Q3 2024 Jabil Inc Earnings Call
Greetings and welcome to the table third quarter of fiscal year 2024 earnings call. At this time, all participants are in a listen only mode.
A brief 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. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Adam Berry Vice President of Investor Relations. Thank you you may begin.
Good morning, and thank you for joining <unk> third quarter fiscal 2024 earnings call. Joining me on today's call are Chief Financial Officer, Greg Hubbard, and Chief Executive Officer, Mike that store.
Over the next few minutes.
We will review the following.
Review, our Q3 results.
Provide an update on current demand.
And preview our seventh annual virtual investor briefing.
Before we begin 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 the Investor relations portion of the website.
At the conclusion of today's call the entirety of today's presentation will be posted for audio playback.
I'd now ask that you view the slides on the website and follow along with our presentation beginning with the forward looking statements.
During this conference call, we will be making forward looking statements, including among other things those regarding the anticipated outlook for our business.
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, 2023, and other filings with the SEC.
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 hand, the call over to Greg.
Thanks, Adam.
Everyone. It's a great privilege to be a part of the call today.
I'd like to begin this morning by walking through our third quarter results.
The team delivered approximately $6 $8 billion in revenue.
$265 million above the midpoint of the guidance range on better than expected growth in our connected devices and networking and storage end markets.
Core operating income for the quarter came in at $350 million or five 2% of revenue and.
An improvement of 40 basis points year over year.
Net interest expense for Q3 came in better than expected at $64 million.
This was due to lower levels of inventory during the quarter, reflecting improved working capital management by the team.
From a GAAP perspective, operating income was $261 million an.
Our GAAP diluted earnings per share was $1.06.
Core diluted earnings per share was $1.89 four cents above the midpoint of our guidance range.
Now turning to our performance by segment in the quarter.
Revenue for the Dms segment came in at $3 $4 billion $65 million above our expectations driven by better than expected growth within our connected devices business offset slightly by the lower than anticipated revenue in our automotive and health care businesses.
On a year over year basis, our Dms segment revenue was down approximately 23%.
Driven primarily by the mobility divestiture.
Core operating margins for the segment came in at four 6%.
50 basis points higher than the same quarter from a year ago.
Selective the ongoing mix shift within our Dms business.
Revenue for our EMS segment came in at $3 $4 billion.
Approximately $200 million above our expectations.
Driven by higher than anticipated revenue.
And our networking and storage end markets in the quarter.
Compared to the prior year quarter U S revenue was down roughly 18% driven.
Driven mainly by lower revenue in end markets like five G renewable energy and digital print offset slightly by good growth in cloud.
For the quarter core margins for the EMS segment came in at five 7% up 20 basis points year over year.
Next I'd like to begin with an update on our cash flow and balance sheet metrics.
Inventory at the end of Q3 came in six days lower sequentially at 81 days.
Net of inventory deposits from our customers inventory days were 58, which was a quarter on quarter improvement of four days.
As a result of the team's good working capital management in the quarter, our third quarter cash flows from operations came in quite strong at $515 million, while net capital expenditures totaled $100 million.
Resulting in $450 million and adjusted free cash flow during the quarter.
In Q3, we repurchased three 7 million shares for approximately $500 million.
Leaving us with approximately $700 million remaining on our current $2 $5 billion share repurchase authorization as of May 31.
We remain fully committed to completing the share repurchase authorization by the end of FY 'twenty four.
We exited Q3 with a healthy and solid balance sheet with debt to core EBITDA levels of approximately 1.2 times and cash balances of approximately $2 $5 billion.
And as a management team, we are fully committed to maintaining our investment grade credit profile.
With that let's turn to the next slide for our fourth quarter guidance.
For Q4, we expect total company revenue to be in the range of $6 $3 billion to $6 $9 billion.
Our operating income for Q4 is estimated to be in the range of $365 million to $425 million.
GAAP operating income is expected to be in the range of $285 million to $355 million.
Core diluted earnings per share is estimated to be in the range of $2 three.
To $2.43.
Yes diluted earnings per share is expected to be in the range of $1 40.
To $1.88.
Net interest expense in the fourth quarter is estimated to be approximately $67 million.
And our core tax rate for Q4 is expected to be 20%.
Before moving to our full year guidance on the next slide I'd like to provide a brief update on our net interest expense and core tax rate beyond FY 'twenty four.
We now anticipate interest rates will remain elevated and expect our net interest expense to remain at FY 'twenty four levels in FY, 'twenty, five and be approximately $275 million.
And for core tax rate in FY 'twenty five.
We anticipate our core tax rate will be impacted by pillar two global minimum tax legislation.
We will be required to adopt this only in FY 'twenty five.
We're evaluating the impact this will have as we sit today, we anticipate our core tax rate in FY 'twenty five to be in the range of 22% to 24%.
Now moving on to full year guidance on the next slide.
For the year, we continue to expect $28 $5 billion in revenue in the face of what continues to be a very dynamic demand environment.
Compared with our thoughts in March our expectations for growth in our automotive and transportation business has softened further.
In particular the market in China has been impacted due to overcapacity, resulting in a surplus of cars affecting local demand there.
And new global EV platforms that we originally expected to begin launching in the next 100 days or so have now shifted out several quarters.
On the healthcare side, we see softness in medical devices, which we expect will create a headwind to revenue in the near term.
These declines were offset by strength in connected devices and our AI data center end markets, which today are reported across industrial cloud and networking end markets.
All other end markets are largely in line with previous expectations.
Given this updated end market outlook, let's move to the next slide to review, our FY 'twenty for guidance.
We continue to expect core margins for the year to come in at five 6%, a 60 basis point improvement over the prior year.
We also expect to deliver EPS of $8 40 for the year.
And importantly, we remain committed to generating over $1 billion in adjusted free cash flow this year.
With that I'd like to thank you for your time this morning, and your interest in Jabil.
Now I'll turn the call over to Mike.
Thanks, Craig Good morning, and thank you for joining our call today.
Before I jump into my prepared remarks, a couple of comments.
I am truly humbled by the trust placed in me by Mark and the Jabil Board.
For the past 24 years cable has been my professional home and with the same the company's journey from $3 billion in 2000 $28 billion is a true Testament to the cat we offer our customers.
As CEO I'm excited and carry a tremendous amount of gratitude to Stuart and amazing team.
As Greg highlighted the team has executed well in FY 'twenty four I made a dynamic environment.
So to this.
We divested our mobility business, a key strategic decision with capturing growth in the AI data center space.
And we're working towards our commitment to repurchase two $5 billion, if I shares all while dealing with end market softness and renewables evs and semi cap equipment, which we expect to be short term in nature.
Yes, when you take a step back and put it all together the company remains resilient and on track.
And we expect to deliver on key metrics, including five 6% core margins and strong free cash flow in excess of $1 billion on $28 $5 billion of revenue.
More importantly, we remain well positioned to benefit from many of the world's pilot where trends in areas like AI data center infrastructure health care pharma solutions and automated warehousing to name a few.
Yeah.
At the end of the day the world needs complex manufacturing to enable innovation in nearly everything we do in our everyday lives.
<unk> is at the forefront providing solutions around the rapidly evolving technology landscape.
With complex supply chains in an ever changing geopolitical environment.
As a management team it's incumbent upon us to ensure we're focused on the right end markets with the most innovative customers, thereby delivering incredible solutions.
And I think it's safe to say, we're right in the middle of that ecosystem today.
Moving ahead, we will continue to reshape our diversified portfolio and remain focused on growing new and existing value added businesses driving margins and generating free cash flow.
Yeah.
So let me share where I've been spending my time over the last six to eight weeks.
I've been focused on our customers our investors our suppliers and our people some.
Some of the key takeaways are as follows.
From a structure standpoint chosen an organizational approach that has served us well over the last decade with an intense focus on speed precision and solutions.
This focused approach I believe targets, our ability to serve each distinct bucket effectively by creating domain expertise in our core areas and better positions jabil for growth.
From a capital allocation standpoint, we will remain committed to returning value to our shareholders by prioritizing organic investments in our business and aggressively pursuing share buybacks at an attractive valuation levels.
This balanced approach ensures that we can reward our shareholders well tableau tenuously investing in next generation capabilities.
All the while we will take care of our customers and suppliers, while treating our people here at Jabil with respect.
Turning to the business side of things.
As you'll recall on may 20th we choose for Syn <unk> FY 'twenty five guidance.
And it's worth noting there was no singular issue that led to that tough decision, but rather three key factors.
Well start as many of the end markets. We serve remained soft and the timing of recovery in these end markets remains unclear, particularly in knees and semi cap equipment.
We also expect to accelerate reshaping our portfolio away from end markets and geographies with less attractive risk and financial outcomes.
As a result, our revenue in FY 'twenty five may be negatively impacted by approximately $800 million.
However, this will set us up to be a much stronger company in the years to come.
And lastly in FY 'twenty five we now expect interest expense and the tax rate to be higher due to a push out of interest rate expectations and the global minimum tax.
Greg noted earlier.
Over the next couple of months the management team will be spending a lot of time reviewing our plans for FY 'twenty five and beyond and in September I fully anticipate providing our full year outlook by usual with a normal color and commentary surrounding our strategy. The end markets we serve.
And our anticipated capital allocation methodology for the year.
From an end market standpoint, you will hear how we have aligned technology driven capabilities in our intelligent infrastructure business to help not only hyper scale is.
But also silicon providers accelerated their own technology.
Hello manufacturing model Leverages, our automation capabilities to navigate the rapid growth in a high demand.
How we're prioritizing growth in certain end markets like healthcare and energy infrastructure.
How we're helping retailers automate solutions in both the retail environment as well as warehousing to robotics.
We will also offer color around the businesses, we anticipate the emphasizing in the future.
And of course, we will do our best to provide their expectations and our roadmap for the timing of recovery in key areas like renewables.
Semi cap electric vehicles connected devices and five G.
And when you put this all together will describe how the seasonality has changed and how the capital intensity of our business has improved.
And the subsequent free cash flows we will generate given on your mix of business.
Yeah.
I am confident that the roadmap, we developed the propel jabal towards an even brighter future.
I can assure you that all of these actions we remain squarely focused on driving margins higher in the long run and generating robust sustainable cash flow.
All while taking care of our customers suppliers and people.
You're able to success is not the result of individual efforts, but rather a collective achievement of our entire team.
Looking ahead I'm excited about the long term trajectory of the company.
We have a strong track record of talented and dedicated leadership team and a clear vision for the future.
Together, we will continue to drive innovation deliver value to our shareholders and execute for our customers.
Before handing the call over to Adam I would like to take a moment to say thank you to the entire <unk> team for their commitment and dedication to our customers communities and to each other.
Thank you for your time and for your interest in Jabil.
I'll now hand, the call over to Adam.
Thanks, Mike, Greg and congratulations to each of you on well deserved new roles I look forward to working alongside both of you.
Before we move into our Q&A session I'd like to take a few minutes to broadly summarize some of our key messages you heard today.
First off our fiscal 'twenty four outlook is on track with the update we provided in March and subsequently reiterated in May.
Notably this includes $8 40 in core EPS.
5.6% core margins.
And $1 billion plus in free cash flow.
And as we move through Q4, we fully anticipate completing the balance of our $2 $5 billion share repurchase authorization.
As we turned our attention to the end markets, we remain fully committed to our year over year growth plans and our AI data center end markets in both fiscal 'twenty four 'twenty five.
Which today are reported across our cloud networking and industrial end markets.
At the same time were actively evaluating our portfolio to see if there's any opportunity to further optimize as Mike just described.
And for early modeling purposes. Please keep in mind that our seasonality in fiscal 'twenty five will be reflective of the mobility divestiture.
As such our quarterly earnings progression will be more like that of our EMS business, where we typically earn 40% in the first half of the year and 60% in the second half of the year.
Interest expense in fiscal 'twenty, five although rate dependent is shaping up to be approximately $275 million.
And our core tax rate is expected to increase from fiscal 'twenty four to fiscal 'twenty five as a result of pillar two global minimum tax legislation.
And finally, and just generally speaking jabil remains extremely well positioned to benefit from a recovery in many of the end markets that have proven to be headwinds in fiscal 'twenty four.
And while the timing remains uncertain the ultimate recovery will lead to solid revenue growth further margin expansion and even more cash flow generation on an already installed capacity.
We look forward to updating you on these matters and more on our seventh annual Investor briefing, which is tentatively scheduled for September 26.
Operator, we're now ready for Q&A.
Thank you. The floor is now opened for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up.
The handset before pressing the star keys.
Again, Thats Star one to register a question at this time.
Today's first question is coming from <unk> <unk>. Please go ahead.
Hi, Thanks for taking my questions, Mike and Greg Congrats on your new assignments, Mike what do you see as the biggest opportunity for Jabil over the next year and what do you see as the biggest risk and Greg.
A similar question P. U S. CFO what are your main focus areas for the next year.
No I think you're aware I've been the CFO for six years and during.
This time my focus areas have always been and always will continue to be margins and free cash flow and.
And utilization of that free cash flow for buyback purposes, we so.
Do think were undervalued. So that's a key area of capital allocation that will not continue with the.
The focus on margins continues focus on free cash flow outlet in all the right set of end markets as well so from an opportunity standpoint as other end markets that were not in yes, we'll be looking into that.
One of the reasons, we're structured the way, we are and the and the new organization, but right now yes. There is some softness in some of our end markets are but over the long term a lot of these end markets are ripe for a recovery yeah.
And I'm not suggesting that happens in the next one or two quarters I think we have seen some of that shifting the recovery shifting to the right.
So overall from a promo from a opportunity perspective, I think the key is.
When does when.
When does this whole AI proliferation at almost everything we do sell we were a hardware company AI is going to require hardware refreshes across the board.
Looked they had almost all of the right end markets. So I do expect that entire AI.
Proliferation to be a tailwind for us so that happened in the next one or two quarters, perhaps not right now its more the data center or a focus stuff, but over the long run I do expect that to proliferate across the entire range of end markets. We serve from a from a risk standpoint, a real blow a I think it's the.
Timing of the recovery I think there's various.
Anecdotes outside externally internally some would suggest things are.
Covering a little bit slower than we anticipated some suggests that it might be okay. So we'll take the staff over the next three or four months to figure out a plan a that was one of the reasons, we rescinded our FY 'twenty five guidance that we'll provide much more color on our analyst briefing.
In AR at the end of September.
Yeah, Hi.
Greg just to reiterate some of the things Mike just said are definitely expanding operating margins it will be a key focus.
Continuing to generate strong free cash flows as you saw quite a strong Q3, we had.
And then return capital to shareholders and we continue to be Super thoughtful on this and believe share repurchase is still a great use of our cash for jabil.
Okay got it Mike you talked about AI I mean, when I look at things he is getting to be a very competitive space and so how do you see jabil investments in AI training over the next few years and do you think margins on the E side trend lower or higher than the rest of the business given the increased.
Sure.
So I think you're absolutely right there is a large amount.
Petitioner hope they'll today, if you'd think about where we play in AI, it's mainly around the south Iraq equipment as we look at data Center building infrastructure. We're looking at power. We're looking at cooling we're looking at value add services around some of these data center or a pieces as well so that will be.
Our margin will slow down, but it will start picking up again, all the overtime as restocking spending around AR and AI data center rack driven strategy.
What we're looking at other pieces in.
In the periphery.
Along the lines of Silicon Photonics are were looking at was that packaging. So there's a whole bunch of things that we look at it from an AI.
Perspective, and and I think margin does something to go jump up quite a bit right now, but and it'll go down come back up pretty fast.
Okay, maybe I was trying to sneak one more in you talked about some weakening of the auto in the healthcare space and and also on semi cap I think you've said that it's weaker than.
Unexpected.
When do you expect a recovery in these and if revenues continue to be weak what are some of the levers you have to continue to drive margins and free cash flow I think you've said margins are our focus so what are some of the levers you have on the margin and free cash flow side, even if revenues are weak thanks for taking my questions.
So let me try and answer your auto question first I think in auto we are seeing some weakness, particularly as it relates to China I think there's an over supply.
Situation are there that does impact manufacturing or us a local to local and local for Asia, sorry for local for export purposes as well. So we're seeing some push out in the whole low E V recovery space because of the situation in China up from a semi cap standpoint.
I think our initial expectation was a full scale recovery in December or January and December 24 of January 25, that's pushing it out a little bit to the right and I think you'll see a little bit of a weird situation, there where our China is a dominant player right now there is.
There is sell through into China, but a lot of that sell through is coming from eyal <unk> from existing inventory. So we expect a gable impact to start around the middle of a calendar year round.
In calendar year 'twenty five the from a margin standpoint, a group Lou we do expect all of these end markets to start coming back at some point or the other so it's not a we're not in a full blown recession well, let me go in a completely close down facilities and and.
Take down cost because we lose out when the recovery does come through so you might see some level of temporary margin impact are there, but overall, our trajectory and our position when the recovery starts will be extremely strong and I'll give you. An example, I think today, we're probably.
Bassett guys for about 32 $33 billion of revenue and then if you look at work there in FY 'twenty five obviously, it would be considerably lower than that yeah.
So we'll have a little bit of surplus capacity, we do want to take that out I don't think the answer is take capacity out I think we're going to wait for that recovery to come back and there might be some level of temporary margin.
Impact, but long term really well positioned.
Speaker Change: Okay. Thanks for all the details congrats again on the new assignment.
Sure.
Thank you. The next question is coming from Steven Fox of Fox Advisors. Please go ahead.
Hi, good morning, and congrats Mike and Greg on your appointments I guess I had two questions first of all just following up on those last comments, Mike I mean, the guidance for Q4 implies you hit that magical 6% operating margin number. So I'm just curious if you could put that number into context, you just described a lot of seasonality and some <unk>.
Market, so like how how.
Sustainable at 6% as more of a Q4 number versus like something that's ongoing as you think out cause next year and then I had a follow up.
Yep.
Steve first of all I do think there is any E and amount of seasonality that we see in almost every single Q4, so you'll see margins go up because of that for sure and I think Adam highlighted even FY 'twenty five when we think about that we expect the second half.
Our going forward second hubs to be much more than the first half I'll deal with because of our mobility divestiture. There is some level still a fixed cost recoveries and when you have fixed cost recoveries, but no.
Revenue up playing through there is definitely a bit of a margin impact.
I do think.
I don't think 6% is what we're that'll be seeing it start sustainable in Q1, if you look at historical seasonality in.
Q1 things go down Q2 is consistent with Q1, and then we see another sort of Q3 and Q4 uptick in margins at 6% I would say is a little bit of one offs in it and it is not sustainable for the first half of the year, but Q3 Q4 up next year you will see.
A similar sort of seasonality from a margin perspective.
Great. That's helpful. And then in terms of your prepared remarks, I guess, there's one area I was hoping you could dig into a little bit you mentioned with your second point, some reshaping geographically and market is on the table now for next year can you just sort of expand on what you saw in your lap.
Last six to eight weeks that makes you want to sort of.
I guess changed strategy, just incrementally a little bit thanks.
Sure So Steve I've always been focused on margins and free cash flow I think you've seen that over the last six years.
Continuing to prioritize margins and cash flow are if if we see some level of accounts where are the one or two of these metrics don't shape up.
Well, we're looking at it from a reshaping our portfolio.
Sort of away from some of those end markets and geographies as well with less sort of attractive risk and financial outcome. So it's.
Its spread out a little bit Ah I would I would look at legacy networking is one of the areas where you've.
You'll see this the legacy networking going down you will see a the AI piece, replacing some of that so you see an increase in a I believe you'll see a little bit of a decrease on the legacy.
Networking piece as well again dispositions, Australia, well, so I'm, not saying margins will jump up in 25 because of this but over the long term in FY 'twenty six seven beyond the the margin structure will improve along with better cash flows I think Greg talked about free cash flow is coming in really strong in Q.
Three we continue to be focused on our free cash flows going forward because that's that's why we think the valuation lies is in the free cash flow.
Great. That's helpful. Thank you.
Speaker Change: Yeah.
Thank you. The next question is coming from George Wang of Barclays. Please go ahead.
Okay.
Uh huh.
The new role so I have two parts firstly.
You mentioned the streets are driven by connected devices networking storage. You know you also raised our full year forecast.
So couldn't be for the two segments. Just can you talk about kind of what's driving a better kind of outlook, but in connected devices and that's working just you just say you can the industry grows all kind of share gains.
I think it's probably neither of those it was a little bit of conservative forecasting from our perspective, if you see connected devices over a over the last maybe a couple of years post COVID-19, it's been a little bit down and we've always sort of tried to.
Make sure that our forecasts.
Our accurate are in this particular instance, the numbers came in no I don't think we're seeing a big jump up in the end market, but I think that the old impact in Q3 was up.
Mainly because of the conservative forecasting that leads.
We had sort of anticipated.
Cause gotcha, just so quick follow up if I kind of I just want to confirm.
It's still 6 billion yeah revenue for FY 'twenty five you guys talked about in the prepared remarks, it didn't really change the forecast. So I just want to confirm its still 6 billion. But also also like I just want to hone in on the power of the cooling.
You guys talked about some of the value added obviously, you know power cooling has been massive shortage are with higher margins. So can you talk about your differentiation and some of the initiatives on the table from Jabil standpoint to capture the upcoming hearings. So the shortage in the kind of the demand associated with Polycom quoting in the data center.
Let me hit the power and cooling our question our first one of the things we are.
Being in the data center or a space are the legacy.
Data centers are going through a retrofit.
And that retrofit we.
We're looking at capabilities, there, where we can offer services to data centers.
Profile from a pooling distribution unit perspective, if you look at new deploying.
Deployments are the legacy ones are more liquid to air are the newer deployments or liquids liquid cooling are well we have in general.
Capabilities around that and are well well well be continuing to look at cash flow on capability driven.
Transactions in that space as well the key here.
Here is to expand our service around silver at integration and into the whole data center or a building our infrastructure as well.
I think that would be a big dip.
A differentiator out.
Okay. Thank you.
Thanks, Joe.
Thank you. The next question is coming from Matt Sheerin of Stifel. Please go ahead.
Yes. Thanks, good morning, everyone I wanted to drill down a little bit more on your commentary on on networking.
But also the the customer base you you indicated that you may have.
To walk away from some of the legacy business I'm I'm guessing you're you're talking about.
The traditional OEM market.
I know that you've got a growing data center hyperscale customer base, particularly on the server side, but are you also working with those customers on our network products like switches and could you tell us exactly what youre doing for those partners on the networking side.
Yeah. So I think that's a that's a great question I think youre absolutely right. The legacy piece from the networking side that were sort of walking away from a lot of that is being replaced to anyways by future forward looking AI, a liquid cooled sort of switches.
We're definitely yeah, they're definitely getting involved and and that we'll look at that.
If you look at our Silicon Photonics piece, we're looking at the whole transceiver.
Business, which which gets attached to that space quite a bit as well so.
Overall, our networking and storage would it think of it as a as a transition where we're transitioning from a from a legacy network dwell to a new era of networking and switching and we're gonna be playing heavily on the new networking and switching.
At the same time on the legacy business will go down a bit.
Okay and then in the in the networking side, we're seeing some of your your peers have an ODM model, where they're actually doing custom work for our customers and others are building to a customer's design or you're going to have both both routes are mostly on the more traditional EMS side.
Oh, well I think it'll be a hybrid what we're not going full ODM are at this stage, where we're definitely going to continue in the in the E. M S space.
Space historically.
We stayed away from competing directly with our customers and we'll continue to do that are met.
Oh, Okay, great. Thank you and just turning to the balance sheet and your forecast for that higher interest net interest expense next year or basically flattish could you just talk through the capital allocation I know you've done.
Aggressive buybacks significant but why not take down some of the short term borrowings or some of your debt to reduce that and also if you look at your inventory inventory days, they've come down a lot, but they're still well above where they were post pandemic. So is there work to be done in terms of inventory or their working capital.
Net interest expense down.
Yeah, Hi, this is Greg so yeah, I think there's a few parts of that question I'd say first on interest expense and share buyback we definitely.
Look at the two combined and then making sure we have the most effective you know our EPS results from that interest expense, we do see rates continuing to stay elevated for most of the calendar 'twenty four and then into 'twenty five so being conservative on that on that number you know from working capital.
[noise] perspective, I think we've been doing a really good job Oh, we do see are that inventory in the 55 to 60 day range and do we and we do see some cyclicality of that during the year.
And enter corner. So obviously this quarter, we had a good number that hit but you know one thing to remind you as well we do have inventory deposits that that does offset some of that pick up when we do just you know look at our gross DIY coming down.
And so we're continuing to be very focused on that inventory in and getting it down closer to 55, but there is some cyclicality on that on the share repurchase you know we are committed to.
Completing our $2 $5 billion.
Share authorization in Q4, we do need a new board authorization as we go into 'twenty five so stay tuned for that but you know looking to get our WAF. So I went to the 110 to $1 13 range by the end of FY 'twenty, five and Matt If I can just and provide some more color on the interest if you go back to FY 'twenty. Please.
This year over previous years.
Our or our interest.
It was in the range of 150.
Now I think if you look over time.
It was in that range I'm not suggesting we go back to 150 today, you said 275, but as as interest rates start coming down and we have a full year impact of that more towards the end of a calendar year 'twenty five.
You'll see a you'll see interest start going down quite a bit as well because 275 is not going to be the norm is going to continue to go downwards. It won't go back to 150.
To the low two hundreds is a highly a highly possible and all of that just drops directly to the E. P. S. A lie.
Got it okay. Thank you for that and just if I can just sneak in one last question regarding the 800 million dollar headwind you talked about for next year.
Most of that coming from an end demand weakness, but is there a part of that also coming from deselect being customers. As you said as you prune the portfolio could you break that down for us.
All of that comes from Deselecting, not deselected badri negotiating with customers, it's coming down.
The than the number I provided was a it was a 800 that is.
Part of our strategy like I've mentioned before our margins and free cash flow continue to be front and center.
Everything we do and it's reshaping the portfolio sort of away from our end markets and geographies with less attractive risk.
And financial outcomes. So it's all that and then I think I mentioned legacy networking being one of the big ones. There. So it's it's it's it's all it's all driven by literally reshaping the numbers I think if you are.
If you look at all of the other end and Mark heads they are yeah.
Well that soft I'd say the recovery.
The timing of that recovery has been pushed out is continuing to be pushed out a little bit.
The other end markets will be down, but there's no. There's no reshaping going on around that and that 800 million that I referenced was probably a reshaping our.
Number there will be some level of revenue impact as the timing of recovery gets shifted to the right as well.
Speaker Change: That's very helpful to clarify and I would imagine that that 800 million revenue is a good margin and return profile is below company average so that would be accretive in other words to the business absolutely I I I'm, not again, I'm, not suggesting FY 'twenty five lucia vein accretion because of that.
I talked about us being capacity values for 32 $33 billion of revenue.
Our revenues are going to be considerably short of that so we will have a little bit of all the capacity, we need that capacity when things start to recover and now I think it'll be very shortsighted of us too Wow. Good address that are incremental capacity that we have today Oh. So yes, there will be a margin margin accretion in the.
These are businesses overall and from a from a company standpoint, just keep in mind that there is a little bit of an overcapacity situation right now as well, but think of that as an opportunity when things start coming back up it will have a it'll have a big bulge in impact and does that happen towards the end of 'twenty five does that happen.
In FY 'twenty six shop, we just don't know right now and that's why we bought it for a little bit more time, and that's why we withdrew our FY 'twenty five.
Guidance, we will provide more color than that at the end of September to the best of our abilities.
Got it okay. Thanks, so much.
Thank you. The next question is coming from Mark Delaney of Goldman Sachs. Please go ahead.
Yes, good morning, and thanks for taking my questions first a follow up on the $800 million of revenue that the company is looking to deselect campus better understand what the margin profile is about I know you said, it's below the corporate average, but it is it.
Just about break even in low single digits slightly below corporate average or any more color on the EBIT margin associated with $800 million would be helpful. It's it's felt of our enterprise margin and its not just the margin we look at the free cash flow profile.
As well that that both of those metrics are critical for our.
<unk> success.
Thank God.
What are the things, we're looking at as risk as well as obviously the financial metrics after tie out the risk has to.
Tie out as well our risk in a different.
Parts of the world risk in our risk in the end markets that are seeing a downward trend all being replaced by a new a new perspective. So it's all of that Oh can are the the margin will be south as I was I was just mentioning on the previous question from.
Matt are don't expect margins to jump up from 25 because of this there is a little bit of an overcapacity situation. So the margin.
It does get impacted and it's a it's a it's it's over time, Oh, I do expect and maybe towards the end of FY 'twenty five or even in FY 'twenty six to see a pick up in margin because of that so it's a it's a mid to long term payback or whatever.
Helpful color, Thanks for that Mike.
My second question was around hybrids you mentioned in the presentation that you have some ability to grow with hybrids not just with Bev can you double click a little bit more talk to us around where jabil was participating in hybrid and to what extent you have the design wins that would.
So to support growth in hybrids or some of the traditional Oems are planning to grow faster in hybrids over the next few years. Thanks.
So I think when I talked about Evs.
He these are I think the point I was trying to break.
Make was that we're almost agnostic to whether it's E vs that succeed or hybrids are.
That succeed and I think if you look at some of the some of the three or four areas that we.
Participate in I think it's a software defined vehicles are at that applies across combustion hybrids. Any these are if you look at the battery management systems and everything to do.
The battery it equally applies to evs.
And hybrids are if you look at some of the connectivity piece again it applies to all three categories of of automotive and then if you look at our automated driving with updates with cameras with all bunch of autumn eight as our technologies again.
Ignostic too.
Each technology wins out are we still think evs.
Is ripe for a come back I think it is seeing some temporary sort of impact you to price due to battery range. Just a couple of those issues being resolved and E. These will be back again, but the point I was trying to make is up.
What we're gonna have a E D or a hybrid of an E. These go down and hybrid school out there'll always be a little bit of a timing difference as we win programs are in in the hybrid space Oh for them to come on line, but the long term trajectory for our EP business.
It's actually quite agnostic in terms of which technology wins out.
Thank you.
Thank you. The next question is coming from Cemig Chatterji of J P. Morgan. Please go ahead.
Yeah.
Alright, well thanks for taking my question. This is can be on fossil Macchiato G suite.
So I just wanted to ask like you heard and who will get hope you'll get a CRO and connected devices networking storage plays G cloud et cetera. So a lot of the E rate everybody's recognizing these end markets are really so just wonder protected how much of the increase in the old smokers, because he or she has traditionally been a company in their end markets.
And I have a football.
So and in the in the in the other end markets.
I think Greg talked about the three that are impacting yesterday from an AI.
Perspective, all of the other end markets. So I think it's really too early for us to start.
Assuming AI pieces in there I think AI is definitely coming AI is definitely going to impact all of those are end markets a hardware refresh cycles.
<unk> will take place in a number of our end markets burnout assumptions were baked that in there right now as we see it coming forward are we will start putting some of that in but the answer direct answer to your question is there's very little there's almost no AI in any of the other.
And Marc buckets at this stage.
Okay, and then one will be on operating expenses I believe.
So it seems that revenues were quite higher than the midpoint of the guidance this quarter, but operating expenses.
Something we have been through the operating margins will be below the implied guidance.
Or what exactly was driving the higher expenses and what's your confidence on pinging disconnect fully go from 6% margins next quarter. Thank.
Thank you.
Yeah, Hi, it's to me, it's really a mix that we're seeing recently so we.
So again, some seasonality to that but all of that is related to mix.
Yeah.
Yeah.
To meet they do have additional questions.
Thank you that's it goes there's no questions.
Thanks, Tony.
The next question is coming from David Miller of UBS. Please go ahead.
Hi, This is Andrew on for David I wanted to ask a question about your wireless business as we've moved past the elections in India have you seen any signs that that business might pick back up.
And at this stage I'm not really I think there's been a mass scale deployment of five G. Already are in in India, I think there's definitely I think.
Theres a whole today monetize that AR.
And fall or after they've seen some returns they're almost I think there's 70, 580% sort of brought it out are I don't think we we have some big assumptions of a post election, a recovery in India at this stage.
Got it and it's also wanted to follow up on the comments about the softness you saw in the healthcare segment.
<unk> said it was in the medical devices part of that business. Just wondering if you could expand on what was driving that that softness.
Is it macro but what are you seeing that.
So let me say softness just note that it is just one of the.
One of the four or five things that we do in our entire healthcare space I think if you look at the G. L. P. One drugs are they're off the charts, and just keep going higher and higher and higher other snow and bad.
We're really well positioned to play in that space are there is a counter.
Sort of impact are I'll, just say that impact surgeries are medical devices.
But there's a whole bunch of other things that we do as well from a diagnostic standpoint from an orthopedic standpoint.
From a pharma solutions standpoint from our other medical devices. So that's it's just it's a smaller impact I wouldn't oh.
Greg called it out I think he was an issue specifically or.
For our FY 'twenty four we're seeing some short term headwinds.
Headwinds there were up because of that but don't forget the G. L. P. One.
<unk> will continue to grow our I think the only the only a sort of a constraint.
Constrained is capacity, putting that capacity in place, which takes a little bit of time due to the heavy automation that's involved on the G. L. P. One piece.
Okay.
Yeah.
Thank you at this time I would like to turn the floor back over to management for any additional or closing comments.
That's it for this call. Thank you very much if you have any further questions. Please reach out we will be happy to talk.
Thank you.
Ladies and gentlemen. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
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