Q4 2021 Jabil Inc Earnings Call

Greetings and welcome to <unk> fourth quarter and fiscal year 2021 earnings conference call and webcast at this time all participants.

The pits are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

A reminder, this conference is being recorded.

It is now my pleasure to introduce your host Adam Berry, Vice President Investor Relations. Thank you you may begin.

And welcome to Jabil as fourth quarter of fiscal 'twenty, 'twenty, one earnings call and Investor briefing.

We have a brief session planned for you today and as an organization. We're excited to provide you with a little extra detail about our business as typical for our September call.

Over the next 15 minutes or so we will review our strong fourth quarter and fiscal 2021 results followed by yet another great outlook for fiscal 2022.

As usual you will hear from both Mark Mondello, our CEO as well as Mike Stoehr, our CFO.

Along this journey, we will discuss our approach to the end markets we serve.

<unk> of our supply chain solutions in the innovation underway within our global network of factories.

Additionally throughout our presentation today, we will do our very best to help you understand what makes <unk>, so unique and so special.

And we will take that write off with the following brief video.

Constantly changing consumer demand supply chain constraints network security concerns.

Celebration of market disrupting technology.

These are just some of the forces driving the complexity of doing business today.

How did that complexity, the unprecedented pressure to ensure pervasive and uninterrupted connectivity and bandwidth and the convergence of technologies in our day to day lives as the world faces a pandemic with unforeseen global impacts.

The world is changing quickly and doing business is more difficult than ever.

Jabil has a distinct advantage in this environment not only does our diversified portfolio of end market experience and expertise keep our business sound and dependable, but our customers can also take advantage of our diversification and industry leadership to bring innovative solutions to their customers.

With over 260000 of the most talented people in the industry, we strive to be the most technologically advanced and trusted manufacturing solutions provider.

We combine an unmatched breadth and depth of end market experience technical and design capabilities manufacturing Knowhow supply chain insights a global product management expertise to enable success the world's leading brands. All of this is made possible because our talented dedicated people around the world.

An environment, where everyone can be their true authentic selves, our entrepreneurial spirit goes beyond the business and can be seen in the way each of our 100 plus sites choose to make a difference in the communities, where they work and live.

And while our efforts our locally driven the impact is global.

Throughout the world Jabil uplift people and underrepresented communities by providing opportunities, giving individuals the tools to overcome challenges and achieve success.

He will believes people with disabilities deserve opportunities to shine bright and realize their true potential.

<unk>, our commitment to inclusivity in the workplace, and we believe and preserving our environment for future generations.

Our sites actively participate and reforestation coastal habitat restoration litter removal and recycling programs around the globe.

Our diverse and talented people really are our biggest differentiator.

Everyone's voice is heard and we worked for each other our communities our customers and our shareholders to make anything possible and everything better.

Such a great video.

As we all know the world is complex and only getting more so each and every day.

But as Mark often says our people are our greatest differentiator and that couldnt be more apparent as you visit our global network of factories and meet the roughly 260000 people that make Jabil is foundation so strong.

Two our people. Thank you again for all you do to help keep the world connected despite a seemingly never enlists set of new challenges thrown your way.

Our foundation is solid.

Over 50 million square feet of manufacturing space, and 100, plus sites, our people strive to make anything possible and everything better for over 400 of the world's most recognizable brands.

Our agility and global scale enable us to respond quickly and flexibly to meet customer needs in key end markets like mobility industrial and semi cap.

The motive and healthcare just to name a few.

These wide ranging end markets represent a diverse and thoughtfully designed portfolio.

That over the years has helped reduce volatility and improve the reliability of our financial results.

To help illustrate our diversification strategy over the past few years.

I'd now ask that you turn to the next slide which shows our revenue growth in the end markets we serve.

As you May know the EMS industry has long struggled with customer concentration and this dynamic has created a lot of variability in operating performance from one year to the next.

Okay.

In 2016.

Our management team concluded that our model was missing an important characteristic if we're going to deliver upon our financial priorities consistently and sustainably.

This important characteristic was product diversification.

Yeah.

So beginning roughly in the 2017 timeframe, we embarked on a journey to grow and diversify our business in areas such as <unk>.

Cloud.

Healthcare packaging.

<unk> devices automotive and semi capital equipment.

As a result of our efforts to diversify the business revenue has grown rapidly and.

And since 2017, we have added more than $10 billion in revenue across several key end markets.

And it's important to note. This growth has been very intentional and focused.

Moving to the right side of the chart Youll see the composition of our $32.0 billion in revenue and you'll likely notice at no end market dominates our diverse portfolio.

In each of these areas Jabil partners, but some of the worlds most recognizable companies to accelerate their speed to market through product engineering supply chain design and of course manufacturer.

And healthcare think of drug delivery systems, such as inhalers, and insulin pens diagnostics medical devices, orthopedics and instruments that all meet exacting FDA standards.

Our healthcare business serves programs and products with long stable life cycles of 10 to 20 years with high cost of change, thus, providing stable earnings and cash flows in packaging, we design and manufacture highly engineered rigid plastic packaging for many leading consumer brands.

Bringing to bear capabilities, and ideation product design material sciences, and eco friendly barrier technologies.

Within mobility and connected devices.

We generally focus on machining tooling and molding of highly engineered plastic and metal parts, leveraging our strong product development skill set.

In areas, such as digital print and retail we're focused on three D printing large form factor printing and retail automation.

And in industrial and semi cap <unk> wireless in cloud and networking and storage we participate in the design product development industrialization and manufacturing of some of the most sophisticated.

<unk> products on the marketplace today.

And then in automotive the bulk of our business focuses on the electrification novato supported by a nearly 10 year relationship with the world's leading economies.

Okay.

So from a mobility to retail automation to complex heavy industrial equipment Jabil helps customers navigate large complex materials supply chains, while effectively managing change mitigating risks.

And delivering quickly and efficiently.

In summary, our business has grown rapidly over the last several years to serve a diverse blend of end markets that today are benefiting from long term secular trends.

And again this gives us the confidence and comfort to not only provide financial guidance more than one quarter out, but also invest in things like factory utilization.

And when you drill down one level deeper.

Then noticed an incredibly diverse set of customers representing some of the largest most innovative and successful organizations in the world today.

This by no means is a complete list of the customers we serve.

Certainly impressive by any standard, especially when considering many of these customers rely on jabil as the sole source for their products.

I'm sure most of you will recognize some of our incredible partners such as Apple HP Ericsson, Amazon Cisco, John Deere Tesla and J&J.

In all of our customer relationships, we're incredibly focused on delivering consistent value and reliable value from early in the product lifecycle like product innovation and design.

The more mature products, where we offer planning automation supply chain management and of course manufacturer.

At the end of the day, we build stuff that Jabil and we do it really really well.

This leads me to our financial priorities as a management team.

We're squarely focused on three areas expanding operating margins increasing earnings per share and generating strong cash flows.

In fact, this focus has been further sharpened as we've embedded core margins core earnings per share and free cash flow within our short term and long term compensation programs as we believe this effectively aligns management and shareholders.

And over the next several minutes, we plan to provide you with a credible plan to improve all of these three metrics in fiscal 'twenty two.

Following me today will be Mike who joined <unk> in 2000 is a regional controller based in Hong Kong.

Mike will walk you through our fiscal 'twenty, one results and our robust financial plan for fiscal 'twenty two.

He will also spend some time, highlighting our end markets and discussing some of the trends, which should drive our business for many years to come.

Denmark, who joined Jabil in 1992 was a manufacturing supervisor will share some of the value that <unk> provides its customers through our people our culture and our best in class manufacturing capabilities.

Before handing the call over to Mike I'd now ask that you follow our presentation with the slides on the website beginning with our forward looking statements.

During today's presentation, we will be making forward looking statements, including among other things those regarding the anticipated outlook for our business in the first quarter of fiscal 'twenty two and beyond.

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 Mike.

Thank you Adam and thank you for joining us today and for your interest in Jabil.

As Adam highlighted our business model is fundamentally structured to deliver core margin expansion and strong predictable cash flows and our capital structure has been optimized to maximize our flexibility.

Flexibility is enabled us reshape and market portfolio over the last several years and in the last 18 months our strategy has been pressure tested.

And our diversified well balanced portfolio performed extremely well evidenced by our solid Q4 and exceptionally strong FY 'twenty one results.

In Q4, the teams in both segments successfully managed to navigate an incredibly dynamic supply chain environment.

During the quarter demand continued to be broad based and robust, but revenue came in slightly lower than expected due to some incremental tightness in the supply chain, mainly in healthcare industrial and cloud.

This was partly offset by upsides and connected devices and networking and storage.

Despite this our core operating margin performance in the quarter was quite strong coming in at four 2% approximately 10 basis points higher than expected.

A testament to our team's execution in the quarter solid cost optimization and <unk>.

<unk> resilient end market portfolio.

In Q4, our interest and tax expense also came in better than expected, which when combined with strong margin performance.

Loud us to deliver strong core diluted earnings per share in Q4.

It all together on the next slide.

Net revenue for the fourth quarter was $11.0 billion up 1% over the prior year quarter.

GAAP operating income was $265 million and our GAAP diluted earnings per share was $17.0

Yes.

Core operating income during the quarter was $314 million, an increase of 23% year over year.

Representing a core operating margin of four 2%, a 70 basis point improvement over the prior year.

Net interest expense in Q4 was $36 million and poor tax rate came in at approximately 22, 3%.

Core diluted earnings per share was $1.44 of 47% improvement over the prior year quarter.

Now turning to our fourth quarter segment results over the next slide.

Revenue for our Dms segment was $12.0 billion, an increase of nine 7% on a year over year basis.

The strong year over year performance in our Dms segment was broad based with strength across our healthcare automotive and mobility businesses.

For our margin for the segment came in at four 1% 20 basis points higher than the previous year.

Revenue for our EMS segment came in at $8.0 billion down six 4%, primarily driven by a previously announced transition to a consignment model.

Core margin for the segment was four 3% up 120 basis points over the prior year.

Reflecting solid execution by the team.

For the year, our Dms segment revenue was $19.0 billion, an increase of 17% over the prior year.

While core operating income for the segment was up an impressive 49% year over year.

This resulted in core margins, expanding 110 basis points to four 8% reflective of our improved mix.

In EMS for the year core margins were also up strong coming in at three 7% 100 basis points higher than the prior year on revenue of $22.0 billion.

Turning now to our cash flows and balance sheet.

Net capital expenditures for the fourth quarter with $202 million and for the full fiscal year came in better than expected at $793 million or two 7% of net revenue.

We sometimes hear from investors seeking clarification on our net capex, so I'd like to take a moment to walk you through the components.

As a reminder, our customers sometimes call invest in plant property and equipment with us as part of our ongoing business model.

We opened before these co investments upfront, which is then subsequently reimbursed to us by customers.

Yeah.

The line item acquisition of property plant and equipment on our statement of cash flows includes the full upfront payment made by us.

The reimbursements by our customers are reflected as a sale of assets in the line item proceeds and advances from sale of property plant and equipment on our statement of cash flows.

The net of these two items reflects our true spend and what we refer to as net capital expenditures.

In Q4 inventory days came in higher than expected at 71 days, an increase of three days sequentially driven by the previously mentioned incremental tightness in the supply chain.

While these higher inventory days may continue in the short term, we expect it to normalize below succeed over the mid to longer term.

The management team continues to be fully focused on this metric, particularly in the current environment.

In spite of this our fourth quarter cash flows from operations were very strong coming in at $762 million.

As a result of the strong fourth quarter performance and cash flow generation adjusted free cash flow for the fiscal year came in higher than expected at approximately $640 million.

We exited the quarter with total debt to quarter greater levels of approximately one four times and cash balances of $7.0 billion.

During the fourth quarter, we repurchased two 9 million shares, bringing total shares repurchased in FY 'twenty, one to eight 8 million shares of $477 million.

This brings our cumulative shares repurchased since FY 13 to approximately 90 million shares at an average price under $27, bringing our total returns to shareholders, including repurchases and dividends to approximately $3 billion.

<unk> of our ongoing commitment to return capital to shareholders.

In summary, I'm extremely pleased with the resiliency of our portfolio and sustainable broad based momentum underway across the business, which has allowed us to deliver exceptionally strong results in fiscal 'twenty one.

Next I'd like to take a few moments to highlight <unk> unique position across multiple end markets benefiting from long term secular trends and the convergence of technology in our day to day lives.

We believe these trends will continue to drive sustainable growth and margins across the enterprise in FY 'twenty two and beyond.

In healthcare today on the next slide.

The industry is undergoing tremendous change due to rising costs aging populations the demand for better healthcare in 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 continue to be in the early days of outsourcing of manufacturing in the healthcare space.

Our strategic collaboration which we have highlighted in previous years as enhanced our credibility within the industry and is further enabled jabil to benefit from this outsourcing trend.

On top of this we're also seeing the impact connectivity digitization and personalized clear across healthcare.

I expect these trends to accelerate over the next few years.

Deep domain expertise within the healthcare industry uniquely positions us to build technology enabled products, which help our customers excel in today's evolution of healthcare.

Another end market experiencing a rapid shift in technologies as the automotive market.

Climate change fuel efficiency and emissions are ongoing concerns and regulatory policies worldwide are beginning to mandate more eco friendly technologies.

As a result, Oems are making substantial investments into vehicle electrification efforts.

The bulk of our automotive business is focused on electrification of cars, which we believe still has plenty of room to grow.

Over the next three years, we expect the best is growing area of our auto business will be in what's known as ace.

Autonomous connectivity and electrification.

Today electric vehicles account for a small fraction of total vehicles in the market.

But the EV segment overall is growing rapidly and gaining the largest share of the total vehicle market.

Cable as long standing capabilities in over 10 years of experience and credibility in this space.

Position us extremely well to benefit from this ongoing trend.

We are also extremely well positioned to build the infrastructure that will power tomorrow.

Paid cloud semi cap <unk> infrastructure and the associated connected devices, all power generation and energy storage.

<unk> is expected to transform the way we live work play and educate.

As the underlying infrastructure continues to rollout <unk> adoption is accelerating.

Jabil is well positioned to benefit from both the worldwide infrastructure rollouts and with the 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 office to cloud Hyperscale is helping us gain market share in an expanding market evidenced by the significant growth over the last three years.

In power generation and energy storage, we offer differentiated solutions across the entire energy value chain from energy generation.

Power conversion transmission storage and metering to the management of power inside of homes and buildings.

In this space, we serve a diversified set of customers across numerous markets, including oil and gas wind.

Our Americas and converters smart meters smart good communications building automation home automation and energy storage.

As the convergence of technology in our day to day lives accelerates demand for semiconductors has increased exponentially, which has generated a huge backlog in this industry.

Jabil is well positioned to help customers in the semi cap space with end to end solutions spanning the front end with design and complex fabrication equipment, along with the backend with validation and test solutions. So what do all these trends translate to in terms of Jabil.

You can see our revenue growth expectations by end market in the coming fiscal year.

In FY 'twenty two in spite of supply chain headwinds, we expect incredibly strong growth in automotive and continued solid growth in healthcare and packaging industrial.

Semi cap <unk> wireless and cloud.

Today, both segments are in great shape.

We've repositioned our business to serve critical and long lifecycle products. While also providing the foundation for predictable you had strong cash flows and margins.

For FY 'twenty, two we expect both gross profit margins and core operating margins to improved 30 basis points over the prior year.

Mainly driven by our end market growth and improved mix of business.

We also expect the investments we made in areas such as.

Automation and factory Digitization will drive improved optimization across our footprint, which will translate to higher margins.

We expect these gains will be slightly offset by continued tightness in the supply chain, especially in the first half of our fiscal year.

However, we're incredibly confident in our team's ability to successfully execute in this market given our track record over the last several years.

Key to executing amidst an incredibly dynamic environment as our expertise and the investments we made in our it and supply chain.

We've got the tools and technologies that allow us to progressively manage with analytics and data some of the most complex supply chains in the world.

This has certainly been evident over the last two years.

Let's hear from our supply chain leaders and how they're executing for our customers.

Jabil is uniquely positioned because we are an essential manufacturing solutions provider to the world. We do this on a global scale and we have the benefit of more than 50 years of experience to draw from.

And because we are comprised of individual business units.

But we our hypermarket focus folks that were taking advantage of jacobs' aggregation and orchestration capabilities.

Simply said.

Got experience expertise.

<unk> ability to architect the most efficient and effective supply chain in the world.

Our strategic investments in tools and technologies allow us to proactively manage global supply chain with data analytics speed and resiliency.

We are privileged to serve over 400 of the most premier Brian customers.

While we have access to the latest innovative products and component E. Tailers. So when we interact with our supply base, we do so with a worldview.

Very unique and not benefits jabil and of course our customers.

That's the value of an aggregator like Jabil as manufacturing solutions provider, we see the world. We can move at the speed that the value can be created and we don't have to make a new investment every time.

We're positioning our business at the speed that business changes.

We've invested in infrastructure.

INR shooting, our suppliers and customers with speeds successful outcomes.

We have a global commodity monitoring organization facing our suppliers each and every day and therefore, we are in the market each and every day.

During those collaborative discussions we're talking about our allocation, we're talking about pricing and we're talking about technology road bonds.

So we have higher than the <unk> from the 95 chain solutions provider space that deep rooted knowledge all bought perpetual market while at the same thing with complemented those individuals with the hiring of component specialists, so having that balance between experience on <unk>.

<unk> solutions provide a site as well as the component manufacturers is really something of a differentiator in this market.

Okay.

I think one of the things that.

Really makes a difference in terms of the jabil relationship with our customers is our ability to really take this challenge use our processes our people our tools, our global footprint our experience in multiple markets to come up with collaborative solutions that really will.

Help improve the performance address the challenges that we have in the market and really make a difference in terms of delivering product to the customer when they want it.

There is a disruption around commodity supplies logistics of global economic Bon tons Jabil spreads on access advanced tools subject matter expertise can truly help our customers respond speed agility.

<unk>.

Okay.

I would like to take a moment to thank the entire supply chain team from the leaders. We just heard from to our teams in our factories, who have helped our customers navigate through some very complex supply chains.

Turning now to our Capex guidance for FY 'twenty two.

Net capital expenditures are expected to be in the range of $830 million or two 6% of net revenue.

This will come through a combination of both maintenance and strategic investments for future growth.

Let's talk about our maintenance capex for a moment.

We now have 100 sites in more than 30 countries.

At this scale, our factories require approximately $500 million in annual maintenance investments.

Areas of investment inclusive.

And data analytics automation and factory, Digitization, which will drive innovation across our footprint.

This along with upgrading of our equipment sets based on appropriate cost benefit analysis will improve first pass yields and.

And help reduce ongoing maintenance costs.

We're also investing in strategic growth in targeted areas of our business that are expected to deliver strong margin expansion and free cash flow.

The bulk of our strategic growth Capex will be in the healthcare automotive <unk> wireless power generation and LNG storage semi cap and eco friendly packaging end markets.

All of this positions us well to deliver higher margins as highlighted earlier in my margin waterfall slide.

Our improved profitability strong operational performance and disciplined investments have yielded significant cash flows over the last few years, which has allowed the company to strategically invest in higher return areas of our business.

Moving forward, we expect to continue generating strong cash flows in spite of higher working capital associated with our robust growth in targeted areas I highlighted earlier.

This was possible as a result of earnings expansion, along with our team's disciplined approach and ability to execute.

In FY 'twenty, two we expect to generate adjusted free cash flow of $700 million.

As I mentioned earlier, we have intentionally targeted higher return areas.

And doing so with focused on end markets that offer higher profitability and good cash flow dynamics.

This discipline has translated to much higher returns on invested capital.

Moving forward, we will continue to prioritize investments in areas of our business with higher margins.

We expect will translate into strong returns.

Other key aspect of delivering higher returns and delivering long term value to shareholders is ensuring our capital structure is appropriately balanced and optimized.

Over the last few years, our team has done an outstanding job of building, a solid and flexible debt and liquidity profile with current maturities appropriately staggered and at very attractive interest rates.

We ended FY 'twenty, one with committed capacity under the global credit facilities of $11.0 billion.

With this available capacity along with our year end cash balance Jabil ended the year with access to more than $8.0 billion of available liquidity, which we believe pauses ample flexibility.

And importantly, we are fully committed to maintaining our investment grade credit profile.

Turning now to our capital allocation framework.

In fiscal 'twenty, two and beyond we expect to generate significant free cash flow.

Given this dynamic I thought it would be appropriate to reiterate our capital allocation priorities and at a high level, how we plan to deploy our capital over the next two years.

As a reminder, in July earlier, this year, we announced a $1 billion buyback authorization from our board of directors over the next two years.

Our capital return framework beyond organic investments will continue to prioritize the commitment to our dividend share repurchases and a combination of targeted M&A and capital structure optimization.

Moving forward, we are comfortable with our ability to generate strong cash flows and we will remain balanced and thoughtful and how we allocate our capital.

Turning now to our first quarter guidance on the next slide.

The EMS segment revenue is expected to increase 10% on a year over year basis to $11.0 billion, while the EMS segment revenue is expected to be $9.0 billion.

Consistent with the prior year.

We expect total company revenue in the first quarter of fiscal 'twenty two to be in the range of eight to $14.0 billion.

Or operating income is estimated to be in the range of $365 million to $425 million.

GAAP operating income is expected to be in the range of $321 million to $381 million.

Core diluted earnings per share is estimated to be in the range of $71.0 to $91.0

GAAP diluted earnings per share is expected to be in the range of $41.0 to $62.0

The tax rate on core earnings in the first quarter is estimated to be approximately 25%.

As we transition to our final slide you can really begin to see the earnings power of the diversified and balanced jabil.

Today, our business serves a diverse blend of end markets in areas that provide confidence in future earnings and cash flows.

We have deep domain expertise complemented by investments, we've made and capabilities.

All of which gives us confidence in our ability to deliver four 5% and core margins in FY 'twenty, two along with $41.0 in core EPS and $700 million in free cash flow.

And importantly, our balanced capital allocation framework approach is aligned and focused on driving long term value creation to shareholders.

Yes.

I'd like to thank you for your time today and thank you for your interest in Jabil.

I'll now turn the call over to Mark.

Thanks, Mike.

Good morning.

I appreciate everyone, taking time to join our call today.

I'll begin by saying thanks to all of our employees here at Jabil.

Thank you for hanging in there during these trying times.

While never compromising the safety of our people.

Your attitude is amazing.

And your stamina is incredible.

It was your collective body of work.

That drove the terrific results, we just posted.

Results you delivered.

While overcoming.

Covid quarantine mandates.

Supply chain challenges.

Factory inefficiencies.

And in many cases.

A lack of face to face interaction.

Fiscal 'twenty one came in well ahead of plan.

Resulting in a core operating margin of four 2%.

All in all.

A really nice year across all fronts.

Today marks our fourth annual Investor session.

Assertion.

Where we take a little extra time.

To lay out the groundwork for the upcoming year.

As you heard earlier from Adam and Mike Our business is strong.

And what we're doing is working.

Much of our progress comes from the construct and the pedigree of our company.

So let's start with our approach.

Beginning with diversity equity and inclusion.

We know that each employee is critical to our success.

And has the right to be treated with dignity.

And respect.

Each day and every day.

At Jabil.

We operate our business in 30 plus countries.

We employ people that don't look the same don't talk the same.

People that practice different religions.

Have different sexual orientations.

People with physical limitations.

And narrow diversities.

We understand that the current diversity of our team simply makes us better.

But we have so much more work to do.

And we're holding ourselves accountable through actions.

An example of the type of actions we're taking.

Is the addition of our internal Eni Council.

Which was established in 2020.

A nine person council.

Which guides us and advocates for the broader jabil.

We also co chaired an external DNI certification program.

Our program attended by 165000 participants.

Of which the vast majority earn their formal certificates.

And one other example is around the upcoming 2022 Special Olympics.

Where jabil is a premium sponsor for the U S games.

And the best part of our partnership with Special Olympics.

Is that it offers our employees the opportunity.

To spend time with athletes and their coaches.

So in summary.

Our team continues to safeguard our work environment.

And does so with the acceptance of individual differences.

A second aspect of our approach pertains to the area of ESG.

Where we aim to always do what's right.

Much like our effort with DNI.

Our behavior around ESG is grounded on actions.

An example of one of our actions is our greenhouse gas emissions.

Where our goal is a 25% reduction by 2025.

And a 50% reduction by 2030.

Another set of actions that we have underway.

Are directed towards our heightened focus on mental health.

A topic that impacts most all of us either.

Either directly or indirectly.

And one final action worth mentioning is our commitment to giving back.

Our employees well.

We'll look to complete 1 million volunteer hours in aggregate.

During calendar 2022.

What a positive difference this will make.

Throughout the communities, where we work and we live.

As you might be.

<unk> and ESG.

Are important elements of who we are.

And they set the foundation for our approach.

Next.

I'd like to talk about our solutions and how they are enabled by our structure.

Our investments and our customers.

Our structure enables our collaboration.

Which allows us to move with precision and speed.

Our investments enable our execution.

Which allows us to take the ordinary and.

And apply the extra ordinary.

And our customers enable our obsession.

Which allows us to solve the complex.

So not to be overly simplistic.

But at the center of Jabil score, we build stuff.

That's just what we do.

Therefore, we'll continue to be aggressive with our investments in the areas of factory automation.

Robotics and machine learning.

And to help illustrate how we apply and leverage these investments.

Now I'd like to share a short video.

Okay.

Okay.

My role at Jabil is ensure we have the world's best and most progressive factories.

At Jabil, we are implementing solutions that bring significant value to customers today and set us up to continually advance technologies progress.

The future of our manufacturing will be shaped by strong digital connectivity and the use of big data having.

Having complete process control traceability and predictability.

And skilled employees, who work safely alongside machines second learn thinking that we're delivering this future by applying emerging automation and digital technologies to our production systems and to the entire value chain to build differentiated capabilities and enable a predictable self correcting environment.

Our operating model is enabling us to implement these new technologies with speed.

Standardized processes deliver consistency across every factory and an ability to aggregate and rapidly deploy improvements and innovation and this means we leverage our scale and the full power of our workforce and the benefits from one factory are felt by all.

Our integrated ecosystem is powering our journey as it brings together system to system integration machine to machine integration and data integration. This.

This level of integration enables access to data information and insights not previously available, which is delivering actionable business intelligence as well as standardization and control across hundreds of business process. This translates into the ability to quickly solve business critical issues accelerated deployments and factory startups.

Reduced application footprint and costs and the ability to run and optimize factory, while continually reducing non value added activities.

We're also well positioned to take full advantage of the increasing demand for automation, we have hundreds of certified automation engineers and technicians strategically positioned in our regional automation centers, which gives us deep technical confidence needed the design build integrate and implement full automation solution.

<unk> anywhere in the world.

Our proprietary flexible modular automation platform handles a variety of production processes and is reconfigurable and redeploy this means our jabil automation gear can be reused on different programs for years to come extending automation equipment life and improving asset utilization.

<unk> also developed completely autonomous material handling solutions from the production floor to the warehouse, we're leveraging automation to enable speed and maximum space and resources utilization.

One of the foundations of our manufacturing ecosystem as information technology.

Operations partners closely with our experts to develop and deploy the solution.

So the role that it can actually play is really truly transform and actually uniquely placed paper through use of technology through digital transformation, so actually named <unk>.

Operations technology, and <unk> together, so that we truly collaborating and working unit. So that we create the right solution for our customers.

We actually bring connectivity to the factory, while we connect machine.

Materials LNG. So those are the key things that we are connecting in the factory.

Is that the use of data the use of analytics the use of AI.

Acknowledged gene.

Into this factory store business.

Definitely how we connect you to add value from it to them.

Okay.

Our operation strategy builds on our strongest source of innovation the people working directly with these technologies and process.

There is a powerful relationship between employee engagement and digital transformation.

Our people at the center of our journey and actively engaging employees using their ideas. We can more easily incorporate new technology into day to day operations and become more digitally mature as a result of our initiatives and our operating model. We continue to realize year on year improvements from quality improvements to increase asset utilization.

We're realizing efficiency gains productivity gains and cost savings across the board.

We're on an exciting path as we continue to focus on delivering for our customers and the world's best most progressive backups.

Sure.

Yes.

Thanks JJ. Thank you may.

<unk> powerful messages.

And to all of our employees that spend long hours on our factory floor day in and day out.

Thank you.

Thank you for taking great care of our customers.

As we move to our next slide Youll see a colorful pie chart, which illustrates the current makeup of our commercial portfolio.

Today, our business is diversified.

And diversified its scale.

This provides jabil a real competitive advantage when we consider the performance and balance of earnings.

I'd now like to go a degree deeper into the makeup of our business.

These eight sectors exhibit the diversified nature of our revenue.

With each sector, having a material contribution to our results.

We've been very diligent in pursuing the end markets we serve.

We've also spent significant time successfully positioning the company.

The capture possible tailwind offered by various secular trends.

This portfolio is a wonderful mix of cash flows and margins.

And for sure.

The composition of our business is a catalyst for our FY 'twenty two outlook.

As we now look at our plan for fiscal 'twenty. Two you can see the earnings power of the company.

We look to deliver a core operating margin of four 5%.

On revenues of $36.0 billion.

A 30 basis point expansion when compared to fiscal 'twenty one.

This translates to $41.0

And core earnings per share.

We're 13% earnings growth year on year.

And wrapping up our fiscal 'twenty two forecast.

I'd like to note that our strategy is well understood across the company.

And what needs to be done is crystal clear.

If we take our FY 'twenty one results.

And our FY 'twenty two guidance.

And step back just a bit.

This aperture suggests that what we're doing is in fact working.

This slide offers a fantastic backdrop to our ongoing story.

Yeah.

All in all I feel good about where we've been.

But I feel even better about where we're going.

Moving on from our financials I'd like to talk a bit about our purpose.

As a management team we are a purpose that serves as our ultimate guideposts.

Our purpose enables our path.

And does so with an emphasis.

I'm carrying.

Integrity.

And proper intentions.

Speaking of our path.

Our path forward is formed by the beliefs shown on this slide.

For FY 'twenty two.

While trust and these beliefs.

As we work to deliver to our commitments.

For me, we'll measure our success based on financial performance.

But we'll also measure our success.

Based on keeping our people safe.

Customer care.

And improving in the areas of ESG and D. Eni.

If our team accomplishes all of the above.

It'll be another year of humble achievement.

One additional thought as I wrap up my prepared remarks.

As we consider our outlook.

For fiscal 'twenty two.

And the current trajectory of margins and cash flows.

It is clear that our journey is nowhere near complete.

In closing we've made tremendous progress.

As customers and shareholders remain at the forefront of our actions.

So our entire Jabil team.

Thank you for making Jabal <unk>.

<unk>.

Most importantly.

I want each of you to always be your true self.

Without fear or anxiety without harm or recourse.

I'm honored to serve such a trustworthy team.

With that I'll now turn the call back over to Adam.

Thanks Mark.

Plan, we shared quite a bit over the past hour.

To summarize.

We begin by describing how jabil has undergone deep and sustainable improvements to its business model.

And we highlighted the solid foundation upon which table sits to that.

And Mike Walk you through our financial results and outlook, which demonstrates the strength of our portfolio, which has been structured to navigate berry fluctuations in demand while also benefiting from long term secular tailwind.

And finally, Mark shared with you our unique approach solutions portfolio and path forward.

These truly are exciting times at Jabil I'd like to thank you for your time and we appreciate your interest.

Operator, we're now ready for Q&A.

Thank you at this time, we will be conducting our question and answer session. Our first question is coming from the line of Adam Tindle with Raymond James. Please proceed with your question.

Okay. Thanks, and good morning, Mark you talked about diversification and the secular trends auto healthcare cloud and I couldn't help but notice reference customers like Tesla J&J and Amazon. What's just wondering if you could maybe talk through the new customer acquisition efforts the sales motion to perhaps less leverage this reference customer list and if you can.

Maybe tap into pipeline and timing because I couldn't help but notice over 40% auto growth expected in fiscal 'twenty. Two I'm wondering if maybe there is some new logos in there. Thanks.

Thanks, Adam.

I don't want to get into we just now.

Over the years we.

May be right or wrong, we have are reluctant or hesitant hesitancy to dig too deep and enter new wins and new customer wins a lot of that is is it the beck and call it the customers themselves.

I would say this.

Just very very rough math right. If you look at if you look at kind of fiscal 19 to fiscal 'twenty.

We grew our topline at scale.

Like seven 8%. So in 19 were just a hair over.

25 billion, we took the company to buy.

Like $27 billion in 'twenty that was a COVID-19 year as everybody knows and we go from 'twenty to 'twenty one.

We had another $2 billion of revenues Thats, another seven 8% growth at scale and now if you take a look at the outright outlined that Mike and I provided.

Our outlook for 'twenty two is call. It 31.5 billion, that's another seven or 8%.

<unk> majority of those.

Those gains from say fiscal 2018 to fiscal 'twenty two are organic in nature.

And I would say that our organic pipeline continues to remain awfully robust again, we gave a lot of thought to.

The outlook and how we wanted to guide 22, we wanted to be sure we handicapped that appropriately for things.

Like the ongoing supply chain issues.

So.

When you think about when you think about the growth rates on.

Both Mikes I think Mike Mike had three areas where growth rates were double digits.

Automotive and transport transportation was one.

I think digital print retail was one and then.

The healthcare area. So and then right behind that we had we had other areas of growth of the eight sectors that were strong single digits sorry.

Maybe a way to think about that Adam is.

I would say our organic pipeline today.

On a gross basis is probably four or $5 billion.

Yes.

Again, as we think about fiscal 'twenty, three and the maturation of how long it takes to kind of terminate all those organic opportunities but.

If we were to give you that up I think I think what you'd see is as we got pretty good growth across across the board or at least <unk>.

Six of the <unk>.

<unk> sectors and I do think I think.

I feel like a grossly overused Tom.

The world today is a secular trends it seems like it's kind of like back in the day with Iot and Digitization and other things I think I think it's used a lot, but I think.

Mike Mike did a really nice job of hitting some secular trends that at least for our business, where we sit today are very very real and we think we will.

All things being equal will provide some nice tailwind for us for the next three years.

Got it.

Mark Thanks, and just maybe as a follow up Mike I wanted to touch on normalized free cash flow I know, you're guiding to $700 million for the year, how much is related to supply constrain our working capital because I think if I back into your net income guidance, it's over $900 million. So wondering how to think about normalized free cash flow.

Very good.

One element.

Light chain constrains and the impact on inventory, yes included in that $700 million now.

Thank you.

You better look at it from a growth perspective, as well we are growing revenue by <unk> 2 billion.

Cutting out into 'twenty two.

That comes with associated working capital as well so for US to go from 640 to 700 in spite of US growing revenues by <unk> 2 billion or 8%, it's pretty healthy and I think the management team is fully focused on free cash flow loss I think I would look at our working capital looking at Capex.

700, and then go higher if things.

Loosen our grip a little bit on the supply chain constraints are absolutely, but at this stage $700 million in pretty strong free cash flow number I think.

And Adam if I could interject I think I think in listening to Mike respond to that.

If you do think about if you do think about the growth we've been on largely organic working capital needs and then you do think we've gotten a little bit fluffy on.

And inventory based on the supply chain challenges as that stuff kind of plays out through fiscal 'twenty two.

If we could imagine fiscal 'twenty three.

There is an opportunity in fiscal 'twenty three for us to deliver even stronger cash flows.

Yes, that's exciting and well look forward to that thank you guys I appreciate it.

Yes. Thanks.

Thank you. Our next question is coming from Steven Fox with Fox Advisors. Please proceed with your questions.

Thanks, Good morning.

Mark you guys took a much earned victory lap on the diversification story with the presentation.

So I was just curious as we think about diversification going out maybe 234 years.

How do you think your mix changes and what would the impact on operating margins and then I had a follow up.

I don't know.

To try to speculate how it changes I would tell you that.

We have no intention of.

We've been we've been on we've been on a journey for 567 years, we've talked repeatedly about the fact that.

Back six seven years ago, and I think Adam alluded to it which I really liked in his prepared remarks in terms of.

Historically in our industry and any industry has changed substantially.

But but.

EMS companies would get overweighted on a single customer and I think with that comes risk.

I look at that I look at the job our team has done and.

It's unbelievable.

In this one area for sure and.

You look at that Pie chart that debt.

We put up during the presentation.

We think diversification is so important.

Again, just because it.

It's absolutely drives resiliency, how that might look how might that look 345 years from now.

I can tell you that.

It'll look however, it needs to look for us to continue to.

Drive margins and cash flows and when you when you look at our business today and you go back to that Pie chart in the presentation.

There are some slices of that pie chart that that deliver both margin and cash flows. There is some parts of that pie chart that deliver very strong cash flows and support margins and then theres other parts of that Pie chart that.

Deliver really good margins and support cash flows so.

When I think about the collective tie if you will.

Boy It has is positioned really well in.

I do think that hangs with us for.

For the next 234 years.

Great that's helpful.

And then just secondly.

At the risk of using the word secular trend, but the <unk> trend is pretty strong, but your connectivity in mobile mobility markets. It doesn't look like you're looking for much growth. This year I was just curious if you could tie those points together.

Explain that a little bit more thanks.

Yes, I think I think there's a couple of things going on there.

Depending on whether youre looking at a proxy of <unk>.

19, 'twenty to 'twenty, one 'twenty, two where youre looking 'twenty one to 'twenty two.

One thing that we've transitioned to an.

And that sector is a consignment model again at should have that'll play out by the end of <unk>.

'twenty one early 'twenty two so.

And then overall I think one of the things thats going on in that marketplace is.

I think we're doing a very very good job in terms of our solutions and services.

To Hyperscale and cloud, but the other thing thats going on there is.

We were a very very material.

Partner in terms of wireless infrastructure.

And so and some of that as infrastructure comes forward theres going to be kind of a swap out of our conversion from legacy to <unk>, LTE et cetera to <unk>. So on a net revenue basis.

Maybe the growth rates won't be as reflective as maybe what you alluded to is.

For sure <unk>.

Cloud based infrastructure.

Would agree with you and.

I think it is a secular trend.

But in time in terms of Jabil portfolio, there's going to be kind of a swap out or a conversion of hardware. So.

I don't I forget the number that might put up but I think the growth rate in that area was like.

Strong single digit switch, which by the way we really like.

But I think Thats. The main reason for it. We are we are positioned very very well for anything to do with <unk>.

Wireless <unk> cloud infrastructure type of secular trends, we're positioned very very well.

And Steve if I could just add a little bit.

The other piece.

Ill.

Ill, let lindsey and pushing for diversification as a company has been pushing for diversification from a product.

Fine.

We think we're getting there our outlook being extremely disciplined on capex.

And now on.

Free cash flow, so I think.

Other key piece the lack of growth.

Uh huh.

This is something we watch very carefully and it's something we're actually pushing towards.

Great that's very helpful. Thanks again.

Thank you.

Thank you. Our next question is coming from Jim Suva with Citigroup. Please proceed with your question.

Thank you regarding the challenges in the supply chain kind of where you sit today is it kind of stabilizing a little bit or getting incrementally better or incrementally more challenged and the reason why I ask is hopefully COVID-19 at some point gets behind us.

But you also know here.

Discussions about power outages in China, and rationing of power and things like that are those impacting you or how should we think about that and relative to your outlook as it kind of the same amount of cushion are you building in a little bit more thank you.

Thanks, Jim.

Yes.

I don't know where to start with that I would say we've.

We have indexed through 'twenty one.

You take a look at every every single quarter, Mike can I get together, along with Steve <unk>, Mike Parco Kenney Wilson, our apps group and we kind of hold hands look hard hard at the business and then.

Risk adjust accordingly give guidance and then and then and then work really hard to deliver to our guidance and our commitments.

And we did that really really well Q1, Q2 Q3 and in fact, we kind of topped off revenue.

To the upside in each of those quarters.

Q4.

If I look back on that.

We should have risk adjusted a little bit.

Differently back in June, but boy, we certainly felt good about our guide and then what happened Jim is.

Literally.

Two or three weeks after our call in June.

The supply chain issues inside of our <unk>, just we saw incremental tightness and I think Mike use that term and I think that term is very reflective of exactly.

Kind of the situation and the way the world look to us as we as we March through most of the fourth quarter.

As we sit today.

And and and we gave a lot of very very careful thought in terms of our outlook for 2002.

The $36.0 billion that we have in our outlook for.

22, again, a seven 8% upside to $41.0 in core EPS against a substantial uplift to the $5 $121.0 for 'twenty one.

The cash flows and then I think as important or more importantly than any of those is the four 5% margin and the trajectory and margins.

We spent a lot of time talking through.

Covid Covid variance, we spent a lot of time talking through.

Single element of supply chain risk.

And we did our best to handicap that.

So.

When does the fever break on that it's really hard to tell because I think it's going to be a combination of.

The demand and the supply side does demand start to soften a bit that is the supply start to strengthen a bit and theirs.

There is a significant amount of variables there.

That we think about it is we think we think our first quarter and second quarter of fiscal 'twenty two.

We're going to still see tightness about equivalent to what we saw in the last two months of 'twenty one.

So very tight very tight.

Supply in components.

Q1, Q2 of 'twenty, two we think that.

Our estimate is and.

As Frank Mackay said in our in our supply chain video that you just saw I think our team I think our team is rated well to have strong opinions on the supply chain because of the 400 customers. We serve are geographic landscape.

And just the amount of overall parts, we buy I think that I think.

Things will start to maybe move in a better direction as we get into.

The back half of 'twenty two.

We're by no means suggesting that the supply chain is back to normalized levels by the back half of the year, but again.

Just to be repetitive because I think it's that important Q.

Q1, and Q2, we've kind of handicap those with the same level of tightness that we experienced in July and August as we rounded out FY 'twenty one.

We think things will get a bit better as we get into the back half of 'twenty two.

If demand holds and we're and we're working through this solely on the supply side than I would.

I would think that.

We don't see normal conditions in the supply chain until we get into.

Maybe the first half of 'twenty three of the way things sit today.

One thing the one thing Jim.

And I think I think Mike said this in.

Gary in his prepared remarks, when we showed the supply chain video for us to for us to have delivered a year in 'twenty one where.

Top line was up seven 8% in this marketplace.

Congrats to the entire team but.

Boy the the.

The job our supply chain folks have done in the last six to eight months as is outstanding.

Sure.

Thank you so much for the details.

Yes, Youre welcome. Thank you.

Thank you. Our next question is coming from <unk> <unk> with Bank of America. Please proceed with your question Hi, and thank you for taking my questions.

I think I heard in the prepared remarks, something about changing the compensation program to focus more on operating margins cash flow and EPS.

Mark Youre guiding.

About 30 basis points improvement.

In operating margin overall for fiscal 'twenty, two and also to 31 plus billion.

In terms of revenues, but going forward should we take this as an indication that there is more focus now on margins versus revenue growth and in that vein can you remind us what is the long term.

Range for margins for Dms as well as the EMS segment. I mean, you are projecting 5% operating margin for Dms for fiscal 'twenty two how much more upside do you think there is in that segment and the same for same question for EMS three 8% margins in fiscal 'twenty two.

How should investors think about the long term.

Range for that segment.

Okay. There was a lot there let me think process for a second and figure out which order I want to try to address that so if I forget something bring me back because.

There was a lot of content in a short question.

Let me start with compensation.

I think we're a company led by our board and highly highly supported by myself and Mike.

Where.

We have a huge belief in pay for performance and.

I don't know, if Adam said change in comp or alluded to comp I wasn't listening that closely.

A portion of his prepared remarks, but.

For sure I think what Adam was communicating as is.

When it comes to our leadership team and our management team.

Yeah.

We absolutely want a significant amount of our compensation tied to the commitments, we're making to shareholders and customers.

And.

We've had that mindset for many years.

I think that what you would see in the forward proxy if I had to guess.

<unk>.

You will see another year, where the.

The commitments that we're making to everybody on this call on our shareholders specifically in terms of the four 5% margin the $700 million in cash flow.

And then the $41.0 in EPS.

I think youll see those.

Currently embedded in our compensation plans.

In terms of.

Where margins might go.

I think I think again as we've talked about many many times starting starting two years ago.

There is just a there is an intense focus on we love the portfolio that we have I'll.

I'll say, it again being well diversified with some of the greatest brands on the planet.

Across eight different sectors has given US a foundation inside the company that we love and with that foundation.

<unk>.

I don't know a goofy analogy would be built in the house.

You can have a really nice kitchen, and really firm walls. If you don't have a firm foundation. It doesn't last very long and I think I bring that up because.

Our commercial portfolio the way it exists today is really the foundation of the company and then you add to it some of the things that we talked about in prepared remarks, you'd look at our structure you look at our team. We look at our approach those would be the those would be the walls and the and the <unk>.

<unk> in the roof.

Of the Jabil House and.

From that I think that.

We took margins up we took.

When we were when we were when we were rebuilding the foundation.

Our margin ranges, where around the core op margins, where as an enterprise we're around three 5%.

And we came into 'twenty one.

It was a year ago, now, where we made a commitment and gave an outlook to everybody to say, we think we can deliver 4%. This year and we ended up delivering 20 basis points higher than that at four 2% and now we're sitting is saying, okay. We think we can stretch that 30 basis points in 'twenty two to get to four 5%.

And again I would suggest that all of that surround.

Just the foundational strength of the company.

Again, as well as solutions approach structuring team.

And then I said something to my prepared remarks around.

I think we've got I think we've got more to do and maybe maybe there is maybe there is two parts of that comment.

For sure we got a lot of hard work ahead of us to deliver what I think is a very appropriate outlook for 'twenty two.

So therefore, that's kind of.

Derivative number one of my comment on we got more to do but a big part of why I made the comment on more to do has to do with fiscal 'twenty, three and 'twenty four and.

I would like to see us and hope that that we can keep the positive trajectory on margins.

And drive margins past the four 5% in terms of.

Dms Dms I don't know I don't want to get into that breakdown now I think your math is I think your math is correct and I validated the math.

One of the Blue Green slides that I think the one I showed that.

We think diversify it'll be 5% this year.

Given a range to that I don't know.

We kind of have thoughts in our head and but I look at I look at the I look at the diversified.

Groupings of business businesses that Kenny and Steve Ron and.

We've taken that from three 7% in 'twenty, two and outlook now of 5%.

That expansion is tremendous and then you look at our legacy business, that's run by Mike <unk> and his team and we've taken that from two 7% and Thats and Thats all of EMS. That's our that's our that's our former high velocity business et cetera, et cetera, and now we're now now we've got about outlook of three 8%.

I don't know if we get there in 'twenty, two but but.

We keep doing what we're doing on the on the legacy and the EMS side of our business, which by the way.

I think I'm doing it a huge disservice to even use the word legacy because the business that we're running on the EMS side of the house today is distinctly different than it looked five years ago, but if things went right. There I don't see any reason why we can't run the electronics side of our business at at at at 4%.

So again yet.

You kind of do the math on a weighted average basis and all of that and I think you can get margins higher than four 5% going forward.

Great I appreciate all the details on that so thank you for that.

For my follow up if I can just ask Mike I think you guided.

<unk>.

Another $330 million I think for growth Capex this year.

Can you remind us like based on your existing infrastructure, how much revenue can that support today and then once you have that $330 million of investment what would be the Max revenue that your infrastructure would be able to support thank you.

Sure well the things we look at it from a from a different perspective, we look at it from an end market perspective.

Our end markets have deferring capex requirement is not just about existing capacity and forward looking capacity.

We've been on a journey, we're continuing on this growth path the secular trends are very much alive and doing.

Doing well in Jabil saw growth Capex.

And that 300 plus range.

Is what will drive our capacity going forward as well because it's all over the place replace the simplest answer.

Okay.

I'll put my hand on a particular high capacity lap this.

This will take us to X.

Of revenue.

Maybe I could interject.

I think I know, where you're going with some of that but.

One of the things that.

We had we had.

Some shareholders climate all over us five six years ago on.

Having strong opinions around our capital allocation.

Use of cash and some other things and that's our shareholders.

Should be and will be.

As I look at the landscape today.

I don't know of a time, where we've ever been more diligent and use of cash both internal capital investments Opex investments and then returns to shareholders. So here we sit here we sit in the current landscape.

A few weeks back we announced a $1 billion another $1 billion buyback I think I think capital returns.

To shareholders will always be part of our plans and our plans, especially for the next number of years and then I think about I think about.

The processes, we have inside the company today in terms of the diligence to which we allocate.

Capital internally and.

Again, these won't be exact numbers, but there'll be directionally correct, we're going from maybe historic square.

Our capex investments might have been $3 to $3 three.

Percent of revenue.

<unk> had a chart there somewhere that shows capex as a percent of revenue down at two six.

And I see no reason why while we might not even drive that a little bit.

Drive that a little bit lower but the other thing that we look at as is.

With those with that Capex investments with our EBITDA et cetera et cetera.

Again, the 700 plus million dollars of free cash flow and I believe Mike also shared a slide talking about are real ROIC.

All in.

Investments.

As is upwards of 30% so we.

We feel pretty good about.

How closely we're watching each and every penny in terms of both Opex and Capex investments.

Okay. Thanks for all the details and congrats on the strong execution.

Thank you.

Thank you. Our next question is coming from Shannon Cross with Cross Research. Please proceed with your question.

Thank you very much.

The inflationary pressures that are out there right now and how youre looking at managing them.

Whether it's head count or commodities or logistics.

As you look to next year as well as going forward how much do you think is transitory.

And how much do you think is here to say thank you.

Yes. Thanks for the question, it's a complicated one isn't it.

Think about half of the smart people that listen to suggest as transitory and have the smart people listen to.

Believe something different I think the way the way we are handling it inside the company as is.

We showed I would start with.

We showed a three videos and one of the videos was.

Around kind of the factory investments automation and factory productivity and I think.

Factory productivity is something we continually focus on when you think about the construct of Jabil today, you're talking about a company that has I don't know 55 million square feet of factory space all around the world.

So driving productivity driving cost optimization, it's just what we do it's integral to what we do it's.

And a lot of that effort here.

Year end and year out is.

Two to offset wage increase inflationary costs. It keeps us competitive it allows us to offer customers cost reductions when appropriate we.

We eliminate waste.

But the other thing thats happening with all of that is the fact that a big part of those efforts are also helping with our margin expansion. So again.

I think it was my response.

Either Jim or <unk>.

We will continue to obsess about taking great customers, great care of our customers and at the same time, keeping our people safe that's at the forefront along with the purpose that I talked about in my prepared remarks, if we do that.

Then I think.

And I think the financial returns come along with that.

But one of the things that adds a little bit of complexity to it as is.

Is the dynamics around inflationary costs I think that.

We've done a good job we've done a good job having long conversations around what we think those could be.

How much of that will be offset by.

By the factory productivity and cost management, I think we've been very aggressive going into 'twenty two in terms of our base cost because that's directly inside of our control.

<unk>.

And again I think that's that's fully embedded in our in our FY 'twenty two guide.

What we're what we're trying to do is is.

We're trying to do our part in serving our customers.

In an environment that at least currently has inflation embedded in it.

Whether that goes beyond 'twenty, two or not I don't know.

Okay. Thank you and then just one specific I'm, just wondering that 13% growth in digital print and retail.

That return.

A return to normal or what's driving that thank you.

I don't think its return to normal I think our digital.

Let me make a comment that'll be inaccurate in some ways, but I will give you an idea of where we're at.

What I'm trying to what I'm trying to get at.

A number of years ago, when we would talk about.

Print as.

As a as a business or a sector.

You would think about you would think about.

Print so you would think about.

Putting income paper in this that and the other and by the way that's still a very important aspect to that business.

But when we look at digital print and retail today.

There's a reason that that we use the term digital I think I said earlier, it's an overused term in so maybe were overusing it too, but I think it is so appropriate in this business sector from the standpoint of.

When we look at what's in that sector today along with.

Whether it be any type of office printing or large form factor printing I.

I also think about Digitization and mobile printing I think about <unk>.

Scanners and printing.

In terms of factory efficiencies.

If inflation is here to stay factory productivity warehouse productivity retail productivity is going to be hugely important because dollar for dollar all of that effort is going to help to offset passing on inflationary cost to customers, which for those businesses and those customers is going to be huge in terms of them.

Acting their cash flows and margins. So we're doing a ton in that area.

And then the other areas.

Fred Mccoy and his team who oversee that sector of our business Theyre doing a bunch of amazing things in terms of kind of the transformation going on in the retail space.

In terms of automation and again.

Overall productivity optimization and efficiencies, where the retail space connects with the consumer so.

Those are the areas that are driving growth in that sector.

Thank you.

Welcome.

Thank you. Our next question is coming from Paul Chung with Jpmorgan. Please proceed with your question.

Hi, Thanks for taking my questions. So.

You called out healthcare, where youre seeing acceleration from kind of a small penetration rate of in sourcing.

So given the kind of attractive margin profiles, there do you expect to see.

Continued structural step up in margins as we look further out beyond 'twenty two as this trend accelerates given it's kind of your your second largest segment today and then I have follow up.

Sure so.

Are we going to see a step up in margin I don't know.

What I believe is.

I think that there's a really good opportunity for a step up of margins. If we continue to do our job and the macro halls and blah blah blah.

I think I think I think we're I think we're not done it at enterprise level margins at four 5% and I think that you.

You stated.

It's interesting isn't it that in FY 'twenty to our healthcare and packaging business is now our second largest sector oh by the way.

That sector has doubled in size.

And in like three or four short years, So I think.

This gives me a nice opportunity to give a shot out to <unk>.

Steve <unk> and his whole team what they've done there and then the contributions we're getting from our consumer packaging team.

Thank you Tom.

Maybe maybe.

Mike or Adam alluded to this I think that.

There's a there's a <unk>.

Maybe a newer phone trust.

Between the most.

Most awesome healthcare brands out there.

Whether it be diagnostics, whether it be pharma, whether it be med device.

I think that whether it be whether it be by the way.

<unk>.

Personalized healthcare.

On body diagnosed diagnostics and tracking.

I think that there's a I think that theres, a newer found trust with the capabilities that a company like Jabil has today.

Which again are night and day compared to what we were doing six seven years ago.

Think that trust will open up more and more conversation.

Around.

Around opportunities were.

Maybe they'll look a little bit like what we did with J J M. D. I think the other thing that plays well for US. There is is if you can imagine.

Maybe hardware businesses.

That may be.

We take our experience and connected devices and sensors and things like that and we start leveraging.

Those parts of our business, along with our wireless expertise et cetera, et cetera, again for personalized health healthcare on body health monitoring.

And again individual medicine I think that also is going to drive continued growth in the healthcare space for us.

Okay, Great and then Mike on on free cash flow you've hit the highest level in four fiscal years.

Despite some higher than usual working cap drag nice Skype for for 'twenty, two and you mentioned some.

Baked in supply constraints, there so assume kind of some working cap.

Drag continues if you could talk about the puts and takes in operating cash in your view on timing of normalization.

Yes, I think like I said before I really feel comfortable with the 700.

Free cash flow guidance that we provided or 'twenty two.

Thanks.

The plan and our outlook and capital discipline in our Capex all of that continues our earnings potential is extremely strong and revenues growing by a couple of billion dollars.

And that comes with some level of associated debt looking capital I think over time as supply chain constraints normalize.

I expect the $7 million, a little higher if that happens sooner rather than later.

I think at this time, it's appropriately.

Rest of the $700 million level. It can go higher of supply chain constraints ease.

Alright.

I think that sort of growth level.

B would be possible beyond 'twenty, two as well.

Great. Thanks.

Thank you.

Thank you. Our next question is coming from Matt Sheerin with Stifel. Please proceed with your question.

Yes, Thanks, and good morning, Mark and Mike I wanted to get back to an earlier question regarding your strong guide for automotive for FY, 'twenty true, particularly against the backdrop of global production cuts due to the chip shortage. So that's more of a function of new program wins with existing or new customers.

And it's primarily around EV or are there other growth drivers there such as autonomous safety and entertainment or infotainment and any color you can add would be great.

Alright. Thank you said it well I think it's I think it's I think it's I think it's all of the above I mean, it seems it seems so incongruent.

That.

We can sit here, we can sit here in this environment and offer up.

For a presentation, which suggests that.

In all our auto auto and transportation sector is going to go from.

$2 billion to $2 billion in 'twenty, one and be over $3 billion in 'twenty two.

Maybe lacks logic.

In this environment, but I think you said it well I think.

Hey, I would start with.

We worked with Chad Morley and his team that run that sector.

And gave a lot of thought to how to handicap or risk adjust that for <unk>.

For 'twenty two.

We went through a lot of discussion points around.

Supply chain risk and for sure, there's there's risk around silicon and semi conductor.

Supply chain.

Headwinds in automotive as everybody on the call knows but in doing that we also looked at.

What kind of our current relationships new customer relationships.

And again I think.

I think a couple of positive variables there as well.

We started down a path probably.

354 years ago, where we over indexed hard towards autonomous driving and maybe more accurately.

Electrification of vehicles, I think Mike had a slide during his presentation.

And there is this this acronym ace that.

Mike alluded to.

If you go back and look at that particular slide because I think it's for a single slide.

There's a lot there and it's very illustrative of.

Of the areas that we're focused on both from an engineering standpoint or capability standpoint, a design standpoint. So you take that slide you combine it with some of the <unk>.

Mark key brands that.

Yeah.

That I think actually Adam showed on a.

On slide under automotive and transportation and I think.

You shake all that up in that because that's what gives us the confidence that automotive and transportation sector will be over $3 billion in 'twenty two.

Okay, Great Thats very helpful.

Then just for my follow up regarding your outlook for the networking and storage segment.

Youre modeling it down is that a function of end market outlook or.

Are you deemphasizing some programs that you are continuing to focus on higher value add higher margin areas.

It's both.

I don't want to I don't want to I don't want it all suggests that.

Networking and storage customers on higher value add I think.

That.

Even even though even though we're indexing networking and storage down.

I think from from from what was like 272.8 billion in 'twenty, one down to like two 6% and 22.

That's not that's not a reflection of.

Most of our customer relationships in that area that that sector.

It's still extremely material for us.

And.

And and more than anything that sector, although margins arguably are very tight in that sector for us. It comes off of some of the long lasting legacy brands the cash flows on that sector.

There are very good and again it has a very very integral part to our overall composition and forward looking for 'twenty, two and 23 in terms of appropriate contributions to.

The overall financial returns of the company so.

I think thats that kind of gives you an idea of why that might look like it looks.

Got it thanks very much.

Yeah Youre welcome.

Thank you. Our next question is coming from Mark Delaney with Goldman Sachs. Please proceed with your question.

Yes, good morning, and thanks for taking the questions a number of companies have talked about trying to improve the resiliency of our supply chain going forward.

Inventory management strategies, adding new suppliers, and so I think there'll be opportunities for jabil as a result of that.

Can you talk about to what extent youre expecting to see any benefits from some of those supply chain resiliency efforts.

In fiscal 'twenty two.

Supply chain still so tight 'twenty two that it can be hard to implement any any of those sort of improvement and that's perhaps more of an opportunity for <unk> in fiscal 'twenty three and beyond.

Yes.

Hum.

I think in the near term there is little to no opportunities because we're scratching colon fight and Diane and payout just two.

Get the parts, we need to build the products to hit our commitments. So.

In the near term, it's kind of <unk>.

Hand to hand combat in and very tactical in nature, Oh by the way.

If we're going to be in hand to hand combat and it's going to be very tactical in nature I'll take I'll take our supply chain team.

Everyday so so again.

I think that's kind of that's kind of the.

That's kind of the Fogginess on the horizon right now and I think.

I alluded to it earlier I think we're I think we're in that in that stage.

Certainly the first half of 'twenty, two could be a little bit longer.

What I, then think happens assuming that the macro holds and assuming the world is still somewhat round in assuming that.

Because of that.

There's still decent demand.

And then maybe there is a little bit of maybe there is a little bit of.

Of an uptick as as as pipelines are getting filled as as people think about.

Supply chains again.

I don't think I don't think it will be a good idea if if the reaction to all of this but we've been we've been through this before we went through the tech wreck, we went through the financial crisis.

We've been through these ebbs and flows.

I think there'll be up maybe a period of time, where there will be a rebuilding of inventory.

And maybe that maybe that provides.

Kind of a a small degree of upside over a small timeframe, but I think that.

I don't think building inventory and having redundancies here and there.

Our a good solution I think a better solution is is.

We invest I don't know the exact number but we invest call. It $550.0 million of Opex a year.

And a portion of those investments are around very sophisticated supply chain tools data analytics.

And I think jabil continuing to invest in tools like that so that we can go back and challenge customers in terms of historical behavior forward looking forecasts and do it with kind of again data analytics and in a higher degree.

Three of sophistication.

From an it standpoint, I think tools like that will become more and more valuable and then you add to it. The fact that we're going to connect those tools to our to what we're doing in our factories in terms of machine learning.

Robotics and automation and you think about that.

Inside of a company like Jabil that'll be bumping up against.

<unk> $69.0 billion in scale factories, all over the globe.

I think I think the way, we're thinking about that boy, we're going to be really well positioned to.

To help a lot of the customers we serve in terms of how to further optimize supply chain going forward.

That's helpful. Thanks, and for my second question was on the EMS segment margins in the fourth quarter as the company already spoke to the reasons for the strength in margins on a year over year basis. So I was hoping you could touch on the reasons for strength on a sequential basis revenue was slightly down quarter to quarter, but.

Margins were up nicely, maybe it's the same reason around.

Okay.

The inventory strategy with.

With cloud, but perhaps something else on a quarter to quarter basis, and if so I was hoping to better understand what it maybe thank you.

Yes, sure I think I think that year on year comp is distorted because Q4 'twenty, we're still wrestling around with Covid stuff and I think all of our metrics in 'twenty were distorted.

To the downside.

This is an intentional but.

We've kind of.

The way. This is this is more coincidental than anything so.

The way the construct of mikes and his team's electronics business stacks up as is.

It just aligns with the fact that our <unk> ends up.

Typically being stronger for four for that part of our business and that's not that's not an intentional thing. That's just that's how we run our business from a bottoms up makeup. So I think what youre seeing I think what you saw in the fourth quarter was just a repeat of <unk>.

Again, another strong <unk> by by the electronics side of our business and in fact.

If you kind of map, what we said for 'twenty two.

We kind of gave you kind of gave you everything you need to map out Q1.

If you think about the fact that we.

We believe and I think we gave you the full year or so.

I think revenue for 'twenty two.

First half to second half is going to be about 50.50 for the company.

You'll probably be able to get to some math that says.

Once again, we think our electronics business in terms of margin.

We will be stronger in the second half of 'twenty, two and probably strongest.

In the fourth quarter and again.

That's really just a.

Our makeup of of customer sectors and markets and it happens to fall into our fourth quarter, what I'm, what I'm, what I'm, what I'm more interested in for sure.

As well.

We have an electronics business that if you just go back to <unk>.

I don't know like fiscal 19, the electronics part of our business the way we define it today.

It was in the $2, 93% range all in and I'm most interested in our ability to try to get that part of our business bumping up against 4% margins.

Thank you all by the way Oh by the way and.

The numbers that we just we had offered during the presentation, which.

<unk> also has a high degree of satisfaction, if if we can execute.

<unk>.

I think we gave you numbers that would suggest that that part of our business.

Is going to grow nearly 5% on the top line.

And so with that growth at that scale.

If we can get that part of our business bumping up against 4% boy that does wonders for our overall portfolio.

Thank you.

Yeah Youre welcome.

Thank you ladies and gentlemen, we have reached the end of our question and answer session and this does conclude today's teleconference and webcast. We thank you for your participation and you may disconnect. Your lines at this time.

[music].