Q3 2023 Jabil Inc Earnings Call
Speaker 2: Great, that's all very helpful. Thank you. Thank you. Next question is coming from Shannon Gross from Credit Suisse Relayers in our lives.
Speaker 8: Thank you very much. I wanted to talk a bit about the healthcare business. Clearly, you've done well with your daily relationship and that business continues to grow. I'm wondering where you're seeing the best opportunity looking forward because I would assume this will be a
Speaker 8: a pretty solid grower given in demographics and everybody needs, unfortunately, surgeries as we all get older. So if you could just provide a bit more there and then I had a question on margin, thank you. Hey Shannon, nice to hear from you. Yeah, so we approach healthcare in three kind of areas of focus. Firstly,
Speaker 5: We got really good relationships with our current customer base and we looked to expand that with whether it's in the med device, diagnostics, or pharma. What we see a lot in each of those areas is the need for connected health care so that there's opportunities whether it's continuous glucose monitoring.
Speaker 5: So if you look at the auto injectors we've taken for diabetes and we've taken hundreds of millions at every year and then you look at the opportunity that comes out with, you know, from the weight reduction that you see with the drugs there. So and.
Speaker 5: We are really, really, it's broad-based and we're well-positioned and we feel quite bullish about our ability to grow that. I'll tell you also that and healthcare moves are a slower pace than some of our other businesses.
Speaker 5: But we've got credibility and we're having more discussions about, you know, kind of V2Vs where there's opportunities for us to do something, not in the same scale as our JGMD deal that we did, but we see opportunities coming for us in the longer term. So yeah, we think Andy previously runs that business for us. You have this team are doing a wonderful job and we're feeling quite...
Speaker 8: change as you've seen within some of your subcategories. Whether networking or industrial is it becomes more renewable-focused, just to give an idea of what's happening below the covers in terms of the margins. Thank you.
Speaker 5: and obviously we've got 30 basis points for the year. So we're feeling pretty good about our margin profile and trajectory. Yeah, we are, I think 60% of our businesses, as I said in my prepare remarks, we think is in...
Speaker 5: You know, business which is going to grow and continue to grow in the longer term, you know, things like, you know, we think that our automotive will be, um, automotive and healthcare should be above corporate averages. We think renewables will be, um, we mentioned that it's semi-cap being lower. We think the ZAP recovers that that helps us.
Speaker 5: And we've done a lot of tidy up in the rest of our business to make sure that we're running. I mean, we've got to do it also, as we've got to make sure we run good operations. If we run good operations, then efficient operations, then we think we can give our customers good value. So.
Speaker 4: Hopefully that's helpful Mike. You got any comment? I just had one sort of macro comment. I think more than the end market secular trends are obviously driving a huge growth prospect for us. But above that sits the whole outsourcing of manufacturing as a...
Speaker 4: as a trend as well, which drives margins. If you look at the complex design requirements we have today, the dynamic supply chain markets, the manufacturing at scale and multiple geographies, which strong local knowledge, localization of manufacturing, regionalization of manufacturing, and then you have automation driving a lot of this forward as well.
Speaker 4: So that by itself is driving this entire outsourcing of manufacturing as a trend, which then leads into stickiness, which then leads into margin expansion as well. And I would suggest that almost all of our end markets that we present here are seeing some sort of...
Speaker 4: some sort of change in behavior from an industry standpoint and specifically for JBL from a capability standpoint as well. So all good drivers are merging going forward.
Speaker 3: Thank you. Thank you. Next question is coming from Paul Chung from KPMorgan, your line is that live. Hi, thanks for taking the question. So nice progress on inventory. You know, in your free cash flow conversion kind of continues to grow.
Speaker 3: from 21 levels, rebounding there. And guide for growth suggests improve pace there. 23.3.27
Speaker 4: We'll continue to provide some guidance on Featastel 24 in September , but you can expect
Speaker 4: the team to be completely focused on driving margins, driving free cash flow. And then using the free cash flow to continue to do buybacks because we feel we're undervalued still. So I think that free cash flow conversion, expect that to continue to go up as well as the working capital dynamics change. I don't think you get a one for one return. The inventory goes down.
Speaker 9: and we'll provide more guidance in September . Okay, great, thanks for that. And then separately, you know, are you starting to see evidence of some deflationary impact on components and, you know, which end markets are you seeing some bigger impact there?
Speaker 9: We're not really seeing that. This person takes some up some downpour and it's not something that we're overly...
Speaker 4: I think we continue to benefit from working capital management. The team is highly focused. Some of the golden screw issues are easing not as much as we'd like, but still on the right path. So all in all, we feel that that's sort of a run rate, especially in the first two or three quarters of FY 24.
Speaker 5: Melissa, actually I'm kind of sniggering here because when we were preparing for the call, I was just back from an Asian tour in our facilities and I was really blown away by, yeah I hadn't been there for a few years pre-pandemic and I was kind of blown away by the fact
Speaker 5: It's unbelievable just how many people have taken out of our processes by leaning into automation and using an AI engine to support that.
Speaker 5: And we talk about that, and I know that some people say that AI is going to be overhyped in the short term, but obviously more beneficial in the longer term. But what we do see is, and we are seeing, you need a lot of, you have to teach these large language models, you need advanced network, and obviously you've got a lot of...
Speaker 5: requirements for processing in the cloud. So what we see is, and maybe you think this is going to pick up over the longer term, but the ability to produce advanced networking products and ability to make cloud devices where they require liquid cooling, they require high-speed optical interconnects, that place to keep abilities that we've been developing over a long period of time.
Speaker 5: And it's why we're quite bullish in the longer term, you know, from a cloud perspective, because we're able to bring multiple capabilities that will develop another part of our business to support customers in that space, which is going to help them as they get requests to support companies that are running the large line these models in the ice space. So we think that, for sure,
Speaker 10: Thank you for taking the question. You mentioned you're planning for a challenging macroeconomic environment in 2024. As you see things today, are you thinking the macroeconomic environment is incrementally more difficult next year, or is it more of a continuation of the kind of challenges you've been seeing? Do you think the macroeconomic environment is more difficult next year, or is it more of a continuation of the kind of challenges you've been seeing today?
Speaker 4: Hey, well, just to clarify, I think the words I used, we were just being cautious and vigilant. There's a lot of chanera and consumer and markets. We've seen some of that. It's a little bit patchy, it goes up, it comes down, for instance, Q2 was down, Q3 was actually up for us from a consumer standpoint. We're not seeing.
Speaker 4: Anything major in any of our end markets that would give us any concerns, I was just being cautious and vigilant, that's the only meaning behind my comments there. And if you look at the secular markets that were in today, all growth oriented, EV, healthcare.
Speaker 4: renewables 5G cloud they're all they're all moving in the right direction so I I don't think I don't think that gets slowed down by macroeconomic conditions that much there might be Instead of growing by double digits. Maybe it goes by single digits but but overall we're not seeing any of that right now and what we just want to be
Speaker 10: rate you've been undergoing in a couple of those key markets. Thanks.
Speaker 4: Yes, on the EV side, for example, yes, we have to expand our operations. We're expanding in the Americas. We're expanding in Europe . We're expanding in Asia. So there is definitely, we need to, we need to grow in our footprint in some of the...
Some of the geographies, health care is a little bit more steady any but overall still, the trend is upwards, renewables, we've just opened a new factory in the US. And we'll continue to expand as and when we feel the requirements there. But yes, it is something we're watching. We're being very thoughtful, we're very disciplined.
We don't want to over invest in CapEx and we're watching trends very carefully to make sure they're long-term sustainable trends and not just type which is temporary. So yeah, the answer to your question is yes. Yeah, and a follow up on that Mark also is that...
We always talk about having a single instance of SAP in our company and
You know, that that, for example, becomes critically important. You know, it's really to get requests from customers to introduce new products, introduce them across multiple geographies. That, you know, having that single instance of SAP is critically important.
But more than that would be, you know, JJ Creed and his team are looking at making sure that our factory network operates consistently with the same processes. We got a kind of unified table culture, as I mentioned. So our ability to incubate
new business or new capabilities in one part of the world and then be able to deploy that at scale across the rest of our network is really lends itself to our model and so we're feeling quite bullish that you know we're really well positioned to support the needs of our customers as you know in the world where
geographical manufacturing seems to be more in vogue. Thank you. Thank you. Next question coming from David Voke from UBS. Your line is now live. Great. Thanks for taking my question and good morning. I just want to go back to the AI automation conversation. I know you're probably going to provide a lot of color on this in September and I know
technological sort of changes effectively and generally what are the lead times in terms of, you know, from concept discussion to deployment and then I have a follow up on margins which I can maybe just roll in here as well. So it sounds like, you know, near term the opportunity is for, you know, your own efficiency gains from automation going forward.
in fiscal 24 from AI potentially. Is that fair? Is that the fair way to think about the business next year? Thanks.
Yes, so for sure, and if I don't answer this quite speed, David, there was a lot there. So, for sure, internally, I mentioned previously that our internal processes, we simplify, optimize, standardize and automate.
We've been doing that forever. This helps us accelerate some of that as I had mentioned. We see that this is definitely going to help us from our ability to introduce new products, ability to be more efficient and therefore drive margins. So for sure we see that.
of our...