know how how covid may impact.
The overall supply chain.
Pulled in.
Any are there any of their plan. So just just just just high level to to the extent you've seen.
Either coed or geopolitical reasons.
I'm really more than maybe they otherwise would have.
Do you think you've seen any of that or did you try to think about that risk at all when you're contemplating your your 2021 Alec.
Okay I understand the question, it's appreciated I would say.
If I'm sitting on your side of the table along.
Along with kind of the buy side folks.
It's immaterial.
I'll give you an example, and I'm not suggesting that there's not pockets that are material, but in the big picture of what we just guided too.
Our outlook for Q1, and then certainly for 21 I think all those puts and takes there's a lot of them I think they are immaterial.
I'll give you. An example, there's certainly certainly ban and Steve <unk> business with health care.
Certainly been some upside near term upside in health care through the back half of 20, and probably the first quarter of 221.
Demand driven solely by Covid.
Yeah, there's been a falloff in his business due to covid with elective surgeries as an example.
You spend all that up and you kind of get.
A normalized business plan and say.
The same holds true with some puts and takes an industrial same holds true with some puts and takes in in in connected devices, although that ended up being a net strength. So.
I would say all in all.
Don't have a crystal ball, but.
R Q1 guide in our in our overall.
Outlook for the year.
We've taken kind of all of those puts and takes <unk> stress tested it with all the teams and and we feel like we've kind of normalized it to the to the 4% to $4 and $26 5 billion in revenue.
Understood. Thank you very much.
Thank you as a reminder, that star one can be place in good question Q. Our next question today is coming from that human from steeply your line is not alive.
Okay.
Hello, Matt perhaps your phone is on mute.
Yeah. If you can hear me I cannot hear you.
Please return to the Cuba pressing store one.
Our next question today is coming from Shannon Cross from Cross researcher line is not alive.
Alright. Thank you very much I I had more of a big picture question as you'd like Florida over the next few years, you talked about the investment that you're making in terms of capex and maintenance and that within.
Within your facilities, but I'm curious what kind of drivers tuc really improving productivity and providing more of a margin either to you or to your customers from.
From a technology perspective.
Within your factories and.
So how do you see the.
Know the factory in the future and.
In the next few years and then I have a follow up. Thank you. Okay. Shannon that's a that's a cool question.
Kind of what we're all about we're a company at the core that build stuff and so we're.
If I think Mike when he talked about Capex and is prepared remarks talked about.
Split between growth and maintenance.
I would say I would say in terms of productivity and the factories that's.
That's probably split between major.
Hence and growth.
I would say, we're one of the.
The leading companies that I know of in terms of automation, what I would call flexible automation, what I would call automated real useful automated platforms.
You combine that with.
[noise] augmented reality.
That'll start hitting our factory floors, you combine that with machine learning.
And then the other thing I think that sets <unk> apart is as you take all of that Shannon.
We've got a ton of factories call. It we run we run our we largely Ron most of our business on 35 40 sites, although we have more.
Take those if I take this the sites that are most impactful to our earnings.
They are all wrapped together in a single holistic ITT system and I don't know that anyone else has that so.
We will always continue to invest and invest aggressively in terms of.
The technology that productivity that you alluded to.
I think with shareholders should account hold us accountable for it is with those investments in with the aggression around.
That type of investing.
I would hold US accountable for continued margin expansion in good cash flows if I think about the journey we've been on on top line diversification, where we've been going through that.
Our margins for two.
Two three years have been stuck around three 5%.
We're starting to see we're starting to see the the efforts come through on the margin line. That's why we that's Y Q ones looking at four 5% in the year around four so.
So I think the returns we're getting on those investments are coming through in terms of our bottom line.
Okay. Thank you that's helpful. And then can you talk you talked about strength and health care, but maybe if you could be a bit more specific I know <unk>.
Obviously, there was pressure from elect it's not happening and benefit from covered in the near term, but what other key drivers maybe talk about the Johnson Johnson relationship are benefiting health care. Thank you.
Well I don't want to a piano.
Yeah, I look at the debit J&J collaborations and that's kind of business as usual now we spoke about that.
For a number of calls that that.
That partnership the team is responsible for that.
Has gotten so deep.
And boy is that is that turned out I think from both sides.
We had high expectations I think it's I think it's turning out better than even even we expected and I hope J&J would feel the same but the business is so far beyond that I mean.
I think we're I think we're talking about health care in packaging combined bumping up towards 5 billion.
I think about that business Shannon.
I'll have I always have my timing, a little bit off but it's typically directionally correct, our health care in packaging business in FY.
Late 17 early 18 was like a 2 billion dollar business then it started bumping up against two 5 billion.
FY 19.
Health care in packaging was was probably closer to 3 billion last year was closer to 4 billion and now we're bumping up against 5 billion and again is pleased as we are with with John.
Johnson and Johnson collaboration.
It's just it's a lot more than that.
Steve and his team are focused in areas.
So broad base today relative to four years ago with things like pharma.
The med device orthopedics.
Diagnostics et cetera.
Then I think I'll also start to gravitate towards.
Digital analytics.
And and digital diagnosis as well.
When you add to it.
I am very very excited about.
Excited about what the next couple of years hold for the for for a consumer packaging business as well so that like.
That line item when you look at it on the Green Blue Slide.
Again, this is a little bit of of a commentary around the whole company, but the health care packaging line is as diverse both and marketing customer base as it's ever been.
Okay. Thank you yeah. Thank Shannon.
Thank goodness question today is coming from Paul Costelloe from J P. Morgan Your line is not alive.
Oh, yeah. Thanks for taking my question, obviously looks like I was particularly impressed.
Statement of intense around to talk to an inclusion so that was welcome.
A couple of quick things one is.
It sounded.
What you.
Intentionally cold some business.
<unk>.
I think I heard that correct.
The criteria for doing so what impact does that have in terms of the year on you.
Both.
Percentage growth.
Headwind I suppose.
2021.
Hey, Hey, Paul Thanks for the question.
We did call somewhere constantly reshaping the portfolio as we see it right now on the net looking and storage side in particular.
We have been looking at all businesses we have.
Think we've declared a couple of years ago that we're focusing on margins with focusing on pre cash flow and tightening.
Tightening up all our financial metrics around existing and future customers. So.
That's one of the areas that we've looked at in particular I talked about connected devices as well and my preferred.
<unk>, that's another one where we've gone on cause some customers there. So it's all it's all directional.
<unk> said, we will do that will focus on that and that is exactly what we're doing.
And can you quantify in terms of headwinds.
You're on you.
<unk>, if you look at the Blue and Green Slide I'll, just highlight the networking and storage that's the last line on the Blue side.
It's down by about $600 million a lot of that is.
A simple straightforward hey, let's get this to our financial metric.
Levels and then you have connected devices on on the green side as well that's.
That's that's.
Lots of businesses are doing really well on the connected devices and then this spots that we feel the financial metrics done just justify.
Moving ahead with them.
Can you go to.
I think you mentioned you saw sea green shoots and you're also space, especially we've electrification, which is good but it's really confusing.
Mono Street space at the moment.
The big Pier ones will seem poised, but no active and instead, you're seeing a lot of small companies kind of sneaking into the space at the moment and that seems to be where most of the action is focused on niche markets that seems like the best playback.
I wonder electrification do.
Do you concur that that's the kind of business that you're seeing now or are you actually starting to see the beginning of the <unk>.
Passenger vehicle market kick into your business.
What I would concur is it it is confusing from the outside in it's it's an interesting market I think.
I don't want to generalize, but a portion of the automotive market is is.
Starting to be just a big rolling mobile device and that's a really good spot for us.
And that's where we're focused most of our attention we do support.
We do support legacy automotive technology.
As we as we continue to look forward a lot of our attention I'll be again, if you just think of the order.
The automotive industry in the next 10 years.
BNA being a a connected device on four wheels, that's kind of how we look at it and that's where we're making most of our investments.
Do you think the inflection point there is a couple of years still I mean, that's the impression like 2022 2023.
<unk>.
I would say, that's probably best case, we're thinking somewhere and I would say volumes and whatnot start to heat up.
Call at 2025, something like that but there's a lot of work there's a lot of work that goes in.
Between now and then so will be busy.
Alright, thank you.
Yeah.
Your next question today is coming from that hear from people. Your line is not alive.
Yes. Thank you.
So.
Didn't want to thank you for all.
For all the details so far Mark and Mike.
Follow up question regarding your guidance for the storage and networking segment.
I understand that you are reshaping walking away from some programs that are not profitable are going to be your returns goals, but could you talk about how you see those and market is playing out particularly storage. It sounds like you're looking at you in front of the week is there because of the move to the cloud.
Then beyond that we are not conceivable, but some of your views also walking away from some of these programs in the in the data on space, where they're not meeting.
Certain metrics and goals and.
Some point it looks like the labor you might swing back to the to the Yea, Matt Skiba. Thank you where you can make it.
Customers will you have nowhere to go.
Yeah, I don't know.
I look at it quite simply as.
I want I don't ever I don't want to add on don't ever want to walk away from relationship.
But there are certain relationships, where if we get to a point that customers can provide.
Others been <unk> busy.
Business and get and getting better value add for it then so be it and.
I think in the network storage space, it's been it's been a market that we've played in actively since the early nineties, we've got some long standing relationships that are.
I don't want to lose but.
Again, if we get to a point, where things start to change our value proposition starts to fall off.
There's no reason to force that and I think.
If I, if I think about how well diversified the company is today.
When those situations occur we don't need to force it.
I think that that's a.
Of the of the.
Eight different business line items, you're seeing there on the Blue Green slide.
That's an area at least specific to Jabal.
That probably isn't going to have.
A lot of hyper growth to it for some of the reasons you described and others.
If I, if I had to handicap it today.
Again, knowing that our numbers aren't going to be exact.
Two $2 billion was shown on that line item I think it might come in a little bit stronger than that but again, directionally I think network and storage you'll be down year on year.
Okay. Thank you for that and Mike regarding the inventories, which came down nicely in your inventory days were down.
And you did talk about the supply chain being a little bit more efficient than it had been.
You expect to maintain those low inventory levels as we get through next year and is that part of your pretty strong kind of slow guidance yes.
Yes that is certainly that is certainly part of our data is that as part of a resumption.
We are constantly looking on inventory levels in the organization and I feel good about continue.
Continuing to take that down further over the year.
Okay. Thank you very much.
Thank you we can have our question and answer session I'd like to turn the floor back over to management for any further closing comments.
Thank you that's it for our call today is caused concluded please reach out to us if you have any further questions. Thank you.
Thank you that doesn't include today's teleconference. You may disconnect you a lot of this time and have a wonderful day. We thank you for your participation today.
[noise].