Q2 2022 Jabil Inc Earnings Call
Hello, and welcome to the Jabil second quarter fiscal 2022 earnings call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to turn the call over to Adam Berry Investor Relations. Please go ahead.
Good morning, and welcome to Jabil second quarter of fiscal 2022 earnings call.
Joining me on today's call are Chief Executive Officer, Mark Mondello, and Chief Financial Officer, Mike Death's door.
Please note that today's call is being webcast live and during our prepared remarks, we will be referencing slides.
To follow along with the slides please visit <unk> dot com within our Investor Relations section.
At the conclusion of today's call the entirety of today's session will be posted for audio playback on our website.
I'd like to now ask that you follow our earnings presentation with the 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 anger report on Form 10-K for the fiscal year ended August 31st 2021 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 I'll now turn the call over to Mark.
Thanks, Adam.
Good morning.
I appreciate everyone, taking time to join our call today.
To begin with our Hearts go out to everyone impacted by the war in Ukraine.
When I think about our team along with their families.
What comes to mind are words like admiration.
Courage and heart.
Please now we are in constant communication with those on the ground.
And we continue to provide resources and financial assistance.
As the safety and security of that.
And Ukraine is our top priority.
At Jabil.
We're one corporate family.
With people located all over the world.
And despite the physical distance between us.
We'll always face difficult situations together.
So all of our employees.
Thank you for being servant leaders.
Thank you for your spirit.
And thank you for looking after one another.
Let's now turn to slide six.
Well, we'll take a look at our second quarter results.
Yeah.
Q2 was another strong quarter.
Both topline and Bottomline.
Driven by double digit revenue growth year on year.
And exceptional execution respectively.
Altogether the team delivered core earnings per share.
Of $1 68.
On revenue of $7 $6 billion.
Resulting in a core operating margin of four 6%.
A 40 basis point increase year on year.
All in all I'm pleased with the quarter.
As our performance during the first half of the year.
Gives us positive momentum.
As we push towards the back half of fiscal 'twenty, two and into fiscal 'twenty three.
And when you think about our key catalysts driving our momentum.
What comes to mind is the makeup of our commercial portfolio.
Which I'll now address on the next slide.
Slide seven is a wonderful picture, which shows the construct of our portfolio today.
Jabil is large scale diversification.
Serves as a solid foundation from which we run our business.
Yeah.
The team has built this foundation over the past five years to six years as.
As we target new end markets and optimize our legacy business.
Yeah I'll put it this effort is twofold.
One a higher level of resiliency across the company.
And two a substantial presence in secular end markets.
Markets that include five G.
Electric vehicles.
Personalized health care.
Cloud computing and clean energy.
If we dissect the pie chart a bit differently.
With an emphasis on financial contribution and economic relevance, we see a terrific blend.
A reliable margins and sustainable cash flows.
Again, a real tribute to the diversified nature of our business today.
Yeah.
Lastly, if we look at a third dimension of our portfolio.
We find a library of essential capabilities.
Capabilities that allow us to simplify the complex.
For many of the world's most notable brands.
And when done correctly.
Our unique set of capabilities offer jabil, a real competitive advantage.
As we lean into a massive market where things need to be built.
And supply chains need to be developed or modified.
Moving on to slide eight.
You'll see managements outlook for the year.
We've increased core earnings per share to $7 25.
An increase of nearly 30% year on year.
As for revenue.
FY 'twenty two now looks to be in the range.
Of $32 $6 billion.
Up more than 10% year on year.
In addition, we remain committed to delivering a minimum of $700 million in free cash flow for the year.
While increasing core operating margin to four 6%.
A 40 basis point improvement year on year.
For me.
This is a positive testament of how the team is managing the business.
As our strategy has been consistent.
And what needs to be done.
He is well understood throughout our company.
With that let's move to my final slide.
I'd like to start with the importance of our purpose.
At Jabil with purpose comes expectations.
Expectations around certain behaviors.
Behaviors, such as keeping our people safe.
Servant leadership.
Protecting the environment.
Giving back to our communities.
And offering a workplace, which encompasses tolerance respect.
And acceptance.
Within Jabil these behaviors have never been more important than they are today.
I'm proud of our team as they fully grasp our purpose.
And in doing so they're conduct is exceptional.
In closing.
Our improvement is steady.
Commercially.
Financially.
Operationally.
Quite simply.
Here at Jabil, we build stuff and we do it really well.
One factor that makes good companies great.
It's having a value set.
Our culture, if you will that enhances the way.
And which they solve problems.
As a team we embrace this as we take on the challenges put forth by our customers each and every day.
Two our entire Jabil team, thank you for making cable jabil.
I'll now turn the call over to Mike.
Yeah.
Thanks, Mark and thank you for joining us today.
I'm really pleased with the resiliency of our diversified portfolio and the sustainable broad based momentum underway across the business.
Several of our end markets continue to benefit from long term secular trends.
As Mark just summarized our Q2 results were very strong.
During the quarter revenue core operating income core EPS and free cash flow all exceeded our December expectations.
Given the higher revenue I'm, particularly pleased with our ability to drive an extra 30 basis points of margin improvement compared to our expectations in December may.
Mainly through broad based strength in several key end markets benefiting from long term secular trends.
As well as outstanding execution by our business operations and supply chain teams.
For the quarter revenue was approximately $7 $6 billion up 10, 6% over the prior year quarter and ahead of the midpoint of our guidance from December .
The additional upside was mainly driven by a five G and cloud businesses, while our automotive health care and retail end markets remained very strong.
Our GAAP operating income during the quarter was $313 million and our GAAP diluted earnings per share was $1.51.
Yeah.
Core operating income during the quarter was $344 million, an increase of 21% year over year, representing a core operating margin of four 6% up 40 basis points over the prior yeah.
Core diluted earnings per share was $1.68, a 32% improvement over the prior year quarter.
Now turning to our second quarter segment results on the next slide.
Do you have any further idea my segment was $3 $8 billion, an increase of 4% on a year over year basis.
The solid year it'll be up of problems in our Dms segment was broad based with strength across our health care automotive and connected devices businesses.
Hello margin for the segment came in at five 1%.
Revenue for our EMS segment came in at $3 $8 billion, an increase of 19% on a year over year basis.
The stronger year over year problems sitting on my segment was also broad based with strength across our digital print and retail.
That's really in semi cap and five G wireless and cloud businesses.
Core margin for the segment was 4% up 90 basis points over the prior year, reflecting improved mix and solid execution by the team.
Turning now to a lot of cash flows and balance sheet.
In Q2 inventory days came in at 86 days.
The sequential increase in days was driven largely by two factors.
Firstly, the ongoing tightness in the supply chain continues to weigh on our inventory balances.
It's worth noting that we've offset a portion of these increases with inventory deposits from our customers and these deposits reside within the accrued expenses line item on the balance sheet.
Net of these inventory deposits inventory days were 71 in Q2.
Okay.
And second at the end of the quarter, we experienced a timing difference on the sell through of finished goods within our Dms segment.
Despite this timing difference to reverse in Q3.
In spite of these two factors impacting inventory a second quarter cash flows from operations were very robust coming in at $246 million.
Net capital expenditures totaled $201 million.
From a total debt to core EBITDA level, we exited the quarter at approximately one three times and with cash balances of $1 $1 billion.
During Q2, we repurchased approximately two 3 million shares for $145 million and probably yeah, we've repurchased one 4 million shares for $272 million as we remain committed to returning capital to shareholders.
Cutting the alcohol third quarter guidance on the next slide.
The EMS segment revenue is expected to increase 17% on a year over year basis.
But the $4 $2 billion, while the EMS segment revenue is expected to increase 11% on a year over year basis to approximately $4 billion.
We expect total company revenue in the third quarter of fiscal 'twenty two to be in the range of 759 to $8 $5 billion.
Okay.
Core operating income is estimated to be in the range of $300 million to $360 million, representing a core budget range of 3.8 to four 2%.
At the midpoint. This is an improvement of 20 basis points over the prior year and down sequentially, reflecting planned investments in our Q3 quarter.
It's also worth noting sequentially in Q4, we expect robust core margins driven by our scaling automotive business along with typical seasonality in our mobility and e-commerce businesses.
In Q3, GAAP operating income is expected to be in the range of $276 million to $336 million.
Core delivered earnings per share is estimated to be in the range of $1.40 to one dollar and 80 cents.
GAAP diluted earnings per share expected to be in the range of $1.24 to $1.64.
Our core tax rate in the third quarter is estimated to be approximately 21%.
Next I'd like to take a few moments to highlight our balanced portfolio of businesses by end market.
Today the outlook for our business is strong with end markets across both segments continuing to benefit from multiyear secular trends.
We believe these markets will continue to drive our growth as we concentrate our efforts on long term secular growth markets with strong margin and cash flow dynamics.
Market such as electric vehicles.
Personalized medicine, and health care semi cap clean and smart energy infrastructure.
Cloud <unk> infrastructure and the associated connected devices.
Our electric vehicle business in particular continues to outperform in spite of global supply chain issues as the transition to E D accelerates.
Yeah.
We've seen this rapid acceleration manifest in top line revenue growth in excess of 50% this year alone in our automotive end market.
We're also expecting double digit growth from the health care automotive retail industrial and semi cap and patchy wireless and cloud end markets.
And importantly, the broad based growth associated with these secular trends are expected to drive solid year over year core operating margin and free cash flow expansion.
All it all up if all of US trying to first half of the year. It gives us excellent momentum as we look to close out another strong year.
We now anticipate core EPS will be in the neighborhood of $7.25 per share on revenue of approximately $32 $6 billion.
Notably this incremental revenue will improve mix and drive operating leverage, thereby giving us the confidence to raise our core margin by 10 basis points to four 6% for FY 'twenty two as we continue to drive the organization to 5% and beyond.
Importantly for the year, we also remain committed to generating in excess of $700 million and free cash flow in spite of the higher revenue and associated working capital.
Yeah.
We've been working extremely hard as a team to expand margins and drive strong cash flows.
I'm very pleased with our team's exceptional execution of our strategy on all fronts.
Yeah.
With that I'll now turn the call over to Adam.
Thanks, Mike before we move into the Q&A portion of the call I'd like to remind our participants that we cannot address customer specific or product specific questions.
Operator, we're now ready for Q&A.
Thank you well now be conducting a question and answer session, if you'd like to be placed into the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he'd like to move your question from the queue for participants using speaker equipment may be necessary to pick up your handset before.
<unk> Star one one moment, please while we poll for questions. Our first question today is coming from Jim Suva from Citigroup. Your line is now live.
Thank you congratulations on the results and extremely strong outlook. Despite all the uncertainty in the World I was wondering if you could give us a little bit.
Confidence or conviction about the operating margins and sustainability of course your full year guidance increase is so big you have to assume the operating margins you know continue to see the strength, but I'm.
I'm, just curious is that due to mix or the location and visibility from customer contracts that you're getting or the value added or maybe a combination of all but if you could just pontificate a little bit on operating margins and your confidence in the sustainability of them. Thank you so much.
Hey, Jim.
I think the overall margin profile you know if you if you just go back to let's.
Let's say pre COVID-19 to to fiscal 19, we were running the business at.
Around three 5% margins and our focus at that point in time was.
Really about reshaping the overall portfolio and and a big focus on diversification, both topline and Bottomline.
The team did a really nice job of that over a over a four or five year period.
And then starting in fiscal 'twenty, one so last year.
We really started taking that portfolio at scale and and and focusing hard on our on the margin side of the business largely around our cost and optimization, while still being a what I think is very competitive in the marketplace in terms of our pricing. This.
This year, we've taken margins up I think September we said margins would go up to four 5% from the four point to last year.
And then this morning, we're taking it up another 10 basis points to $4 six for the year I think the main catalysts driving it is is our execution has been outstanding and I think sustainable I think the overall platform around the operational network the tools, our I T systems also sustainable.
And are the advances we've made there are terrific and then lastly, and maybe most importantly is it's just the overall portfolio that we have Jim when we think about.
How diverse we are when we think about the contributions of the business are you know we look at the blend between automotive and transportation health care connected device mobility digital print retail industrial cloud five G networking semi cap et cetera, It's just a it's just a wonderful.
Wonderful book of business today, we think that'll continue to scale and.
As I said at some point in the last 18 months or so I really believe as this business continues to get beyond $35 billion 37 billion $40 billion. You know, we're gonna effort internally to run the business at five points of margin on the operating line.
Thank you and congratulations to you and your team.
Thanks, Jim.
Thank you next question today is coming from Steven Fox from Fox Advisors. Your line is now live.
Thanks, Good morning, everyone. Two questions. If I could first of all just building off of that last answer Mark can you help us conceptualize a little bit.
You know how youre growing at scales. So quickly are the challenges there given the global footprint that you have.
And managing their programs into like you know, we're talking about you know a 10% growth off of you know 30 35 billion dollar type of sales base and then secondly, how is your global footprint just said, maybe a better way to ask this how is your can you give us an update on your global footprint and how maybe is changing.
Versus what you would have thought six or nine months ago. Thanks.
Okay that was a lot let me try to break that out so if I think about the growth at scale, which I think was the first part of your question I think.
Uh huh.
I I break that up to say.
One the team the team as we went through diversified the company.
And and really were able to step back once we got to a what I would maybe call significant scale.
The team call it a little bit of luck call. It some good planning call. It a lot of thoughtfulness, we have really really.
Been fortunate to get into some like really substantial very real secular markets and I think in my prepared remarks I talked about.
Things like electric vehicles, personalized health cloud computing clean energy et cetera, So strategically the way the way we run strategy and the company is not so much top down, but but through each of our sectors and that's where our experts are so the last the last.
Two or three or four years, we've done a really nice job of of placing our bets from a revenue perspective into some pretty powerful secular trends. That's number one number two is we continue to pick up market share. So sometimes it's always difficult when when people are trying to triangulate our number.
<unk> two <unk>.
Current macro situations because what ends up getting left behind US is is the market share gains.
And I think in my prepared remarks today I used to I think I used a term like massive you know there's the market is massive and there's just there's always going to.
Be a need for things.
Things to be built in supply change to be reconstructed and we're pretty good at both of those things.
And then lastly is just the continued growth that we've seen what I'd say more of our core legacy business has been strong over the last 18 24 months. So I would say those are the those are the catalysts I don't I don't foresee the company you know.
As we get to 35 37 $40 billion I wouldn't imagine the company is going to continue to grow.
You know strong double digits, but ER at least as.
As we look at the Horizon I think the company is going to grow Nonetheless over the next three to five years for sure in terms of footprint.
Our our footprints exceptional and whether we look at cutting Asia Southeast Asia.
China.
Europe , Brazil, Mexico U S. A.
Again, when I. There's this common theme in it it I know it I know it sounds redundant, but this common theme around diversification.
We just we think about diversification in so many different ways in a subset of that certainly our overall global footprint today are our big focus economics. Aside of course is is our footprint in eastern Europe and as I said in my prepared remarks, our hearts go out to everyone. There at the moment.
On the ground, because what they're going through is horrific and.
That's where that's where a lot of our thoughts and time spent over the last couple of weeks, but I.
Of all the things I worry about or said differently. The things I feel good about our footprint I feel very very good about our about where our footprint is today Steve.
Great. That's really helpful. Thank you have a good day.
Thank you next question today is coming from Rupert <unk> from Bank of America. Your line is now live thanks.
Thanks for taking my questions, maybe I'll build on some of the prior questions and say that.
Cable's performance this quarter is impressive and you're raising the guide animals by 800 million 70 cents is impressive given what's happening with the supply chain and logistics costs and oil prices.
Political and stuff.
So can I ask you maybe what gives you. The most concern when you look into the second half of this year fiscal 'twenty, two and what happened in the past 90 days that is giving you confidence to raise then we'll guide or was your prior guidance just too conservative.
Yeah, I'm hesitating, because I'm thinking I.
I.
I'm always concerned about a lot of things all the time.
There's a war going on and and obviously that's a concern.
And for me that concern is is this will be the third time I'll say it right is really about the wellbeing and the safety and security of our people.
And I don't know how to say this but in terms of a pure financial economic perspective.
That doesn't give me a lot of concern, saying that though I do want to emphasize it's it's a bit heartbreaking to me and very emotional with with that situation over there and it has our full attention.
So I would say supply chains, we we we we tend to navigate that as good as anybody at the moment does that gives me concern through the rest of the fiscal year, maybe a collapse in the macro in the very near term not so much.
Inflation, I think we're managing that quite well and I would say hum.
I I don't know you know theres been a desktop here recently with with some more COVID-19 issues in mainland China and.
I would say we've been dealing with that literally like firsthand since the issues in Wuhan and in January of 2020, and when I think about our campuses in places like Wuxi in Weihai in Huangpu Incent, Jan in Shanghai, and Tianjin and Chengdu.
We got a great team over there are we've been we've been navigating that quite well so.
As we as we think about the balance of the year and maybe first part of 'twenty three.
As I sit today as we sit today as a management team, we got pretty good confidence in in the guide for the balance of the year and end up in the beginning outlook for 'twenty three.
Okay. Thanks for that Mark can I ask about maybe if.
If you can give us an update on your capital allocation priorities.
Specifically when I look in the past you've focused on smaller tuck in M&A, but given valuations have pulled back do you see the possibility of any larger M&A and how would you contrast that to the possibility of a dividend increase or our focus on buybacks.
Okay, that's I'll split that into two.
We're always out in the market shopping Oh, we we do a very nice job I think in terms of small M&A.
I would say our focus is going to be on.
Maybe further transactions that looked like a little bit like the J J M. D transaction in terms of big brands getting out of manufacturing that would be one area. We continue to to spend quite a bit of time on small M&A around capabilities.
I wouldn't imagine.
<unk> anything to sizable in terms of direct M&A, just because even with the recent correction in the U S equity markets. The prices are still quite.
Quite high and then if I, if I think of that of the other derivative of capital allocation in terms of buyback and dividend.
We're still we're still we've got authorization out to complete.
Our billion dollar buyback.
Oh, you know if there's any if there's any benefit whatsoever and the recent equity market corrections as the fact, we're out in the market buying back our stock.
So I think today with with the outlook for the business over the next couple of years, where I think we're headed what we could do in terms of margin. What we can do in terms of some continued growth I think buybacks make a lot more sense than any type of a change to our dividend I do believe at some point in.
Time that a well thought multiyear dividend plan will make sense just not now.
Okay. Thanks for that and if I can just sneak one more quick one in for Mike. It looks like inventory was up 15% sequentially, but you are maintaining your free cash flow guide of 700 million plus on higher revenues and earnings. So can you just talk about your capex requirements for this year I don't know if you mentioned that on the call yet.
And and how should we be thinking about the cash conversion cycle and the cadence of free cash flow and thanks for all the details. Thank you.
Thanks, Good Blue. So if you go back a couple of years, we learned at 3% plus range pool or a capex over time be brought it down to about two point.
6%, Yeah, I feel pretty comfortable with that level. Obviously, the revenues have gone up blow that out at the start of the year. We set about 825, maybe that's now a 50 ish or.
So we're still maintaining that two 6%, yeah, capex level and in our free cash flow yields it's something we focus on quite a bit Uh huh.
We're not where we wanted to be and and we'll be taking it up slowly through the next few quarters and get into the 50%.
Range at some point in time and that's what the management team is focused on.
Thank you.
Thank you. Your next question is coming from Matt Sheerin from Stifel. Your line is now live.
Yes, Thanks, and good morning, everyone I'm Mark I had a couple of questions regarding your segments. If you look at your forward guide for FY 'twenty two it looks like you're taking up.
The five G wireless and cloud segment, and our industrial and semi cap segment fairly significantly could you give us color there specifically on the the five G. In.
And cloud is that from boats segments or are you still seeing more strength on the cloud side versus versus five G.
I suppose.
You know we are.
I mentioned earlier in the last response about.
You know the good fortunate we've had with really really smart people in our company at a at a at a sector level that really really understand the end markets and.
Much like we did with personalized health care per say much like we did with electric vehicles, our our folks on the on the kind of the networking cloud five G wireless a part of our business got us a integrated heavily into the five G.
Rollout, so that's starting to to to pay good dividends in terms of and growth and then.
I don't even remember the time frame, but it was around the same time frame. When we did the J J M D deal because I remember talking about both of them together.
Our team has come up or did come up in and is executing to an asset light.
Cloud configuration type of service our in region that has just been adopted and performing quite well. So I would say when you see.
I don't remember the exact numbers, but I think what we said at the beginning of the year was.
The five G wireless business.
It would be would be around five five something like that 1 billion last year. It was a just over 5 billion and I think we're now saying it'll be bumping up against 6 billion. It's equally split and then I think your other comment was around industrial and.
Our semi cap business and again, that's just a that's a very broad base. So.
Again, if I look at our industrial semi cap business a couple of years ago. It was sub 3 billion and now that business to be bumping up against $4 billion, but I wouldn't want to I wouldn't want to break that out just because the the contributions are everything from semi cap to solar to light industrial heavy industrial so it's sprinkled in.
Across that whole sector.
Okay, great. Thanks for that color and then just as a follow up just regarding.
The supply constraints on everyone's seeing cable seems to be managing it as well if not better than any of your peers are you seeing any signs of of ease in terms of supply opening up, particularly that'd be the legacy somebody enough to parts that seem to be a hard to get any signs of relief there.
Let me start with your last part first I think when it comes to what you'd characterize or think about his legacy semiconductors are it's still challenging when I step back, though and I look at the whole business in terms of Jabil. So this isn't a proxy for for the maybe the market per se.
Looking about strictly what we use what we consume our supply chain across.
Mobility connected devices E V is a health care packaging digital print retail the whole deal.
I believe that we started talking last fall.
But we thought with our team the supply chain issues might start showing some improvement in the springtime of of.
2022 so that's kind of where we sit today and I think our I think we're starting to see some relief I would say the overall supply chain challenges again, whether it's raw metals availability and I'm strictly talking about continuity of supply.
Have gotten moderately better I would probably take like legacy semi conductors and still put that in the bucket of of a constraint, although with our relationships, we tend to be managing that quite well as well.
I would also maybe from a relativity standpoint, or a contextual standpoint suggest that the.
Current guide that Mike gave and the $7 25, a I think we've done a pretty good job of contemplating all the supply chain issues and events in terms of weaving that into our guide for the balance of the year.
Okay, great. Thanks, very much yeah. Thanks.
Thank you next question today is coming from Mark Delaney from Goldman Sachs. Your line is now live.
Yes, good morning, congratulations on the good results and thanks for taking my questions.
Just hoping to talk about the inventory that can be talked about carrying some additional inventory and also taking some deposits from customers to help them manage that would you say that the extra inventory you're holding some of that strategic buffer inventory that the customers are are are compensating jabil, Florida to hold some extra stock or is it.
This also partly an incomplete.
And incomplete kitting issue.
I think it's all about the all of the above the mark of it obviously, we have some kidding issues that drives inventory up there's a little bit of buffering, there's a little bit of a strategic Oh, and that's where the upset it with the inventory deposits depending on.
What how the balancing our inventory numbers are that the deposits do upset a considerable amount of debt I think I talked about the 86 days sounds like a very high number but if you take the immigrated pose it's out it's about 70 days, so I think overall.
I I I do I am I worried about the inventory not so much I think we're having a temporary tightness in the supply chain.
It's just causing some of this Ah I also talked a little bit about there was a little bit of a timing difference in our dms business with launch of new products.
But do you expect that to reverse in Q3, as well and that's what gives us confidence.
To maintain a 700 million plus free cash flow number as well so overall.
A little bit of a challenge right now in inventory am I concerned Mitsuo tell me the answer is no.
That's Oh my God. Thank you and then my follow up was on the China region and any operational situation. There given the rising COVID-19 cases, and you touched on it a bit already but could you comment more about to what extent any of the jabil facilities are having to take shutdowns and if so did you have an expectation for how long those could last and then you know.
On a related topic, you talk to what extent or other companies are.
Yeah that are either suppliers or customers are you are you seeing any indirect effects from from shutdowns in the region on your business. Thank you.
Yeah, I think you'd be a I think it would be neglectful too.
Suggest that's not a risk again, we've got we've got a great global footprint moving stuff in and out of China, we've done that as efficiently as anybody, but in terms of in region or or or or or in mainland China.
It's a risk we.
And I don't want to make light of the risks, but again, it's something that we've been handling in terms of corn teens dormitory corn teens campus quarantines.
Different province, Quarantine city quarantines for two years and.
At least as we sit today this time doesn't feel any different.
I think where where the probably the biggest risk is is when I think about the stringent protocols that jabil uses on our own campuses.
I feel very good about how we're managing the situation I think that the bigger risk element would be the greater supply chain getting materials in and out of campuses <unk> logistics et.
Et cetera.
As we sit today, assuming that there continues to be pockets of Covid and it's not extensive in terms of timing of shutdowns all of that's been considered in our numbers if I'm if.
The COVID-19 issues inside of mainland China.
Where to get a maybe a magnitude.
More severe than than again, that's certainly a risk for consideration, but as we sit today. We're two years in a got a lot of experience dealing with they've got a great team on the ground there and again, if things stay kind of a like for like as they sit today would be fine through the end of the fiscal year.
Thank you.
Thanks Mark.
Thank you. Our next question is coming from Melissa Fairbanks from Raymond James Your line is now live.
Great. Thanks, guys. Congrats on the great quarter and guide I was wondering if you could give a little more detail on expectations for core margin per segment I think.
We all saw the press release on stepping up hiring in the health care business, just wondering how that's flowing through margins or where that's not yes, that's expected to.
Sure well I think I think on one of the slides today that was a that was posted or shrunk shown during the call. If if you look at the Green box, which we talk about is kind of our diversified.
Our manufacturing business I think what we're suggesting there is is collectively that group of businesses will will run in on the core margin line around 5% and then the blue box on the.
On the what we'd characterize our EMS business is running at about 4% both of those both of those margin column goals targets or or or guide.
Well both of those I think on an annual basis and again, if I go back 15 years those are probably.
<unk> margins, we've posted in terms of as we bifurcated the business M. S. D M S.
We don't break out we don't break out margins in terms of.
Both the Green box the Dms box in the E M S box the blue box.
Each of them have for sectors defined and we share the kind of the revenue trends there, but we are we don't break out margins I would I end and again, maybe at some point, we'll start breaking those out but today we don't.
Okay, great. Thanks, and then finally on the inventories you noted ex deposits are your inventory days are running around 70 days can you give us a comparison what that number was last quarter or maybe historically what that number has trended toward.
Yeah, I would say.
I would say all in all a whether you look at the gross line or the net line. We're probably we're probably 12 to 14 days of additional fluff with overall inventory and as Mike just commented on.
We're not overly concerned about that the balance sheets in great shape, and and we think in the relative near term that corrects and again I think our our goal internally is as is at a minimum to take that down by by 12 to 14 days.
Okay, great. Thanks, that's it for me.
Yeah.
Thank you. Our next question is coming from Paul Chung from Jpmorgan. Your line is now live.
Hi, Thanks for taking my questions. So just on the market share gains you mentioned is this you know for more from Asian based players or you know.
Some of your domestic peers or both and then.
Scale players versus more fragmented smaller players.
And what are some key factors that are kind of closing those deals for you.
Again, it'll sound redundant, but it's it's it's kind of it's across the board.
And again I just think.
I just think that.
The market is so sizable and and we've just gotten pretty good at at.
It kind of.
Pulling together the it solutions the product design solutions.
The way, we're performing and executing on the factory floors I think.
It's been a testament to our supply chain folks the last two years in terms, how they've navigated the market and I think.
I think all in all I would characterize that as people see jabil is a safe pair of hands and I also think there's not much. Good that's come out of Covid, but one of the things Covid has done is really have companies sit back and give much deeper thought to their overall supply changed strategically forward looking and I think.
I think all in all that's what's generated a lot of the conversations in terms of.
<unk> share gains I wouldn't want to sit and handicap, whether it's Asian based store domestic based or European based I think it's across the board.
Okay, great. Thanks for that and then just on the strong free cash flow Guy you know most of the strength there from earnings which is great. So you know how big of a drag in your view is working cap.
The fiscal year, just wanted to get a sense for more normalized free cash flow, which hopefully reverts.
This calendar year and into your kind of next fiscal year. Thanks.
So Paul Yeah look when we started the year I think we guided to 31 5 billion of revenues, we took that up to 31.8 and now we've taken it up to $32 6 billion. So theres been a decent amount of growth in our revenue numbers.
That obviously drives a higher level of working capital. Although we managed we we've looked at how to to manage working capital really well as a team we feel.
Confidence with a 700 million free cash flow in fact, I think we might be able to deliver a little bit more than 700 are I think the inventory probably normalize is not fully out by the end of the year, but a little bit I think I mentioned, there's three or four days of inventory due to timing differences.
That's true, but it's completely in Q3.
And overall, our collections AR AP payments et cetera give me full confidence in the 700 million plus our free cash flow.
Thank you.
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 or closing comments.
Thank you. Thank you for your interest in Jabil. This now concludes our call.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.