Q2 2021 Jabil Inc Earnings Call
Greetings and welcome to the Jabil second quarter of fiscal year, 2021 earnings call.
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A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Adam Berry, Vice President of Investor Relations. Please go ahead Sir.
Good morning, and welcome to Jabil second quarter of fiscal 'twenty 'twenty One earnings call. Joining me on today's call are Chief Executive Officer, Mark Mondello, and Chief Financial Officer, Mike asked on.
Please note that today's call is being webcast live and during our prepared remarks, we will be referencing slides.
To follow along with the slides please visit Jabil dotcom with in our investors section of our website.
At the conclusion of today's call the entire call will be posted for audio playback on our website.
Before handing the call over to Mark I'd now ask that you follow our earnings presentation with the slides on the website beginning with our forward looking statements.
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 our currently expected third quarter and fiscal year 2021 net revenue earnings on cash flows.
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 annual report on form 10-K for the fiscal year ended August 31st 2020 and other filings.
Jabil disclaims any intention or obligation to update or revise any forward looking statements, whether as a result from new information future events or otherwise.
With that it's now my pleasure to turn the call over to Mark.
Thanks, Adam.
Morning.
I appreciate everyone, taking time to join our call today.
I'll begin by offering a warm thanks to all of our people here at Jabil.
Thank you for your commitment.
And thank you for always making safety your top priority.
And stepping back and reflecting for a moment.
It's hard to believe that 12 months have passed since we first encountered COVID-19.
I think about sitting alongside Mike and Adam.
One year ago during our March 2020 earnings call.
On clarity vanished and uncertainty ran wild.
Yes on typical jabil fashion.
People did what they do.
They drove in and gave their very best to combat the pandemic.
They did so by looking after one another while taking outstanding care of our customers.
It's a point in time that I'll never forget.
It's a point in time that highlights the level of respect and admiration that I have for our team here at Jabil.
Their attitude and their actions continue to impress.
And for sure.
There is no other team I would rather be part of.
Again, much thanks to all of our employees, who simply make Jabil jabil.
Please turn to slide five we'll take a look at our <unk> results.
Our second quarter came in well ahead of expectations.
Driven by stronger than expected product demand.
Solid execution.
And a well balanced contribution.
Throughout the entire company.
The team delivered core earnings per share.
A $1 27.
On revenue of $6 $8 billion.
Resulting on a core operating margin of four 2%.
I'm really pleased with our financial results for the quarter.
Although what's quite interesting to me is the overall construct of the business.
In combination with the improvements we've made to our balance sheet.
All in all our performance during the first half of the year.
It gives us excellent momentum as we push towards the back half of fiscal 'twenty one.
It also sets a firm foundation for further margin expansion.
As we look to FY 'twenty two.
As customary Michael provide more detail around our second quarter results during his prepared remarks.
I'd now like to share a pie chart, which is indicative of our commercial portfolio.
Slide six underscores the effectiveness of our approach.
And the base from which we operate.
Today, our business is wide ranging and resilient.
This is especially true when any individual product or product family is faced with a macro disruption or cyclical demand.
Furthermore, our current business mix provides a unique set of capabilities.
Innovative capabilities openly shared across the enterprise with speed and precision as.
As we simplify the complex for our customers.
It's a proven formula that's trusted by many of the worlds most remarkable brands.
Moving to slide seven.
I'll address our updated outlook for the year.
We now believe core earnings will be in the neighborhood of $5 a share.
An increase of 25%.
From what we anticipated back in September.
With topline revenue coming in around $28 $5 billion.
This incremental revenue improves our portfolio.
As evidenced by another 10 basis point increase to core operating margin.
Which we now forecast to be 4.2 per cent for the year.
Lastly, we remain committed to generating a minimum of $600 million in free cash flow.
A testament to how we're managing our capital investments.
As I wrap up the outlook.
It's notable that our strategy is working on.
Path is well understood.
And how we go about producing results is important.
On this last point.
When we think about the how we think about purpose.
Our purpose that guides us in our journey.
Our purpose, which is grounded in a series of behaviors.
Behaviors.
Such as keeping our people safe.
Servant leadership.
Ensuring a fully inclusive environment.
And giving back to our communities around the world.
I'm just so proud.
But our team is hitting the mark and all of these areas.
As we transition to my final slide I want to once again say thanks to our team.
Their efforts over the past two to three years have allowed us to reshape the business as we've targeted growth in select markets.
Markets that largely align with secular trends.
A few example of these being five G.
Personalized healthcare.
Electric vehicles.
Digital learning.
Cloud computing.
Clean energy.
Eco friendly packaging.
Our team continues to develop deep domain expertise in concert with these secular tailwind.
I like the decisions, we're making and what we're doing.
And we.
We do what we do while respecting the environment and safeguarding our workplace.
We're committed to workplace, which encompasses tolerance risk.
Specs and acceptance.
We encourage each and every employee here at jabil to be their true selves.
We strive.
To make the world just a little bit better.
Little bit healthier.
And a little bit safer.
Each and every day.
One factor that makes good companies great.
As possessing the value system, which allows them to solve problems over and over again.
We embraced this way of thinking and welcome the challenges put forth by our customers.
Thank you and I'll now turn the call over to Mike.
Thank you Mark and good morning, everyone.
As Mark just detailed our second quarter performance was outstanding driven by the combination of broad based end market strength and associated leverage in.
An improved portfolio mix and excellent operational execution by the entire Jabil team.
Saw broad based revenue strength across the business, most notably in mobility cloud health.
Health care connected devices automotive and semi cap.
Given the additional revenue I am, particularly pleased with the strong leverage we achieved during the quarter, which enabled us to deliver a strong core operating margin of four 2%.
And finally on net interest expense came in better than expected during the quarter day.
Large part to better working capital management, coupled with the proactive steps we've taken over the past year to optimize our capital structure.
Putting it all together on the next slide.
Net revenue for the second quarter was $6 $8.300 billion above the midpoint of our guidance range.
On a year over year basis revenue increased by $700 million or 11%.
GAAP operating income was $236 million and our GAAP diluted earnings per share was <unk> 99 cents.
Yeah.
Total operating income during the quarter was $285 million, an increase of 78% year over year.
Representing a core operating margin of four 2% 160 basis point improvement.
Yeah.
Net interest expense in Q2 was $33 million and core tax rate came in at approximately 23%.
For diluted earnings per share was $1.27 per 154% improvement over the prior year quarter.
Now turning to our second quarter segment results on the next slide.
Yeah.
Revenue per our Dms segment was $3 $6 billion, an increase of 26% on a year over year basis.
The strong performance in our Dms segment was extremely broad based at several of the end markets. We serve are becoming increasingly critical such as connected devices health care on.
On a motive and mobility.
Yeah.
For margins for the segment came in at an impressive five 1%.
210 basis points higher than the previous year.
An incredible performance by the team.
Yeah.
Revenue per of EMS segment was $3 2 billion also reflecting strong broad based demand.
Hello margins for the segment was three 1% 80 basis points over the prior year.
Turning now to our cash flows and balance sheet.
Cash flow provided by operations was $20 million in Q2 and capital expenditures net of customer co investments total $152 million.
We exited the quarter with cash balance of $838 million.
Yeah.
We ended Q2 with committed capacity under the global credit facilities of $3 $8 billion.
With this available capacity along with our quarter end cash balance Jabil ended Q2 with access to more than $4 $6 billion.
Available liquidity, which we believe provides us ample flexibility.
During Q2, we repurchased approximately one 9 million shares or $82 million.
At the end of the quarter $254 million remain outstanding in our current stock repurchase authorization.
And we intend to complete this authorization during the second half of FY 'twenty, one as we remain committed to returning capital shareholders.
Turning now to our third quarter guidance.
The EMS segment revenue is expected to increased 19% on a year over year basis to $3 $5 billion.
This is mainly due to strong end market outlook.
The EMS segment revenue is expected to be $3 $4 billion, an increase of 1% on a year over year basis.
It's worth noting on EMS business remains strong and healthy.
The modest increase is reflective of our previously announced transition from a consignment model and the cloud business.
We expect total company revenue in the third quarter of fiscal 'twenty, one to be in the range of $6 $6 billion to $7 $2 billion for an increase of 9% on a year over year basis at the midpoint of the range.
Core operating income is estimated to be in the range of $220 million to $270 million.
Flow delivered earnings per share is estimated to be in the range of 90.
The $1.10.
GAAP diluted earnings per share is expected to be in the range of 69 to 89 cents.
Next I'd like to take a few moments to provide an update on the long term secular trends underway across our businesses, which we believe will drive sustainable growth across the enterprise in FY 'twenty, one and beyond.
In health care today, the industry is undergoing tremendous change due to rising cost aging populations the demand for better health care and emerging markets and the accelerated pace of change and innovation.
Consequently, we are witnessing healthcare companies shifting their core competencies away from manufacturing towards innovative and connected product solutions.
We're in the early days of outsourcing of manufacturing in the health care space and.
So on top of this we're also seeing the impact of connectivity and Digitization across health care.
I expect these trends to accelerate over the next few years.
Our deep domain expertise within the health care industry uniquely positions us to build technology enabled products that help our customers excel in today's evolution of health care.
Another end market experiencing a rapid shift in technologies on the automotive market.
Today electric vehicles accounted for less than 2% of total vehicles in the market.
Climate change fuel efficiency and emissions are ongoing concerns and regulatory policies worldwide are beginning to mandate will equal friendly technologies.
As a result, Oems are making a substantial investment into vehicle electrification effort.
Jabil has long standing capabilities in over 10 years of experience and credibility in this space has positioned us extremely well to benefit from this ongoing trend.
Turning now to <unk>.
<unk> will transform the way, we live work play and educate.
Has the underlying infrastructure continues to rollout <unk> adoption is accelerating.
<unk> is well positioned to benefit from both the worldwide infrastructure or less and with devices, which will be needed to recognize the full potential of our robust <unk> network.
<unk> is also accelerating secular expansion of cloud adoption and infrastructure growth.
This coupled with the value proposition Jabil offers to cloud Hyperscale is is helping us gain market share in an expanding market evidenced by the significant growth over the last three years.
The value proposition that continues to resonate with our customers is that designed to dusk capabilities, which incorporates engineering manufacturing and eco friendly decommissioning up servers all of us in co located facilities.
This is incredibly powerful as accelerating cycle times security and transparency at every step of the hardware lifecycle become continually more important to a U S. Domiciled hyperscale is.
Shifting now to packaging.
We are uniquely positioned to benefit from the global shift to smart and eco friendly packaging.
As consumers become more informed about the environmental impact of plastic waste demand for sustainable packaging solutions is accelerating.
And then finally within semi cap the demand for semiconductors has never been higher with the accelerated convergence of technologies and the associated data generation and storage needs.
Nearly every part of the economy runs on silicon today.
Jabil serves the semi cap space with end to end solution spanning the front end with design and complex fabrication equipment, along with the backend, but validation and test solutions.
Yeah.
In summary, I'm extremely pleased with the sustainable broad based momentum underway across the business, which has allowed us to deliver much better than expected results in the first half of FY 'twenty one.
As we turn our attention to the back half of the year and beyond we fully expect a long term secular tailwind that are driving our business to continue.
This coupled with our improving portfolio mix and lower interest and tax expenses has given us the confidence to meaningfully raise FY 'twenty. One estimates for revenue core operating income core margins and core earnings per share.
We now expect core operating margins to be four 2% on revenue of approximately $28 $5 billion.
This improved outlook translates to core earnings per share of approximately $5.
And importantly, despite the stronger growth, we remain committed to delivering free cash flow in excess of $600 million per year.
We've been working extremely hard as a team to grow margins cash flows and positively impact our interest and tax.
I am very pleased with our team's exceptional execution of our strategy on all fronts.
With that I'll now turn the call over to Adam.
Thanks, Mike as we begin the Q&A session I'd like to remind our call participants that per our customer agreements, we will not address any customer or product specific information.
We appreciate your understanding and cooperation operator, we're now ready for Q&A.
Thank you Sir at this time, we'll be conducting a question and answer session.
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One moment, please while we poll for questions.
Our first question today is from route blue, but a cheery bank.
Bank of America. Please proceed with your question Hi, Thanks for taking my questions and congrats on the strong results you know I had a couple of questions. Maybe Mark first question on the EMS side of your you're guiding now to $13 4 billion, that's almost $1 billion higher than the previous guidance.
But the operating margin is still guided at three 6%. So just just curious I mean, you know why why isn't the operating margin.
Good for that for this year for your EMS moving up a little bit more just if you can just talk about the puts and takes are on.
On that thanks.
Yeah, Thanks Rich blue.
I feel good about I feel good about where the where the margin if I think you're right. We we look at the overall corporate margin for the year, we think will be around four 2%.
And and EMS will be in the range of I would guess 363, 7% I look at that relative to fiscal 19, if I go back that far and I think EMS in 19 was around 3% all in.
Last year.
We were below that and I acknowledge that was a.
Covid year with with excessive COVID-19 expenses, but boy I feel pretty good about that business overall I I think we're doing the right things in cloud I look at that business today.
In terms of a mix of legacy business. Some businesses that are we've gotten a bit of a nudge your help with with Covid, but most importantly, roop Lou I think about things.
Things that Mike was talking about in his prepared remarks in terms of trends that we think are going to be around for a while things like five G.
Electric vehicles cloud computing clean energy, so I feel good about the year. We are we continue to make opex investments as well in the EMS segment, but I think we're on a good trajectory I don't you know the other.
Things I.
I obsess about and worry about.
The condition of the EMS business day next two three years isn't on them.
Okay. Okay. Thanks for clarifying that and that makes sense just on the mobility side I wanted to ask a general question. I mean are you concerned or how concerned are you about any configuration changes that might come up in the rest of the year can you maybe at a high level just talk about how prepared jabil is this year versus in prior years about <unk>.
<unk> mobility related.
Volatility a debt that can come up with the rest of the year.
I don't want to speculate on any configuration changes or anything like that.
Our our relationship in that space with.
With our main customer there is is super solid.
And when I, just think back about the last two or three years of execution.
I've got again very little doubt in our ability to execute on the mobility side.
Figuration changes or not so I again, not an area that that I'm, losing a lot of sleep over.
Thanks for the details and again congrats on the on the quarter and on the strong day. Thank you.
[laughter].
The next question is from Adam Tindle of Raymond James. Please proceed with your question.
Okay. Thanks, Good morning, Mark I wanted to start with a question on operating margin and acknowledge it's been very strong so for a two parter just on near term and long term moving forward. So first one on near term. Your Q3 guidance implies that total company operating margin, it's going to be down maybe somewhere around mid three per cent range or so.
And then back up to around four per cent or so in Q4 based on the EPS Guide if I got that correct. It doesn't look like that's volume related because revenue is going to be flattish. During this time. So maybe just more color on drivers of the Q3 debt and rebound in Q4 and secondly.
You mentioned longer term as you exit this year with a four handle the trajectory that that puts you on as you think about fiscal 'twenty, two and beyond because you said you wanted to build on that.
Yeah. Thanks, Adam Q3 is always a little bit of a dip it for us and you know as much as as much as we.
Take a lot of from a I don't know if the words pride, we feel really good about about the overall mix of the business.
What we've done the last two or three years, but again, we always see a little bit of a soft spot in terms of enterprise level in terms of op margin I think euro.
Youre right enterprise margins for Q3 will be around the three five per cent range.
And again I compare that to last year, which maybe it's nonsense because of COVID-19, but it's up substantially.
Year on year.
I'm going off of memory, but I got to believe that if we if we went back to fiscal 19, we'd be up.
Year on year in terms of Q3 to Q3 as well so none of it has anything to do with reflection of the business other than.
For certain parts of our business as you know Q.
Q3 tends to be more of an investment quarter on an opex line than the other quarters. The thing that I'm focused on more than anything is beginning of the year.
So we've had we've had we've strung together I don't know Adam four or five years, where the overall enterprise op margin line has been bouncing around three 5%.
That is we've really been focused on adding good quality growth to the company and September we gave an outlook that said for the year, we do a four handle on on op margin.
90 days ago on December we took that up to four one and now we're taking that up to <unk>. So I I feel I'm more focused on that trajectory than the quarter quarter on quarter results and in terms of your comment.
Forward looking beyond 'twenty, one, we'll give more detail around that in the Investor day in September I had I had said something in my prepared remarks today around the fact that.
Ah, we're very focused on continuing a positive direction with margins as we get into fiscal 'twenty, two and that would be relative to the to the <unk> that we hope to post this year.
Got it and maybe just as a follow up from Mike you talked about being able to or plan to generate over 600 million of free cash flow. This year I'm wondering if that's also something that you can build on Mark's comments on operating margin as we think about the go forward basis or are there capex investments to achieve that operating margin improvement and maybe you can just high end.
Here, our capital allocation priorities as you answer that question. Thank you.
Thanks, Adam.
Currently free cash flow will I think we've said more than 600 million for this year as we continued into FY 'twenty two I expect that to continue to grow.
Again, we've said this before our Capex is something that we're being extremely disciplined.
Disciplined on that to nine 3% range. So pre cash flow as next year again, we'll give guidance in September but I expect that to go up on a similar run rate as it's done in FY 'twenty one.
As it relates to capital allocation, Adam we continue.
To be sort of a well balanced we continue with our buybacks I talked about on buybacks in my prepared remarks, we have $254 million left.
Although our authorization, we intend to complete that authorization.
In Q3, and Q4 are all in the second half of the year. So that that shows that we're extremely committed to the buyback program and that will.
Continue into 'twenty, two 'twenty three I don't want to preempt anything now, but I'm sure.
We will be continuing that progress from a buyback standpoint.
Most of the.
I think we laid out a few quarters ago, the capital allocation percentages.
Roughly half is in into buybacks dividends some of it the balance if it goes into debt.
Sort of debt.
Debt restructuring and the balance would be opportunistic sort of M&A as well, so well balanced capital allocation continuous travelling forward Adam.
Very helpful. Thank you both.
Thanks, Adam.
The next question is from Jim Suva of Citigroup. Please proceed with your question.
Thank you and good results if I look at your updated guidance on the buy segment am I correct that the five G. Wireless on cloud is the one that kind of is giving you. The most surprised there and if so are any of your segments or all of them are any of them.
I'm experiencing semiconductor shortages are you able to procure all the components and items needed. Thank you.
Thanks, Jim.
I assume you're talking about our eight sectors.
On the bluegrass.
Slide yeah. So.
I'm not quite sure. We mean in terms of surprise in terms of the uplift for sure. So I I don't know that it's a surprise to us that we're seeing strength in <unk> and cloud.
Back in December we knew that there was going to be some some component shortages and constraints, but we've been very bullish on the <unk> wireless infrastructure and cloud area of our business. So.
Whether surprise or not it's certainly an area, where we continue to see strength and I think that's largely both on the <unk> side and the cloud side.
Our services and our solutions are being.
Ah well accepted and embraced out in the marketplace. So feel really good about about that area of the business in terms of <unk>.
Supply constraints I would say that.
We talked about this a bit in December let's say.
Nine months ago or so.
Was there was demand drops are everywhere based on Covid.
I think that.
People took a lot of their demand signals.
Adam abruptly and then.
At least our conversations with our customers very few people anticipated.
The rebound that we've seen which largely started August September timeframe and a bit to our surprise has continued to be very strong through early stages of 2021 and on the supply side.
Again, all of that drove constraints.
One good piece of information I think to share is.
Any type of supply constraints, whether it be around resin, whether it be around silicon whether it be around passives.
Whether it be around Mechanicals all of that is handicapped into our numbers and I would I would actually say that.
We took a fairly deep handicap to that for our Q3 and Q4, so I feel if anything maybe there is some slight upsides to.
What we've put out today assuming that the.
The supply constraints don't worse on worsen.
The other thing I would say is as.
I think I think the procurement team at Jabil is just simply the best team in the business and if I think about our scale. If I think about our holistic approach to demand planning, whether that cuts across health care or mobility or EMS business our automotive.
Our team's knowledge of the marketplace their knowledge of the commodities knowledge of technologies and in the longstanding relationships. We have is really allowing us to navigate.
What otherwise is a is a tough components market at the moment, so I feel.
We're getting along in getting by quite well all things considered on a relative basis.
Thank you so much for the details.
Thanks, Jim.
The next question is from Steven Fox of Fox Advisors. Please proceed with your question. Thanks.
Hey, Thanks, Good morning, two questions. If I could please first mark could you just give a little more color on where the health care solutions businesses on its margin journey and how it did in the quarter.
You know maybe referencing back to when you first did the J&J deal and what you were thinking for next year and then secondly, just so I'm clear.
Based on what you just said about.
Constraints and potential inventory builds might be you're talking about still doing 600 million in cash flow free cash flow.
Is the difference between prior thinking just basically higher EBIT offset by more inventory investments are there other puts and takes.
Please standby the presentation will begin again momentarily.
Please continue to standby the presentation will resume momentarily.
[music].
This is the operator of the presenters have been rejoined please proceed.
Hey, Steve somehow are somehow you cut off.
Sorry, sorry for breaking the conference call did.
Did you hear any of my questions or should I repeat.
If you could repeat them that'd be great. Yeah sure. So first question again was on the health care area. So if you can provide some color into how it performed during the quarter, both topline and margin and where you are on the margin journey.
Referencing back to us.
When you first did the J&J deal and then secondly, I'm just trying to understand make sure I understand the debt.
Net cash flow target staying at 600 million plus.
Higher EBIT, but it sounds like higher inventory investments is that basically the puts and takes versus 90 days ago or is there anything else.
Yes. Thank you so on the health care side.
I think we're I think we continue to hit on all cylinders.
Steve <unk> and his team who run that business.
We started talking about the J J M B relationship.
I don't even know how long ago now two two and half years ago, we kind of laid out a road map, there and and our health care team has executed nearly flawlessly to the roadmap that we laid out so feel good about that and then the business around the J J M D.
I talked in my prepared remarks about.
Different trends and the team is really focused on things.
<unk> core health care like personalized health like digital health, we announced.
Sometime during the quarter.
Another relationship.
That has everything to do with.
Technology around auto injection in auto injectors.
And so I just look at the technology, the investments that debt or health care teams are making and feel really good about that our healthcare and packaging business.
Steve last year I think it was in the neighborhood of $414 $2 billion and.
I would guess as we exit this year health care and packaging to be bumping up against 5 billion and I think we will continue to see good solid growth in that area for the next two to three years in terms of.
The $600 million of cash flow.
It's another it's another number that I feel really good about and on the surface, maybe it's a little bit confusing because EBITDA is going up in.
Margins are going up so why would cash flow go up.
Have we have been working diligently to continue.
Continue to shape the portfolio our number one focus as a leadership team is cash flow management.
Over the next 234 years.
I think if we ever get to a point where were as a leadership team we decide not to grow the company.
Uh huh.
That would be apparel this thing to do and it makes no sense to us as long as we're adding.
Good quality business again attached to secular trends that allow us to continue to expand margins as.
As we look at 'twenty, two and 23 so.
So if I take you back to the beginning of the year.
We said, we do $26 $527 billion in revenue.
Now, we're bumping up against 28 28, five and.
So with that with the additional topline with the.
The way the teams managing working capital with the way the teams managing Capex and then Michael alluded to the fact that we're going to complete our buyback authorization by August 31 of the year. So I think we're being.
Ah well balanced in terms of both.
Capital investments Opex investments and shareholders I feel good about.
The 600 million plus and then we will give an update to what.
What I think you should anticipate a stronger cash flow as we get into the Investor day in September.
Great I appreciate all that color. Thank you.
Yeah. Thank you.
Yeah.
The next question is from Paul Coster of Jpmorgan. Please proceed with your question.
Yeah. Thanks for taking my question.
February of <unk>.
Improved more of a.
Platform for.
Better margins in the future on there.
We're already improving and I'm just wondering mark if you can talk about how much of this is structural.
And the industry itself.
How much of it is under your control what is that you are doing today.
Makes you feel sure that Youre looking at higher margin.
Yes.
I don't I don't I don't I don't know that it's structural to the to our industry. Yeah I hope so high I think.
I think if our competition can watching high margins.
That's always good but you know, we're pretty inwardly focused Paul I think about.
I think first and foremost.
We we obsess about customer care and customer solutions and I think if we if we don't get that out of order, Paul and we continue to obsess about our customers and what they need in solving their issues are the.
The financials are followed by step back and I look at this fiscal year.
I was noticing something.
Over the weekend you know this would be along with the along with the margin trajectory I think this will be the first first year, we've ever had in the history of the company. If we execute net is a big capital I am but if we execute we're going to string together four consecutive quarters, where every single quarter is at or exceed the dollar.
A dollar per share.
And that just kind of jumped off the page, but in terms of.
In terms of margin expansion.
You asked about is it structural I think so.
That's our plan.
And that's what will allow us to take margins up from the four 2% as we get into next year.
I think about everything from our balance sheet, if you take a look at and again.
Now I'm coming at it a little bit more from an EPS perspective, but since you asked the question around around is it structural or balance sheet continues to improve net debt going down interest expense is going down.
Overall liquidity has gone up.
And then I take a look at the business and I look at things like.
I think we have very very good overhead and <unk> and overhead costs I think about overall demand.
I think about the secular trends that we've talked about and sometimes that's a really really overused term, but we are truly embedded in so many of those markets, which I think are going to be around for the next two or three years.
And the.
Whole Covid thing, it's not behind us yet but.
With the vaccine being here, we are we hope to have 70, 80% of our employees globally have access to the vaccine over the next six to eight months.
Just.
And then I think lastly, and we've been talking about this for 10 to 12 quarters is the mix of our business is as healthy as it's ever been so I think you shake all that stuff up together.
Again, I take a look at the last couple of years margins have been around three 5% high.
Think that Theres, a real opportunity here for us to on a structural basis.
Increased margins by 100 basis points as we look forward after that 335% base.
Well, maybe the follow up and Mark is what is it that you're not doing.
Are you able to essentially you had the choice of not doing some business because you could be satisfying your customers.
But it could be bad business that youre doing ultimately from a margin perspective, so could you talk to us a little bit about how you shape the portfolio on what you do from end to prevent them.
From a low margin business coming in and Hudson Group business model.
I think it starts with I think it starts with absolute clarity of communication.
To the troops internally.
I can tell you this I've been with the company a long time.
Where I screw things up is when they have stuff in my head with the leadership team that we don't communicate it to the group what I can tell you that on the reciprocal of that is.
Is when the group understands where we're going and why we're going there on what our purpose is there's no better team there just isn't and so people understand that theres two things that we're focused on for the next.
Two three or four years and that's continued expansion of cash flows and continued expansion of market. So.
And I and by the way our portfolio.
Okay.
Kind of refer to is it a portfolio for a reason we have we have some businesses that might be a little softer on the margin side, but based on terms based on the business itself have tremendous cash flows and we have other businesses that have tremendous margin, but maybe the working capital is a little richer we have some of that in our health care space and other areas, but when you blend all that together.
Sure.
Boy I think Theres, just a picture here.
That we're just starting to paint and.
And we feel pretty good for the next two to three years.
To answer your question directly.
We're just going to stay away from bad business and.
You know that that could mean, a variety of things, but I think <unk> turned on the internally people are pretty clear on.
You know what we're going to go after.
Certainly if we can go after business, where there's going to be.
Positive trends going forward.
Good news for everybody, but I think I think the organization is pretty clear about the type of businesses, we're not going to go up.
Got it thanks Mark.
Yes, Thanks Paul.
Okay.
The next question is from Shannon Cross of Cross Research. Please proceed with your question.
Great. Thank you very much I wanted to dig a bit more into the five day wireless and cloud outlook.
The increase I'm just curious.
Specifically, maybe you can give some more details on on what's driving that and what I'm trying to figure out is is this <unk>.
Demand that would have come in the future, but is being pulled in now as people start to ramp five G or are you seeing market share gains and act on what the actual end market growth because obviously the market is growing but.
How much of it is being driven by increased end demand overall, and then I have a follow up thank you.
Shannon I'd say, I'd say and I don't want to be and I don't Wanna be offensive by not getting into details I would I would I would say this with a with a high degree of confidence.
For sure we're seeing striked secular trends.
And trends that are very positive in terms of cloud and finally.
What looks to be reasonable plans in terms of the <unk> wireless rollout.
So that's going to be helpful. And we think that's we think that's here to stay for now.
A number of months, but a number of years and by the way. We think that's going to have all kinds of tangents tied to it as well once the <unk> rollout yeah. It gets underway in terms of.
Derivatives to other parts of our business.
And then I think I would complement that was saying Theres just been there has just been good acceptance of our solutions and our services Inc.
On the space both on the design side I think Michael alluded to he was using some cash.
Nancy terms around.
You know what.
What we call kind of designed to dust and repurposing older servers in and he did a nice job explaining it sounds a little I dunno overly technical or whatever but we've got you on when we when we talk about the design side, all the way to repositioning and Adrian.
Disposing of older hardware.
Kind of front to back I think.
Shannon.
Solutions, we have in that space again, it's still what I would call early days, but had been received quite well and I would also suggest that.
There is a there is some market share wins in there as well.
Great that was helpful. And then my second question is just on stimulus. If you think back to last summer and maybe what you I know, it's somewhat hard to determine how much benefit you guys saw directly from stimulus, but how are you thinking about it when you gave us the guidance for this year in terms of the.
The techs that are going to be heading in the next few weeks. Thank you.
Yeah. Thanks.
Let me break up the back half of 'twenty, one with with 22 and 'twenty three.
I can't make sense I can't make sense of the U S equity markets anymore, because I I don't know I don't know how they got detached from fundamentals in so many ways I just think debt when you put four trillion dollars of stimulus into the system and there's dollars everywhere. They gotta go somewhere.
I think that stimulus will be a bit of a driver for the next couple of quarters, maybe maybe into <unk>.
'twenty two.
But the nice thing is so as we as we navigate 'twenty one.
I see I see two things I see certain parts.
Of our business being driven by by what I would call Covid type behavior. Some of those will dissipate. Some of those are maintained I see certain parts of our business there are stimulus related.
Sure.
In certain parts of the United States right now.
So when you try to buy a truck or a car in appliance.
It may be.
Theres backlogs everywhere and I think that stimulus related.
As the impact of stimulus and the impact of Covid start to CIT to attenuate a bit and fall off a bit.
I think what's right behind that is.
Kind of.
No kidding, no nonsense secular trends and then again, Mike talked about it I talked about it in our prepared remarks and I think.
I think those those specific trends.
Certainly it will be a driver for our business. The next 234 years. So it's not like I'm sitting here going jeez.
When stimulus abates.
And COVID-19 types of hardware.
Either go away or reduce.
That theres not going to be other elements that continue to give us a little bit of an uplift. So I don't know if that helps or gets at your question, but that's how I see it.
Very helpful. Thank you very much.
Thank you.
The next question is from Matt Sheerin of Stifel. Please proceed with your question.
Yes, Thank you and good morning.
Mark you're you're.
Commentary across end markets extremely positive one area that youre still guiding down year over year as networking and storage.
Looks like you took that up a little bit from two three to $2 4 billion, but still down could you tell us what youre seeing in that market is it still weakness in on premise spend and expectations is that improving.
The recovery continues post COVID-19.
Yes sure so.
The network storage business it was around $2 eight in fiscal 'twenty.
September we took that all the way down to 2.2 and again, that's a reflection of a couple of things. It's it's it's a reflection of some some of the legacy business.
Maybe starting to lose footing and lose a little traction out in the marketplace.
Number two is as again as we continue to.
Think about our portfolio for fiscal 'twenty, two and 'twenty three.
There are certain areas of that business that.
When do we think about our overall invested capital.
Might not make sense for us any longer.
But the nice thing is this is from the September timeframe to the December time frame to today.
We've actually been on a trajectory back up so that's nothing more than a we have tremendous relationships with certain customers in that space.
And and will continue to serve those customers serve them well and as long as they'll have us and appreciate the value. We provide we're all in and I'm sorry.
Again, I think about 2.8 in 'twenty.
Get down 2.2 in the last I think December and today, we've taken it back up by $200 million roughly.
And I would just look at I would look at network and storage is a very key element of of our eight sector makeup and I would say that even though in some of those businesses margins might be tight.
Cash flows are quite good so it's a very good complement to the other other seven sectors.
Okay. Thank you for that and then just a question regarding your packaging initiatives, particularly with the eco friendly initiatives, you just announced a big paper.
Paper bottle solutions.
Investing in plan could you talk more about that the opportunity and how important is that in terms of a growth driver for jabil.
Well it won't be much of a growth driver. This year Oh, we have to be very very very selective in our M&A.
We are we are committed to returning capital to shareholders.
At the same time and I made this comment around around growth.
We ever get to a point, where we're not growing the company then shame on us, but we have to do so on a margin friendly cash flow friendly way, which is I think what I hope this year's results will start to prove out.
And as part of that the good news is as is.
Almost all of our material growth is organic which is the best growth to have by two magnitudes.
But we will continue to complement that with select M&A activity and for us to put some dollars in play with.
The acquisition you were talking about is a wonderful company with wonderful people and great leadership.
On a company called equaled logic, we are very excited about the platform that they've developed and.
You know, we always ask ourselves the question.
When we're looking at acquisitions, we start with culture alignment, we start with our capability and competency and then and then what are we going to do with the business when we own it strategically we have a wonderful roadmap internally around sustainable packaging and this is kind of a.
Second or third step for us, we believe that we'll be able to take that technology and as we look towards fiscal 'twenty two 'twenty three.
Give that technology.
Due in terms of further RMB and then given that technology exposure to may.
Maybe bigger brands that we.
We support based on our balance sheet, our scale and our relationships.
Okay. Thanks very much.
Yep.
The next question is from Mark Delaney of Goldman Sachs. Please proceed with your question.
Yes. Good morning, Thanks, very much for taking my questions.
Very well on margins and guiding to four 2% for this year. Despite what I would think are some temporary cost headwinds related to the supply chain environment, including.
Shipping cost if somebody's component component shortages that the whole industry is having to deal with can you talk about how much of a headwind to the company. We may be seeing from some of those supply chain types of cost this year and if we were to add that back to you do you think that's more representative of the underlying margin levels that the company can hopefully build off of going forward or are there any other temporary factors that we should be.
Thinking about that influencing margins this year.
Thanks Mark.
Alright.
I said earlier.
We certainly handicap the business for Q3, and Q4 and I think our handicap has been appropriate.
So I think that in and of itself might suggest that.
If we Didnt handicap the business, maybe margins would be $4 three per cent for the year I wouldn't get much ahead of that but I also mentioned earlier mark.
On the method.
The method to our madness in terms of supply chain management, it's it's it's wonderful and.
Just listening to others.
Either a few customers suppliers or folks in our industry.
And advocating this thing beautifully.
It's a it's a it's a tough deal, but the impact to us I think will be minimal on a relative basis and.
Again as we sit here today, we had a debrief from our entire procurement team last week and we feel like this thing will start to show levels of relief as we get into <unk> 22, and for sure as we get into calendar 'twenty two so.
To frame out that time frame call. It September October November timeframe.
Mark seeing relief and then I think things will be back.
To more normal conditions call. It January February March.
Of 22 with that said.
Again, we gave the guidance we gave to today.
For Q3, and Q4, certainly feel confident in and as I mentioned earlier.
When you look at margins yet.
Four point to for the year I think I think we're going to continue to effort to have an upward trajectory of that as we get into 'twenty two.
Even with considerations of near term supply changes.
That's very helpful. My follow up question was on the EV opportunity in automotive has been a growing business for Jabil and an area of I realize that Jabil has a lot of capabilities and already a Fox con is moving to divert or brought it out its business and doing full electric vehicle architectures and even final car Assembly.
I'm interested if that's the type of business that Jabil would also consider expanding into within the automotive and EV space. Thanks.
I think it's important to think that we're all set up automotive factories.
On the capital intensity of that is enormous and and I don't want our people focused away from what we do really really well which is high.
Sensors components sub assemblies for for the entire automotive space and thank you for the compliment on that we do have a very good track record in automotive.
You know one of the strategic.
Decisions, we made two and a half three years ago was is all hands on in terms of really focusing hard on on <unk>.
Electrification and EV.
Not just with automobiles, but all the transportation and I think debt I think that decision is paying dividends to US you know when you when you think about that.
The term electrification.
That would suggest right in our core.
On the R&D dollars on the investments we've made in that area have been substantial so I feel pretty good about how we're positioned there.
And we'll see how that plays out for 'twenty, two and 'twenty three if I had to speculate make a little bit of a guess today.
I think today.
We look at that are the eight sector chart in FY.
In FY 'twenty automotive transport was about $1 7 billion September we took that up to one nine we sitting here today, saying there will be a bit over.
2.2.
And I would if I had to venture a guess today I would say that's true.
Trajectory of that sector.
As we move through <unk>.
'twenty two is going to continue to be up into the right.
Thank you.
Thank you.
Right.
This now concludes our call. Thank you for your interest in Jake.
Okay.
You may disconnect your lines at this time, thank you for your participation.
Yeah.
Yes.
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