Q3 2021 Jabil Inc Earnings Call
Hello, and welcome to the Jabil for third quarter 'twenty 'twenty, 1 earnings call and webcast. At this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero under telephone keypad, a question and answer session will follow the formal presentation. As a reminder, this call.
Is being recorded.
On my pleasure to turn the call over to Adam Berry, Vice President Investor Relations. Please go ahead Sir.
And welcome to Jabil third quarter of fiscal 'twenty 'twenty, 1 earnings call joining.
Joining me on today's call are Chief Executive Officer, Mark Mondello, and Chief Financial Officer, Mike that store.
Please note that today's call is being webcast live and during our prepared remarks, we will be referencing slides.
To follow along with slides please visit Jabil dotcom within our within our Investor Relations section.
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 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 our currently expected third quarter and fiscal year net revenue and earnings.
These statements are based on current expectations forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.
An extensive list of these risks and uncertainties are identified in our annual report on form 10-K for the fiscal year ended August 31, 2020 and other filings.
Jabil 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 Mark.
Thanks, Adam good.
I appreciate everyone, taking time to join our call today.
I'll begin by saying thank you all of our people here at Jabil.
Thanks for the attention given to our customers and the care you off for 1 another.
At Jabil.
It's people that drive our success.
And it's the same people.
That truly make us who we are.
Each day that carry our culture and they submit our values.
Again, thanks to all.
Please turn to slide 5.
Well now take a look at our Q3 financial results.
The quarter came in ahead of expectations.
Driven by solid execution.
And a moderate uptick in demand.
Said differently.
We saw a well balanced contributions across the company.
Altogether.
The team delivered core operating income of $277 million.
On revenue.
$7.2 billion.
Trading core operating margin of 3.8% for the quarter.
For sure I'm pleased with these results.
Although what's most interesting to me is the current construct of the business and the improvements we've made to our balance sheet.
This powerful combination has this feeling of confidence as we look towards fiscal 'twenty 2.
As customary Michael provide more detail around the quarter and speak to our forward guidance during his prepared remarks.
Moving to slide 6 you'll see a pie chart.
Our colorful chart that represents our commercial portfolio.
And underscores the effectiveness of our team.
Today, our business is diversified.
And it's diversified it's scale.
Providing more resiliency than ever before.
And in my opinion.
It offers jabil, our real competitive advantage.
Especially when we consider our performance and the sustainability of the business.
Furthermore.
Each individual piece of the Pie Harbor.
Harbors specific domain expertise and deep technical knowledge.
All of which make up our library of essential and valuable capabilities.
And to this day method in which our team weaves together these capabilities.
It elevates the way in which we serve our customers, particularly when we move with speed and precision.
This approach has enabled by our structure and open collaboration across the enterprise.
And when it's done correctly.
It yields a proven formula that allows us to simplify the complex for many of the world's most remarkable brands.
Yeah.
With that let's turn to slide 7.
Where you'll see managements outlook for the year.
And looking at the slide.
You can see the earnings power of the company.
And imagine our potential as we look to FY 'twenty 2 and beyond.
For this year, we now anticipate core earnings per share.
For me in the range of $5.50 on revenue of $29.5 billion.
But most importantly for.
On maintaining our outlook for 0.2% for core operating margin.
And increasing our outlook for free cash flow by 5% to $630 million.
For me.
Positive Testament on how the team is managing the business.
And wrapping up our forecast for FY 'twenty, 1 I'd like to note.
When we communicate inside the company our strategy is understood and our path is clear.
During these internal discussions the thing that stands out to me.
It's our team's obsession with how we produce outcomes.
And when we think about the how we think about our behaviors.
Behaviors, such as keeping our people safe.
Servant leadership.
Ensuring a fully inclusive work environment.
And getting back to our communities.
I'm proud that our team is dialed in on all of these areas.
In fact their conduct is exceptional.
Yes.
Consistent with the past few years.
We're looking forward to hosting our annual investor briefing.
This year the briefing will be held on the morning of September 29th.
Well open the session by reporting our fourth quarter and full year results.
Well then follow with a complete review of our priorities.
And we'll connect the dots on how these priorities will guide us throughout fiscal 'twenty 2.
Add to this.
A discussion on end markets and our observations specific to the macro environment.
Our management team will also share how we plan to expand core operating margin year on year.
In addition, well.
Also describe the hard work put forth.
That reinforces our goal to deliver double digit growth in core earnings per share and free cash flow for fiscal 'twenty 2.
Yeah.
And wrapping up the September session.
Michael breakdown, the shape of the year and share our capital return framework for the coming 1 to 2 years ahead.
We have lost share and we have a good story to tell.
As we transition to my final slide.
I once again say thanks to our team.
Their efforts over the past 2 to 3 years.
Let us to reshape the business as we've targeted growth in select markets.
A few examples of these markets.
Our areas of 5 G infrastructure.
Electric vehicles.
Personalized health care.
Cloud computing.
Clean energy and eco friendly packaging.
I really like the decisions we're making.
And we're doing so well.
While ensuring each employee can be their true self.
While respecting the environment in which we work.
Yeah.
In closing we've made tremendous progress.
Financially.
Operationally and commercially.
At Jabil, we solve problems over and over again.
It's why we welcome the continued challenges put forth by our customers.
Thank you I'll now turn the call over to Mike.
Yeah.
Thank you Mark and good morning, everyone.
As Mark just highlighted our third quarter results were very strong driven higher by the combination of continued end market strength and.
And excellent operational execution by the entire Jabil team.
In Q3, we saw continued strength with notable revenue upside during the quarter in mobility cloud connected devices and semi gap relative to our plan 90 days ago.
Given the additional revenue I'm, particularly pleased with the strong leverage we achieved during the quarter, which enabled us to deliver a solid core operating margin of 3.8% approximately 30 basis points higher than expected.
In Q3, our interest and tax expense also came in better than expected.
The compounding effects of high revenue and the associated leverage along with lower interest and tax expense allowed us to deliver strong core diluted earnings per share in Q3.
Putting it altogether on the next slide.
Net revenue for the third quarter was $7.2 billion, approximately $300 million above the midpoint of our guidance range.
On a year over year basis revenue increased 14%.
GAAP operating income was $240 million and our GAAP diluted earnings per share was $1.12.
For operating income during the quarter was $277 million, an increase of 61% year over year, representing a core operating margin of 3.8%, a 110 basis point improvement flow through.
Yeah.
Net interest expense in Q3 was $36 million in core tax rate came in at approximately 18%.
For diluted earnings per share was 1 dollar and 30 cents, a 251% improvement over the prior year quarter.
Now turning to our third quarter segment results on the next slide.
Revenue for our Dms segment was $3.6 billion, an increase of 21% on a year over year basis.
The strong year over year performance in our Dms segment was broad based with strength across our connected devices health care automotive and mobility businesses.
Hello margins for the segment came in at 3.9%, a 140 basis points higher than the previous year and incredible performance by the team.
Revenue for our EMS segment also came in at $3.6 billion, reflecting strong year over year growth in our cloud and semi cap businesses.
Well on margins for the segment were 3.8% up 90 basis points over the prior year, reflecting solid execution by the team.
Turning now to our cash flows on balance sheet.
Cash flow as provided by operations were $585 million in Q3 and capital expenditures net of customer co investments totaled $197 million.
We exited the quarter with cash balances of $1.2 billion.
We ended Q3 with committed capacity under the global credit facilities of Threep on $8 billion.
But this available capacity along with our quarter end cash balance Jabil ended Q3 with access to more than $5 billion up available liquidity, which we believe provides us ample flexibility.
During Q3, we repurchased approximately 2.5 million shares for $130 million.
At the end of the quarter $124 million remain outstanding and our current stock repurchase authorization and.
And we intend to complete this authorization during Q4 as we remain committed to returning capital to shareholders in FY 'twenty, 1 and beyond.
Turning now to our fourth quarter guidance.
The EMS segment revenue is expected to increase 11% on a year over year basis to $3.95 billion. This is mainly due to strong end market outlook.
The EMS segment revenue is expected to be 365 billion, a decrease of 2% on a year over year basis.
It's worth, noting our EMS business remains strong and healthy.
The modest decrease is reflective of our previously announced transition to a consignment model upset by higher silver volumes in the cloud business.
We expect total company revenue in the fourth quarter of fiscal 2021 to be in the range of $7.3 billion for $7.9 billion for an increase of 4% on a year over year basis at the midpoint of the range.
For operating income is estimated to be in the range of $280 million to $340 million for a margin range of approximately 3.8% to 4.3%.
Core diluted earnings per share is estimated to be in the range of $1.25 to $1.45.
GAAP diluted earnings per share is expected to be in the range of 1 dollar to $1.20.
Next I'd like to take a few moments to highlight our balanced portfolio of businesses by end market.
Today, both segments on an incredibly good shape.
Last quarter I highlighted some long term sustainable secular trends in strategically important end markets such as health care automotive connected devices 5 G cloud in semi cap all of which continue to show strong performance for the balance so that's why 'twenty, 1 and beyond.
In tandem addition, more foundational areas of businesses like print retail mobility networking and storage, we retooled re optimized Henry imagine our long standing partnerships with some of the best brands in the world by leveraging Jabil has differentiated capabilities.
<unk> to deliver successful solutions for our customers.
The resiliency in our portfolio, coupled with a long term secular trends underway across our businesses. We believe we will continue to drive sustainable growth across the enterprise in FY 'twenty, 1 and beyond.
Putting it altogether for the year on the next slide.
For FY 'twenty, 1 we expect core operating margins to be for 2% on revenue of approximately $29.5 billion.
This improved outlook translates to core earnings per share or approximately $5.50.
And importantly, we now expect to deliver on more than $630 million in free cash flow despite the stronger growth.
In summary, I'm extremely pleased for the sustainable broad based momentum underway across the business.
Which has allowed us to deliver much better than expected results for the first 9 months of fiscal 'twenty 1.
As we enter Q4 and look beyond we fully expect the long term secular tailwind that are driving our business to continue.
This coupled with our improved portfolio mix and lower interest and tax expenses gives me confidence around continued margin accretion and strong earnings growth in FY 'twenty 2.
Yeah.
We've been working extremely hard as a team to grow margins cash flows and positively impact our interest and tax.
Seeing this hard work manifest in strong financial results is a testament to the exceptional execution by our teams on all fronts.
I wanted to law for my sincere thanks to our team for their tremendous commitment and execution during FY 'twenty 1.
Thank you for joining us today and for your interest in Jabil.
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 questions. We appreciate your understanding operator, we're now ready for Q&A.
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1 moment, please what we pull for questions.
Our first question today is coming from will prove out Vittorio from Bank of America. Your line is now live.
Hi, Thanks for taking my questions and congrats on the quarter and on the guide.
I have 2 questions the first 1.
Is on margin. So you talked about margin accretion in fiscal 'twenty 2 mark.
When I look at fiscal 'twenty versus fiscal 'twenty..1 are you, having strong margin improvement 100 basis points to 4.2%.
But going forward should we think that the margin improvement will be more on the D. M. S. The diversified manufacturing side versus the EMS because it looks like you know from your last quarter's guidance EMS revenues are going from $13.4 billion to $14, 1 but the margins are still at 3.6%. So just.
Your thoughts on on what you can do to improve margins and what are they what are the leverage on factors you have to improve margins going forward.
Surplus if I could take the liberty of.
Maybe answering the question directly but maybe slightly indirectly right. We I think 1 of the 1 of the <unk>.
Interesting things about the way we've shaped the company as a last for 5 years is is we have a portfolio where we balance constantly.
And the balance sheet and really it's about the team. It's led by you know the likes of micro park, our steep or just for Kennedy Wilson, the Guy who's running the segments and that our operational team our supply chain team day in and day out we're balancing between cash flows on margins and they're not mutually.
Exclusive so 1 of the things I said something on my prepared remarks around.
FY 'twenty 2.
Our objective internally and we decided to share it on the call is as is in terms of.
<unk> margin accretion that we think we'll get margin accretion year on year and then in terms of.
Our core EPS off of you know the $5.50 that we talked about today for 'twenty 1.
You know our goal is to try to get EPS next year with a 6 handle on it which is the double digit growth and then and then as importantly is the cash flows which we think next year, we can get a 7 handle on on the cash flows.
Whereas all of that come from a I just I think it comes from things that we continually talk about internally and we've talked about on the calls it comes it comes with or approach. The solutions were taken to the marketplace and then and then again a replay of the.
The portfolio overall, if we look at.
When you look at our Dms business every round numbers, right, our dms business and and and fiscal 'twenty.
13 billion.
In 'twenty, 2 it'll be substantially higher if we look at our EMS business.
13 on a half 14 billion.
I don't think the top line will grow as much as Dms are but I think in terms of what that team has done on reshaping the business.
<unk> been very very select and intentional on in terms of of where we're making investments. So I'm I would say its approach I would say its portfolio.
And I don't think we need you know, we don't need substantial tailwind for 2 to deliver 22 now if the if the macro goes sideways on all of US all bets are off but.
You know I don't think we would have Mike and I had a long talk the last couple of days and.
And we just felt it was appropriate to give.
Again, a little bit of color on on kind of where we're up to internally in terms of 'twenty 2 quite frankly, when I get together with my direct reports at this point in the year, we spend very little time talking about for 2 we've got a wonderful team of folks that I'll, we hope touchwood all delivered on a year, we're spending all of.
Our efforts on on 22 so.
Again, I don't know if that answers your question, but we'll provide a lot more a color on that on September 29th meeting.
Thanks for all the details on that I appreciate the color maybe for my last question Mark If you can just kind of.
Talk a little bit about the healthcare and packaging side, how is the J&J business trending how is the core medical business trending and any thoughts on packaging. So any color on on on the growth of that market. Thank you.
Yeah, I'd say, we like at all you know we.
We continue to make investments in capabilities.
Take that in reverse order.
We've had a couple of press releases come out and we're not big on press releases in terms of Ah I think I think companies get over press released so we try to be very selective but on the.
Packaging side, a lot of focus on integration in terms of smart packaging and then a lot of efforts in terms of.
The environment in what we call eco friendly packaging and and we're bullish on that and in terms of health care.
Been banging on the drama on health care.
For for 3 or 4 years, Yeah, and again I would just say health care overall, whether it be on the pharma side med device diagnostics et cetera is is performing.
Above plan and we've got a we've got a pretty interesting.
Our path forward for FY 'twenty 2.
Got it thanks, again and congrats on the strong execution and I look forward to talking to you on Monday, Yeah same here. Thank you alright.
Thanks for your next question today is coming from Steven Fox from Fox Advisors. Your line is now live.
Thanks, Good morning, 2 questions if I could first on the 30 basis points of upside in the quarter could you break that down a little bit in terms of how much was just a pure revenue driven versus some execution and what the headwinds might have been in the quarter related to supply chain and Covid and then secondly, Mark you.
You mentioned, how on the EMS side, you re imagining some OEM relationships in the last couple of years can you just give us a couple of examples of what that exactly means and how it's driving growth. Thanks.
I like your I like your term re imagining our I'll come back to that in a minute for the quarter.
Oh it was just.
You know I forget the words I used in my prepared remarks, but it was a it was it was modest it was modest modest topline strength Ah it cut across I think.
The upside for Q3 was just under 300 million vs Guide.
If I had to think through the areas, where we saw that.
This is a this is an overused term I don't really generic term, but you know when it's the truth if you know it.
It was really.
Across lots of different sectors.
A couple of.
Network and storage was stronger than we expected a connected device I think was a bit stronger than we expected a cloud mobility, but it was a it was a it was a broad scatter grant and in terms of a 30 bps upside on on margin.
Again, I just think it's an indication on how we're running the business, we got a little bit of a leverage on the on the 300 million and then it was really good execution.
By the team in and touch Wood I think that I think the good execution continues in terms of the re imagining I don't know if I said that are Mike said that but I think it's an interest in.
Way to think about it it's.
I think we start with Steve Ah I think its I think its huge around obsession around our customers and it's about starting every conversation about what's best for the customers not necessarily what is best for Jabil, but then we've got to do a lot of processing to be sure that what's best for the customer aligns with our path forward for the next couple of years again.
And if you think about and you've been you've been you've been connected with us a long time.
We.
We've been on this we've been on this 3 or 4 year path of of a really good intentional growth with a long term eye on margins and cash flows because the margin and cash flow is going forward are going to give us.
A decent amount of optionality.
A decent amount of leverage to 2 return for shareholders.
The team has done a nice job. If you look at if you look at where our revenue was.
Back in 2017.
And you look at where it's going in in 'twenty 2.
Think the top line of the company has grown a will grow.
Like close to 50% and and it's not growth for the sake of growth because what's coming along with that is is again potentially in 'twenty..2 a 7 handle on cash flows and a 6 handle on core EPS again, those are goals or objectives, but that's where we're spending all of our time in terms of the <unk>.
Imagine in part Luca.
Looping back to that Steve we ask ourselves all the time.
Are we or are we not providing great value for every single customer and every single a subset of customers and if we're if we're not providing the best value and they can go find that value at a different price somewhere else.
You know, we kind of encourage that because.
I think when.
When we're doing our job when we're providing good value everything kind of works the tension in the system comes out so we've been spending on a lot of time on that and then I think somewhere in your question.
I think for the quarters, but maybe I'd talk about it Steve for Q3 and Q4, Yeah, we're still seeing some supply chain headwinds.
But as I said in the March call on I said on on I was doing something with pulse with J P. Morgan. We just have the best supply chain team and I don't I don't say those things often although I love our team I just think we got a I think we have the best supply chain team.
On the industry, our approach to demand planning and the analytics. We years are the fact that our supply chain team is tightly linked with our commercial folks and then the trust and long term relationships, we have with suppliers and that spans across things whether its semis pcbs.
<unk> interconnect passives.
And then and then we are I think we've done a very good job in terms of a bulk for bulk purchases locking in pricing on raw commodities. So yes, there's headwinds I think I said on our March call, Steve that we thought the supply chain headwinds would probably.
Be with us through the early part of 'twenty 2 as we sit today I think that's true for about half of the challenges and the other half for the challenges may actually creep into the.
The summer at 22, but I think a large catalysts to that's going to be does demand hold or not across all the different end markets.
Great that's super helpful. Congrats on the quarter.
Thank you.
Thank you. Your next question today is coming from Adam Tindle from Raymond James Your line is now live.
Alright. Thanks, Good morning, Mark I, just wanted to start from a high level, you're wrapping up on another strong year here and if I look back over the past 5 years or so it's been kind of 2 different eras. Prior to this it's been a heavy focus it was a heavy focus on diversification, adding revenue while operating margin was kind of flattish hovering in the mid threes.
Capex was a little bit heavier. This recent era has focused on digesting and optimizing margin and cash flow what inning are we in on that second journey for margin and cash flow. It sounds like you're expecting that to continue into 2022, I'm thinking beyond that and how do you think about the right timing to perhaps step on the gas with Capex.
For an outsized growth era again.
Yeah, I'm pausing, because I'm thinking I think it's a great question I think I think I.
I don't want to be dismissive of your question at all.
I think that I think that you can hold us accountable.
To offer some of those details in September.
But I don't want to duck the question on altogether I think.
What inning are we in I don't separate I don't separate the ER or bifurcate. The journey I think it's all I think it is a holistic journey. So I look at it and say.
You know the strategy.
This whole past started in and around.
Fiscal 16, or something like that where we're at today and heading into fiscal 'twenty 2 I don't know.
You know to use on American phrase I guess, maybe seventh inning or something like that but I wouldn't want to take I wouldn't want to take that it's over like if we do our job right with the with the margins.
By the way, we're still we're still going to press on growth I think you know share numbers and math on that Adam is.
You know I sat on the J P. Morgan thing I said.
I can envision us being a $40 billion company at some point so that would suggest continued growth, but with the with the sheer math I think that I think the top line growth starts to attenuate a little bit although still grow if we if we can control our overhead costs continue to get leverage on the factory network scale matters for sure.
We continue to be really selecting in our in the customers, we serve and I go back to something I said in Steves comment you know every single dollar of revenue we bring in if we stress test that around are we or are we not providing great value for the customer again. It takes some of the friction out and the relationships.
I I don't know I I I would I would think that in 'twenty 2 well.
We will see margin is greater than 21, and I would think in 'twenty..3 we'll see margin is greater than 22, and the 1 thing about our businesses, especially if top line growth, let's say.
Hypothetically and this is a complete hypothetical but lets just say top line growth for the next 5 years, a normalize it for a 5.6%.
And I don't know, what that's going to be I think 22 will be greater than that but let's just say longer term.
This machine now with this portfolio.
Oh boy the cash flows look awfully good in the in the in the modeling that that store and I sit around and play with so I don't know where were at.
But it's a it's been a lot of hard work and and are pretty excited about the next couple of years Adam.
Understood I wanted to follow up on that cash flow question for Mike Mike.
Mike Mark mentioned the composition of balance sheet in his remarks is the key positive net leverage is tracking to multi year lows as EBITDA continues to build and I think Mark mentioned, perhaps a 7 handle on cash flow next year. So maybe just talk about how you think about optimal capital structure and timing and priorities for deployment of capital to create shareholder value.
Why not just return on all of that 700, plus the next year.
So Adam that's a that's a great question I think will will provide a lot more color in September around out around capital allocation.
I think it'll be a balanced capital allocation.
Acacia methodology as we've done in the past for committed to returning to shareholders.
And I are high and I, absolutely think it's on the cards to a look at that a 7 handle and see how much.
We can return to shareholders, having said that the discipline, we're seeing in our working capital discipline were seeing in our Capex spend.
Spend et cetera, just just gives me a lot of comfort that there's a lot of Optionality I think it was what mark used going forward in terms of what we can do with that free cash flow.
And returning to shareholders will be in my opinion, it'll be number 1 for sure.
Understood Congrats on the results.
Thanks, Adam.
Thank you next question today is coming from Jim Suva from Citigroup investment Research. Your line is now live.
Thank you and I'm, just going to say Wow congratulations on the results on the recovery of your teams through Covid.
Looking ahead you know.
Both for the next quarter and maybe further out how should we think about seasonality of your reporting segments. I know we've been a long time since it's been normal, but how should we think about seasonality and maybe strip out the layer of.
On the consignment.
So it sounds like there's 2 questions there Jim and thanks for the kind comments seasonality on consignment.
For sure for sure Us.
Transitioning to consignment and and some of our business distorts the seasonality because it has a it has an impact on top line.
Which is just fine by the way because our again our focus is on on bottom line margin and cash flow.
In terms of seasonality externally. So so if I try to net out the.
If I try to net out the impact of consignment I think that.
As long as the portfolio exists the way it exists today, so things like automotive and transport in health care and packaging and mobility and connected devices and then the digital print retail industrial semi cap, a wireless et cetera on network storage I would say that.
As the company gross depending on where that growth comes from.
And again I think we're doing I think the team is doing an exceptional job of what they are saying, yes to and what they are saying no to I would guess as we go from say a $30 billion company to maybe a 30 for $36 billion company the.
What you'd think of as historical seasonality going back to say the shape of the year in fiscal 2017, or 18 that probably flattened a bit. So I think the seasonality I think there'll be some of that there, but the but if you went from peak to trough it probably narrows.
I think that's happening a bit this year so.
But with that said I think I think this fiscal year or year. If you take the midpoint of our guide we just prevent presented for Q4.
I think the op income, we just provided midpoint was 310.
Q1 was around $3.65.
Q2, $285 for Q3 was.
It was a soft quarter and I think that that aligns a little bit with historical although going forward again, I think the shape of the year really starts to flatten and quarter to quarter I think the band narrows.
Great. Thank you so much for the additional details.
Yeah. Thanks, Jim.
Thank you. Our next question today is coming from Shannon Cross from Cross Research. Your line is now live.
Thank you. My first question is with regard to <unk> cloud can you just provide some more details you know does it seem like especially from cloud ignoring confinement, but this is people buying too sort of.
And on a pre buy for capacity needs in the future for Phil what are you know the whole that they have right now I'm just kind of curious about how you see this trend and if you think theres any pull through from fiscal 2022.
Oh, I don't know that there's pull through for Oh by the way. Thanks for the question Shannon I don't know that there's pull through for 'twenty 2 I think.
I think I think hyper scaler, I think cloud and I think 5 G wireless.
I think I think all of that has good runway so.
I'm not overly concerned about demand evaporating as long as again, we go back to we're providing a great service.
With great quality to the customers I I.
I see the although they're different they're the same I see both.
Cloud markets.
As as.
Part of Oh now on a robust.
Ecosystem that that the world's heavily relying on.
And I see 5 G are much the same although a bit different so.
You know if we were to if we were to take a look at and don't hold me to these numbers Shannon, but 5 G wireless cloud for us.
As we exited last year was.
A little over 5 billion and I think as we go into 'twenty..2 you know, we'll see we'll see we'll see a reasonable uptick to that again I just think it's a it's a great fit to our portfolio I think the solutions and the technologies that we're providing both on the design side and the process side and the and.
Configuration and distribution side, they just fit that marketplace today.
So that's my thinking on the on the 5 G cloud wireless stuff.
Okay. Thanks, and then I was just wondering you know in theory, we're coming out of Covid and things are opening up at least in some geographies how have the conversations with customers sort of changed and I'm wondering you know is it our people focused on onshore and diversity of supply chain you know.
Looking looking more to outsource or or I don't know how have things changed maybe when you discussed you know potential new business versus <unk>.
Conversations you would've had in 2019.
I I want to make a comment that I'm not sure is linked to your question. So.
Bear with me in and.
I, just think that maybe a bit unrelated to COVID-19, but may be related to COVID-19 I'm really not sure, but I do believe I'm sure on my next comment which is.
When you get to be our scale.
And you think about the Opex, we spend in <unk> and I think about the Opex, we spend in terms of automation and data analytics and artificial intelligence and machine learning and all the things that are going off every day.
In our ecosystem.
We for sure have the most efficient system of any manufacturing.
Services provider out there because I don't think anybody else has the holistic connection that.
That we have of their it systems factory to factory and then linked in with supply chain and ops by the way huge huge advantage.
But I think about <unk>.
Think about the expertise I think about the experience I think about our lessons learned mistakes. We've made and then I think about the global reach our people and everything else.
I think because of that there's just less and less people in the world that want to take on the task of building stuff.
<unk> still want it for sure and their expert on this by the way our customers are expert in branding marketing.
And there are expert in product design.
But theres just less interest you know the capital intensity of the business.
Sometimes people look and go Geez, you guys run a business at 4% to 5% operating margin with huge barrier to entry I think I think.
In some weird way I think building stuff is a secular trend at scale because.
Again, the barrier to entry is way way high.
And it's just really really hard.
But it's what we do and we and we do it well. So I think that's a general comment I'm not sure. It has much to do with with Covid, Although maybe COVID-19 has slowed people down a little bit to think and figure out are they doing the right things for their businesses strategically vs. Tactically. So maybe there's if maybe there was a little bit of a catalyst there Shannon.
In terms of on.
Ensuring offshoring.
China, Yes, China know Asia, yes.
Latin America, you asked Mexico U S Northern Europe, Western Europe, Southern Europe et cetera.
I still it ended up being a big believer that.
That.
The capital markets are always over the long term going to decide where stuff gets built where the supply chains get design.
And.
Again, there's there's pockets of friction whether it be geopolitical or whatever but however, which way that goes I'll come back to buoy to scale matter and when you when you take a hard look at our footprint, our expertise and where.
That exists around the globe I think we're in really really good shape, regardless of how that plays out.
Great. Thank you very much yeah. Thanks.
Yeah.
Thank you next question today is coming from Mark Delaney from Goldman Sachs. Your line is now live.
Yes, good morning, and thanks for taking the questions and let me add my congratulations to the good results and outlook are that the company reported today.
I was hoping to talk a little bit more on health care and the company has built a very good set of capabilities. You know I think not just in traditional medical products, but also some things that are directly with.
Consumers that help with consumer health and wellness and given everything in the world and in some countries so going through but it has gone through over the last year with with Covid.
And what sort of trends Jabil was seen when you talk with your customers and potential.
Strength over the intermediate to longer term on around some of those products are targeting things like Wearables consumer health and wellness patient monitoring Ah, there's all sorts of areas.
Well I think you answered part of your question Mark by the way. Thanks for the net the nice comment at the opening I think.
Steve and his team they are the experts, but if if if if I if we just step back.
The reason we're bullish.
And that area is a lot of what you alluded to.
It's a it's a it's a long term industry.
Has historically been heavily around kind of pharma.
Big Iron diagnostics.
You know med device and and in some ways.
There's been such amazing focus on the patient that maybe maybe maybe theres been a little bit of a fall behind on some of the technology, whether that be connecting to 5 G or or or whatever it might be mark.
As we look at it. The next couple of years I think 1 thing Covid did is it reshaped it reshaped.
Activity at hospitals around the world elective surgeries were kind of put on the shelf I think as vaccines take hold there's a pent up demand for elective surgeries. So so I think that Beth that'll be goodness for for that whole industry for.
For a period of time and then maybe at a at a more strategic long term.
Ill.
For sure personalized medicine Tele health.
Prevention in terms of physiological biological makeup DNA changed and then and then and then monitoring and aging population and and.
And on body monitoring.
That started years ago, but the but the but the output from the monitoring was poor unreliable I think that's gotten a substantially better we're playing in the middle of that not just with health care customers, but others that want to want to make a real difference in that space. So.
I think those are some of the catalysts why we've got a pretty a pretty bullish outlook on on health care and then I think the other part that's beneficial for Jabil is I think that trajectory, where Steve gorgeous and our team are taking health care, whether it be unmet pharma diagnostics on body off body personalized.
Health.
They're able to look around the company and say Wow.
Ironically said some of this in my prepared remarks, Steve and his team can weave together lots of interesting capabilities, whether he borrow some capabilities for micro parclose growth or Kenny Wilsons group. Both on both on 2 main both on mechanics, both on how to connect to <unk> wireless.
Industrial design et cetera. So.
A we like we like where the market's going and B I think I think are as the term I used in my prepared remarks, I think our library of collective capabilities is going to service well as we take solutions to the marketplace.
Yes, that's very helpful. Thanks, and my second question was on how the tight component and supply chain environment, maybe impacting some of your customers and you know there's been a lot of discussion across various end markets of many big companies are unable to get all of the supply that they would like and I'm curious how you think that maybe impacting some of the.
Orders and inventory strategy from some of your customers.
Are you trying to plan for that in terms of your operations financial planning and potentially factor that into some of the comments you gave about a what next fiscal year may look like thanks.
Yeah.
Yeah, we.
I dunno take these as very round numbers, we haircut, we haircut our Q3 outlook.
You know unconstrained in Q3, just rough numbers was probably a $7.1 billion, we cut it to a midpoint of 6.9 because.
Because of concerns around supply chain components silicon.
Hum.
Passes the whole deal and.
We ended up delivering 7.2 which I think is just stellar recognition on a job our team has done managing the supply chain Oh by the way again day in day out not without challenges. So there the challenges are real and I mentioned it earlier on the call are we.
Unconstrained, what would <unk> be a little bit higher probably have we hear credit a little bit yes.
But we got a lot of confidence in our supply chain folks in and out and we'll see what happens. So I don't I don't want to make a kind of peanut butter vanilla.
Statement on supply chain, because truthfully mark it there's so many variables that go into it everything from which end market. What's the construct of the technology, which part of the supply chain are our people our people leveraging what kind of relationships are there how quickly and how agile are the design team.
<unk> 2 to maybe alter some designs et cetera et cetera. So it's it's everything.
A across the board that we're dealing with the 1 nice thing about Jabil is.
Is.
Because we build a little bit of everything.
And we have so many good relationships both on the customer side on the supply side, we have a very good vantage point, we believe in being able to triangulate.
What's really going on and again I think that I think that allows us to help our customers and and again gives us a bit of a competitive advantage, but as I said before I don't think I don't think we'd come out of this this choppiness of supply chain until the spring or summer of 'twenty 2.
What you can be rest assured is is as we did on this call for for Q.
And as we will do for September we'll take all that into consideration and try to handicap that appropriately before we give any forward looking numbers.
Thank you.
Yeah.
Thank you. Your next question is coming from Paul Coster from Jpmorgan. Your line is now live.
Hi, This is Paul Chung on for Coster. Thanks for taking my question. So just on the outsourcing versus in sourcing, which industries are you seeing a greater priority to outsource and are those higher margin opportunities as well in terms of the industry and then.
What are the kind of margin dynamics, when you know you're working with existing customers that accelerated this move from in sourcing for outsourcing do you see some operating leverage benefits there on that shift as well and I have a follow on.
Okay.
I guess my first answer would be pretty short which is.
Question is just.
The in source to outsource its all over the map.
It's not as we sit today I mean, there are certain industries that are fully outsourced and we're all aware of what those are.
I really do believe though that and boardrooms talking to my counterparts at lots of our customers again, there's just there's not a lot of interest in people wanting to build their own stuff because it is capital intensive. It is hard if you don't have the opex and the Reinvestments constantly you fall behind and.
But I don't I wouldn't point to any any specific.
End market or sector at this point in time, it's kind of all over the map.
And in terms of.
You know is it.
Is it is a margin rich or not margin rich that's all that's all speculative on on.
On a relative basis I can tell you for jabil.
Again, we'll deliver.
Again on a relative basis fairly fairly modest margins, but very good margins for us.
We're spending a lot of time with the very first question being if we're going to add a single dollar of revenue to our top line are we or are we not providing great value to that customer and if we can get by that yes or no question.
And then it becomes can we make it work for jabil either on the cash flow side or the margin side and then we try to keep that well balance going forward.
And and I would suggest that even though FY 'twenty was a COVID-19 year team did a nice job navigating COVID-19 in 'twenty and I think the team is doing a nice job. This year and if we continue to work hard and do or do what we think we can do I think it's setting up for a nice fiscal year 'twenty 2.
Got you. Thanks for that and then can you talk about the you know the 250 billion Tech Bill passed by the Senate recently, you know do you expect.
The for them to kind of participate.
And you know here and what magnitude or kind of too early to tell.
You said $2.50 right yeah.
Yeah.
Okay.
You broke up a lot, but I want to be sure. We're talking about the same though it's too early to tell.
We have on.
We have.
We have great relationships are around the D C.
Area in terms of understanding it's just too early to tell so TBD I can tell you that.
I think we'll benefit from that indirectly whether we were to there's nothing in our forward looking numbers that anticipates us participating in that directly.
But we'll see but again, where we're saying well informed on that because it.
It has the potential to be an important goal for us.
Yep, Okay, great great quarter. Thanks, Thank you.
Thank you. Our next question today is coming from Matt Sheerin from Stifel. Your line is now live.
Yes, Thanks, and good morning, everyone. Mark your early outlook for 2022 implies the Dms segment growing faster than that.
And then do you see that coming from all of for key sub segments. As you see this year, whereas that from when any particular market and if you are seeing that broad based strength is that just from underlying demand or are you also seeing share gains on new program wins there.
Okay.
So your observation on the math is correct and I know this isn't very satisfying but it is really kind of across the board I would like to be able to point to something but let's.
Let's just say on them on a collective basis, Matt I think it's a combination of a change in technologies as an example.
On a higher percentage of vehicles be moving more towards electric content electrification or EV altogether. That's just a broad example.
So it's technology I think it's I think it's human behavior.
In terms of we just.
And when Delaney was asking earlier around health care, we talked about we talked about personalized medicine connected health are on body monitoring and that doesn't mean that market is getting bigger it means that the activities in the market are shifting and some of those activities work well on.
In our favor so.
So I think it's I think it's technology shift I think its life's lifestyle shift for sure.
Some of it is market share gains and then for sure. Some of it is just kind of continued.
Global GDP growth and things like that so it's a combination of all of the above and and I don't really have a specific sector and Dms I'd point to.
Okay, great. Thanks for that.
Question for Mike regarding inventories situation.
Inventory was up sequentially in dollars and also on that day spaces, which makes sense given the strong seasonal guide for Q4, but should we expect you to be at.
That's somewhat elevated levels for a while now in our customers compensated you in any way he such as in the form of deposits or anything else.
Oh, yes on that I think the inventory balance you see at the end of Q3 was largely timing Oh, all that disappears reverts back in Q4.
I expect.
Inventory levels by the end of Q4 to be around 60, a day number and in the longer term mid fifties for sure. That's what we're working towards.
Okay. Thank you very much.
Okay.
Thank you we reached end of our question and answer session I would like to turn the floor back over to management for any further closing comments.
Thank you for joining our call today, everyone. If you have any follow ups. Please reach out to me. Thank you for this concludes our call.
Thank you that does conclude today's teleconference and webcast.
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