Q1 2025 Jabil Inc Earnings Call
Speaker Change: [music].
Greetings and welcome to the Jabil first quarter fiscal year 2025 earnings conference call and webcast. At this time all participants are in a listen only mode.
So you can watch what the prior operator assistance. Please press star zero on your telephone Keypad, Oh question and answer session will follow the formal presentation.
You may be placed in the question queue at any time by pressing star one on your telephone keypad.
Speaker Change: It's now my pleasure to introduce your host Adam Berry Senior Vice President of IR and Communications Adam. Please go ahead.
Adam Berry: Good morning, and welcome to Jabil as first quarter fiscal year 2025 earnings call.
Adam Berry: My name is Adam Berry, and I'm Senior Vice President of Investor Relations and communications.
Adam Berry: Joining me on today's call are Chief Financial Officer, Greg Hubert and Chief Executive Officer, Mike that store.
Adam Berry: We're happy to be joining you today from St. Petersburg, Florida.
Adam Berry: As a reminder, we conducted our September earnings call hours before a hurricane Helene made landfall in the Tampa Bay area, followed by Milton thereafter.
Adam Berry: Although these storms caused significant damage to the southeast are two sites in St. Petersburg, Florida, and our two sites in North Carolina, where all operational within 10 days.
Adam Berry: The tireless efforts of our employees to get these sites back up and running.
Adam Berry: Considering many of them experienced damage to their own homes and communities was incredible.
Thank you to all those that helped.
Speaker Change: With that please note that today's presentation is being live streamed.
Speaker Change: And during our prepared remarks, we will be referencing slides.
Speaker Change: To view the slides please visit the Investor Relations section of Jabil Dotcom.
Speaker Change: After todays presentation concludes a complete recording will be available on the website for playback.
Speaker Change: In addition, we will be making forward looking statements. During this presentation, including among other things those regarding the anticipated outlook for our business such as our currently expected fiscal year net revenue and earnings.
These statements are based on current expectations forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.
An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31st 2024, and other filings with the SEC.
Speaker Change: 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.
Speaker Change: With that I'd now like to turn the call over to Greg.
Greg Hubert: Thank you Adam good morning, everyone. Thanks for taking the time to join our call today.
Greg Hubert: I'm pleased to report that we're off to a solid start for FY 'twenty five.
Greg Hubert: With Q1 revenue coming in at $7 billion.
Greg Hubert: Up 1% year on year.
Greg Hubert: Excluding the approximately $1 $45 billion associated with the mobility divestiture and the prior year quarter.
Greg Hubert: Yeah.
Greg Hubert: Core operating income for the quarter came in at $347 million.
Greg Hubert: Our operating margins came in at 5% in spite of a roughly 10 to 20 basis points of hurricane related impact.
Greg Hubert: Net interest expense in Q1 came in better than anticipated at $60 million.
Greg Hubert: Reflecting continued good working capital management by the team.
Greg Hubert: On a GAAP basis operating income was $197 million.
Our GAAP diluted earnings per share was <unk> 88 cents.
Greg Hubert: Core diluted earnings per share was $2.
Greg Hubert: Turning now to our performance by segment in the quarter.
Greg Hubert: Our regulated industry segment reported revenue of roughly $3 billion.
Greg Hubert: Down 7% year on year due to continued weakness in our renewable energy and EV markets.
Greg Hubert: Despite this.
Greg Hubert: Core operating margins for the segment increased by 10 basis points to four 7%.
In the intelligent infrastructure segment.
We saw revenue of $2 $5 billion up 5% year on year.
Greg Hubert: This growth was primarily driven by strong demand in our AI related cloud.
Greg Hubert: Data center infrastructure and capital equipment markets.
Greg Hubert: The core operating margin for the segment was four 8%.
Greg Hubert: 10 basis point improvement compared to the prior year quarter.
Greg Hubert: Yeah.
Greg Hubert: In our connected living and digital Commerce segment revenues were $1 $5 billion.
Down 46% year on year due to our mobility divestiture.
Greg Hubert: Excluding the mobility divestiture from the prior year revenue growth for this segment was approximately 12% reflecting.
Greg Hubert: Strong year on year growth across our digital commerce and warehouse automation markets.
Greg Hubert: Core operating margins for the segment came in at five 8% in Q1.
Greg Hubert: Shifting gears to our cash flow and balance sheet metrics, where we continue to see robust results.
Inventory at the end of Q1 was flat sequentially at 76 days.
Greg Hubert: After adjusting for inventory deposits net inventory days were 56, a two day increase quarter over quarter.
Greg Hubert: But as expected and within our long term target range of 55 to 60 days.
Greg Hubert: Thanks to disciplined working capital management by the team our first quarter cash flow from operations were very strong coming in at $312 million.
Greg Hubert: Net capital expenditures for the first quarter were $86 million.
Greg Hubert: And for the full year, we continue to expect net capex to be between 1.5% to 2% of revenue.
Greg Hubert: As a result of the solid first quarter performance and cash flow generation.
Greg Hubert: Adjusted free cash flow for the quarter came in at $226 million.
Greg Hubert: We continue to expect strong free cash flow for the year to come at $1.2 billion.
Greg Hubert: Yeah.
Greg Hubert: We exited the first quarter with a healthy balance sheet with debt to core EBITDA levels of approximately one four times.
Greg Hubert: And cash balances of approximately $2 $1 billion.
Greg Hubert: In Q1, we repurchased one 8 million shares for $232 million.
Greg Hubert: We have $768 million remaining on our current $1 billion share repurchase authorization as of the end of Q1.
Greg Hubert: We remain fully committed to completing the current share repurchase authorization by the end of FY 'twenty five.
Greg Hubert: Before I discuss the next quarter guidance I would like to conclude my remarks on Q1 by acknowledging that jabil team's strong execution this quarter, which delivered solid results to start FY 'twenty five amid a highly dynamic environment.
Greg Hubert: The company continues to demonstrate high resilience as well positioned for future revenue growth margin enhancement and robust free cash flow generation.
Greg Hubert: With that let's turn to the next slide for our Q2 FY 'twenty five guidance.
Greg Hubert: Beginning with revenue by segment, we anticipate revenue for our regulated industries will be $2 $7 billion.
Greg Hubert: Down 8% year on year, reflecting continued softness in the renewable energy and <unk> markets.
Greg Hubert: For our intelligent infrastructure segment, we expect revenue for the quarter to be $2 $4 billion.
Greg Hubert: Up 8% year over year.
Greg Hubert: Reflecting broad based growth across capital equipment.
Greg Hubert: And networking cloud and data center infrastructure markets.
Greg Hubert: And our connected living and digital Commerce segment revenues are expected to be $1.2 billion. This is down 20% year over year, mainly due to our mobility divestiture.
Greg Hubert: Total company revenue for Q2 is expected to be in the range of $6 $1 billion to $6 $7 billion.
Greg Hubert: Core operating income for Q2 is estimated to be in the range of $286 million to $346 million.
Greg Hubert: GAAP operating income is expected to be in the range of $183 million to $263 million.
Greg Hubert: Core diluted earnings per share is estimated to be in the range of $1 60 to $2.
Greg Hubert: GAAP diluted earnings per share is expected to be in the range of 69.
Greg Hubert: To $1.27.
Net interest expense in the second quarter is estimated to be approximately $60 million.
Greg Hubert: And for FY 'twenty five we now expect it will be $235 million down from what we thought in September.
Greg Hubert: Our core tax rate for Q2 and for the year is expected to be 21%.
Speaker Change: With that I'd like to thank you for your time this morning and for your interest in Jabil.
Speaker Change: I'll now turn the call over to Mike to dive deeper into our strategic growth areas and the exciting opportunities ahead.
Mike: Thanks, Craig.
Mike: Good morning, and thank you for joining our call today.
Speaker Change: As Greg just highlighted our first fiscal quarter results came in stronger than we had anticipated driven mainly by incrementals trend and our intelligent infrastructure segment.
Speaker Change: As a result of the team was able to deliver strong core EPS margins and cash flows during the quarter.
Speaker Change: Furthermore, we distributed the majority of the generated free cash flow to shareholders via our dividend and buyback programs.
Speaker Change: To summarize I'm extremely pleased with these financial results and the positive trajectory of about a year.
Speaker Change: As a management team, we're collectively working together to deliver strong core operating margin expansion and consistent free cash flow growth, which will allow us to continue to invest in the business.
Speaker Change: And return capital to shareholders.
Speaker Change: In a few moments I'll provide some details regarding our updated outlook for the balance of the year, but.
Speaker Change: Before I jump into those details I wanted to take a moment to thank the global team here at Jabil for their commitment dedication and hard work in the highly dynamic operating environment.
Speaker Change: As the World continues to evolve. This team is working hard to ensure <unk> remains nimble agile and resilient for many years to come.
Speaker Change: For instance, during the quarter our team.
Speaker Change: Our large scale manufacturing site in Croatia, which currently supports a European based automotive OEM.
Speaker Change: And beginning in FY 'twenty seven this site will also support our health care customers specific play in the G. L. P. One drug delivery space as demand continues to exceed supply.
Speaker Change: The team also relocated and ran multiple existing programs. So the U S. As many of our customers continue to seek a broader geographic manufacturing solution.
Speaker Change: We added to our capabilities during the quarter two so the acquisition of Micron technologies, a leader in engineering liquid cooled solutions.
Speaker Change: These capabilities, we believe will support our future growth in verticals in both the data center ecosystem and other end markets that require terrible management like automated test equipment for semiconductors batteries and energy storage systems and electric vehicles.
Speaker Change: And all the while our team was bashing through major Hurricanes in St Pete Asheville and Hendersonville.
I would like to take this opportunity for a quick shout out to our teams put not only taking care of each other but also taking care of our communities. During this trying time.
Speaker Change: The Jabil culture was truly undisciplined.
Speaker Change: I'd now like to shift our focus to fiscal year 2025, and our outlook by both end market and segment.
Speaker Change: I'll begin with regulated market segment, we anticipate continued year over year weakness in automotive and transportation driven by lower global sales of electric vehicles.
Speaker Change: Over the longer term, we feel comfortable that the automotive and transportation business will improve as that technology agnostic capabilities position us to capture growth in both EV and hybrid vehicle solutions.
Speaker Change: In health care and packaging as we previously anticipated we continue to execute on our pipeline of new wins, including the launch of G. L. P. One auto injectors and continuous glucose monitors.
Speaker Change: As a reminder, due to the long qualification cycles in health care. It often takes 18 to 24 months to ramp these programs.
Speaker Change: Once these programs ramp they generally enjoy very long product life cycles, and multiyear stable returns.
Speaker Change: Niel Who's an energy infrastructure in the energy infrastructure space continues to do well with solid growth in battery power management.
Speaker Change: This growth is largely offset by previously indicated weakness in renewable applications, primarily focused on solar.
Speaker Change: Throughout the solar downtown we worked hard to better position ourselves as we wait for a recovery in the end market.
Speaker Change: This includes share gains with key customers and operating cost reductions.
Speaker Change: In the near term renewables continue to weigh on segment core operating margins.
Speaker Change: Turning to intelligent infrastructure segment, which is driving the majority of our growth in FY 'twenty five.
Speaker Change: In capital equipment, the rise of AI is driving demand for semiconductor fabrication and test equipment.
Speaker Change: Which we expect to continue throughout FY 'twenty five and beyond.
Speaker Change: In addition in the datacenter space, we continue to deepen our existing relationship with our largest hyperscale out with continued strength in the custom AI driven G P Iraq integration business.
Speaker Change: As we had previously indicated we've also won programs with the new hyper scalar and the silicon photonics side of our business.
Speaker Change: Over the longer term, we anticipate that our capability investment in liquid cooled systems will allow us to participate in solutions that address the immense power and carbon demands of AI Center.
Speaker Change: Year on year, we now expect the intelligent infrastructure segment to be up by approximately one $5 billion. After adjusting for the exit of legacy networking businesses last fiscal year.
Our connected living and digital Commerce segment has two distinct aspects.
Speaker Change: Living which largely focuses on consumer oriented devices remains under pressure while at the same time, we remain bullish on our digital commerce business, which is being driven higher by the automation of the retail and warehouse experience.
Speaker Change: Now, let's discuss our global network of factories, which we believe is a significant competitive advantage.
Speaker Change: Consistent with my comments in September we placed considerable value on maintaining a large scale global manufacturing footprint.
Speaker Change: And as the geopolitical situation continues to evolve our ability to adapt combined without designation as a U S domicile manufacturing service provider.
Speaker Change: And a significant U S footprint is becoming increasingly important for our customers.
Speaker Change: And in my opinion Jabil is among the best positioned companies in the world to help customers navigate these complexities.
Speaker Change: Next even though it's very early days I would like to spend a couple of minutes on a topic that has received considerable attention over the past few weeks potential tariff implications.
Speaker Change: Yeah, that's what we can share is up today.
Speaker Change: As a reminder, wildcat items may impact end customer demand any changes in tariff costs have historically been largely a pass through cost for jabil.
Speaker Change: Let's start as most of our business in China is freedom in local for local a local to regional but the very small portion of our revenues generated from that region being U S bound.
Speaker Change: Second lien Mexico off footprint has evolved over the past eight years as many of our customers manufacturing solutions that go closer to the final customer.
Speaker Change: We remain well prepared due to proximity and corporate resources for any of the bus lift and shift of operations from Mexico to the U S.
Speaker Change: Our U S manufacturing footprint has never been bigger than it is today.
Speaker Change: And what I do feel there will be some challenges to overcome such as labor.
Speaker Change: <unk> and experience and drive and tested automation lines and robotics will certainly help expedite any transfers.
Speaker Change: I personally feel that there is no company better positioned than us to grow up manufacturing in the U S.
Speaker Change: Of course, we'd have to see how all this plays out over the next several years, but right now I see a lot scaled manufacturing footprint is a major competitive advantage.
Speaker Change: Shifting now to full year guidance.
Speaker Change: I'd now like to take a moment and explain why we expect higher earnings and margins in the back half of the fiscal year as reflected in our Q2 and full year guidance.
Speaker Change: This is mainly due to the following drivers.
Speaker Change: First as a reminder, our mobility divestiture last year makes the historical seasonality more pronounced.
Speaker Change: And then the ongoing program ramps in the first half of the year in cloud data center infrastructure and warehouse automation.
Speaker Change: Weighed on core operating margins.
Speaker Change: Additionally, the anticipated continued recovery of our relatively higher margin semi capital equipment business will contribute to higher earnings in the second half.
Speaker Change: And lastly, our cost optimization initiatives, which we discussed during our last call will also deliver improvements in margins and operational efficiency as the year progresses.
Speaker Change: For all these reasons, we anticipate stronger earnings and margins in the second half of the year.
Speaker Change: Putting it altogether for the coming year, we now anticipate approximately $27.3 billion in revenue.
Speaker Change: With core operating margins of five 4%.
Speaker Change: Core earnings per share now expected to be $8 at 75 cents.
Speaker Change: Importantly, we continue to foresee another robust year of free cash flow generation in FY 'twenty five of $1 $2 billion.
In closing I want to say, thank you to the entire jabil team for their dedication and to our investors for your continued trust and support.
Speaker Change: I would like to wish everyone, a safe happy and prosperous new year.
Speaker Change: I will now turn the call back over to Adam.
Thanks, Mike and that concludes.
Our prepared comments operator, we're now ready for Q&A.
Speaker Change: Thank you and I'll be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if he'd like to remove yourself from the queue. Once again Thats star one to be placed into the question queue.
Speaker Change: Our first question today is coming from ruble, but to try out from Bank of America. Your line is now live.
Speaker Change: Hi, Thank you for taking my questions and congrats on the quarter.
Speaker Change: Can you talk about the relative margins of each segment and what we should expect for fiscal 'twenty five so for regulated industries and intelligent infrastructure in connected living how do you how should we think about margin recovery in each of these segments, which segment has the most upside to margins.
Thanks, Rob no so well I think from a from before the three different segments I would expect.
<unk> should be north of 5% or three of them are right now we're seeing some level of underutilization of capacity on our side.
Speaker Change: And on the renewable side, which is a little bit of a drag but that means that the opportunity for <unk>.
Speaker Change: Increased margins going forward once these end markets recover a little bit.
Is much higher there are I do see our intelligent infrastructure piece about 5% as well I think that's where.
Speaker Change: We see the biggest level of growth over the next step a few years as well so.
Speaker Change: Doing relatively well on that that would that be used with capital equipment. Obviously.
Speaker Change: <unk> a bit of a recovery in the second half of the year round, which is still.
Speaker Change: They're meant much in play today, and Oh margins as you're aware of that are slightly higher than our than our other end markets.
Speaker Change: From our connected living perspective look thats, mainly all.
Speaker Change: And human driven are there some high level of seasonality, especially with SD Wan are doing really well on the consumer.
Speaker Change: Side as always.
Speaker Change: I think the digital commerce piece is a bit.
Speaker Change: That's driving the future era that will be high margin it's new.
Speaker Change: Alright lines, New technologies, New design engineering capabilities, and there are high Tech high tech sort of stuff going on in that end market and I feel really good about.
Speaker Change: That having double digit growth rates, albeit from a lower base, but the opportunities are there in all three segments today.
Speaker Change: Okay. Thanks for that.
Speaker Change: Mike has your expectation for AI related revenues changed I think you had guided 6 billion last time for EA revenues in fiscal 'twenty five but since cloud is doing well or do you think are your avenues can related to AI. It can be higher and can you talk about some of the new opportunities you have.
Speaker Change: In this segment going forward sure.
Speaker Change: So I do think I think last time, you said it was $5 billion to $6 billion.
Speaker Change: Did increase that to six and a half so we all $500 million of that increase is in the AI space about about 100 of that is being driven by semi cap you already had your recovery baked in in semi cap. So 100 Barron as written about 400 million is on the data cloud infrastructure or a P.
Speaker Change: Where we seem to be doing really well out of the call.
Speaker Change: Our.
Speaker Change: Largest hyperscale or are we actually deepened our relationship there or so again the AI piece is the one that's going to drive a lot of our future growth are what an odd billion year on year is a big number on that job 5 billion base from last year. So that's a that's a.
Speaker Change: 30% growth rate right that.
Speaker Change: Okay got it and maybe the last one for me can you talk about your capital allocation plans.
Speaker Change: How should we think about the cadence of buybacks you did can you talk a little bit more about the acquisition you talked about.
Speaker Change: You know what what is the revenue contribution from that and what is your focus on further M&A.
Speaker Change: In this year thanks.
Speaker Change: Yes. Good morning. This is Greg I'll take the first part of that question so from a capital allocation perspective.
Yeah, we're still going with the approach of 80% of our free cash flow going to share buybacks.
We are committed to completing our $1 billion share authorization in FY 'twenty five I would say.
Speaker Change: From a buyback perspective, it will be weighted a little bit more heavily in the first half versus the second half.
Speaker Change: With the execution of that but again, we feel share buybacks is a really good use of cash for jabil. As we continue to feel our shares are undervalued and you'll still have a guidance of 110 to 112 on the wassa over the year.
Speaker Change: And then on the acquisition Patriot blow a I think you're referring to the Microsoft liquid cooling acquisition that we did but it was all around a core Oh, well engineering, Oh blade manufacturing capabilities, there's a whole bunch of engineers are designing.
Speaker Change: Designing cold blades for a very very long time, and we're really excited to have that gee that team join.
Speaker Change: Jabil are the revenues that we've acquired a relatively small it's not we did not acquire for revenue.
Speaker Change: Direct revenue I should say it was a the engineering capability. This opens up a complete vertical solution for us or hyperscale as for other cloud solutions and the whole data center infrastructure piece as well.
Speaker Change: The opportunity here is huge right now I would temper the revenues a little bit as a direct acquisition perspective, but over the next few years as we expand vertically in that segment I think we'll but we'll see the benefits of this acquisition for sure.
Speaker Change: Thank you for all the details congrats on the results.
Yeah.
Speaker Change: Thank you next question today is coming from Matt Sheerin from Stifel. Your line is now live.
Matt Sheerin: Yes. Thank you.
Speaker Change: Everyone, Mike I wanted to just follow up on your comments regarding the Hyperscale customers could you you mentioned that you're deepening your relationship with your largest customer but could you elaborate does that mean youre youre, just winning more business or are you doing other things for that customer and then in.
Speaker Change: I've got a second hyperscale customer that you are now and so on the photonics side could you give us the potential size of that opportunity. Thanks sure. So I think our current customer that I referred to yes, we're winning new business, we've been working with them for a very long time does a designated relationship is a very good.
Speaker Change: Sort of performance separately.
Speaker Change: That we've sort of performed for the for that customer. So definitely a good growth potential are there are as it relates to the second a hyperscale or that was more in the silicon photonics space are not on the not on the data cloud infrastructure side, it's mainly 100 and 204.
Speaker Change: G right now that we're working on are where we're actually looking at.
Speaker Change: Sort of quoting 800 in the first half of 'twenty five and then $1 60, as we get into 'twenty five or towards the end of 'twenty.
Speaker Change: 25, and in and if you recall, we made this acquisition from Intel I think it was last year.
Speaker Change: We're seeing the benefits of that acquisition, it's always been a play we'd go out and acquire a capability. That's what we did with this one as well and I'm glad to see that it's actually been really good dividends based on what we paid for it.
Speaker Change: Thank you and as part of the strategy or that with that new customer for instance to cross sell.
Speaker Change: The systems integration skills sets that you have and as you look at other hyperscale customers as well.
Speaker Change: Yeah, I I think the if you think of it as a as an ecosystem are one of the things we've always done with our intelligent infrastructure strategy.
We're not talking about base, we don't go in and try and double down on product or Oh, just focus on single products, while providing an engineering design and architecture is sort of a platform than.
Speaker Change: And then we call design with our customers, we integrate all sorts of vertical solutions. So it's not just a a.
Speaker Change: Our rack and stack sort of.
Speaker Change: There's a very high level of complexity and engineering yeah.
Speaker Change: To that.
Speaker Change: Oh, Okay. Thanks for that and then for my second question regarding the inventory you've done a very good job of bringing down inventory improving cash flows it looks like you're guiding sort of flattish inventory how should we expect the back half given that you're going to have a higher revenue.
Speaker Change: Growth in the back half of fiscal 'twenty five.
Greg Hubert: Yeah, Hi, this is Greg.
Tory: Tory again, there's some cyclicality during the year of but we still feel the range on our net inventory number will be between 55, and 60 days and in the back half, we would say that would be in the lower LOE.
Tory: The lower part of that range. So we still felt confident we're able to manage inventory to those levels.
Speaker Change: Okay, great, thanks, very much and happy holidays.
Speaker Change: Thanks, Bob.
Speaker Change: Thank you next question is coming from Steven Fox from Fox Advisors. Your line is now live.
Steven Fox: Hi, Good morning, a couple of questions from me first of all Mike can you talk a little bit more about the U S footprint.
Steven Fox: From a two perspectives. One you mentioned that you moved some more programs into the U S. In the quarter can you give us a little bit color on what was moved in and then looking ahead. How do we think about just your ability to meet say urgent needs to move production into the U S say over the next six to nine months versus you're willing.
Steven Fox: Just to sort of add capacity.
Steven Fox: As we see some changes in tariffs and then I had a follow up.
Speaker Change: Sure. So the movements in the U S. Around so many bad here are mainly in the battery power management.
Speaker Change: Piece, we've actually had some uh huh.
Speaker Change: Businesses ramp, but even on the theater cloud infrastructure side.
Speaker Change: Look what we've always if you look at the the sites that we've grown over the last few years I think I mentioned in my last call a number of sites that we have in the U S that was 33 zero that's a big that's a big number so we're constantly moving business across.
Speaker Change: That's our model we move.
Speaker Change: We moved manufacturing to wherever the customer wants to go and there does seem to be more interest in the U S. Today are which we are in which we're all happy.
Speaker Change: Happy to deliver a I think we're.
Speaker Change: Really really well positioned if you think of all of our Geo geography are you think of the locations that we have if you think of the knowledge that we have you think of all the people are local expertise et cetera, I think we're well positioned for any sort of a move and I think that's the.
Speaker Change: And I was trying to bring to the table in my prepared remarks.
Speaker Change: I think this is.
Speaker Change: This is a really good opportunity for a company like J, well, because customers and even non customers or potential customers will need help oh.
Speaker Change: And that's that's our models right now so I think it will be another position to.
Speaker Change: Can you repeat your second question.
I'm, just wondering sort of like how capacity is currently to meet some of these needs in the near term versus you know maybe you have to start considering expansions at some of your sites and when that would happen yeah. So I I think expansion in Oh, what are the things we try and do a is most of our factories to have.
Speaker Change: Latin that where we have first right of refusal on the on the adjacent pieces of land. So all we can do that I'll I'll tell you one thing we opened up a factory.
Speaker Change: And St. Petersburg, I think it was in a record time was in less than six months, we went out and hired a whole bunch of people to set up the factory flaws.
Speaker Change: Well, we have the expertise we have the knowledge we have the capabilities. We have that experience a manufacturing is off or sell well I'm happy to say that anything up or anyone today. The capacity, we have some level of surplus capacity, but its not huge so there will be there will be some pockets of expansion.
Speaker Change: And if it if it if it comes down to.
Great. That's helpful and then on the cloud piece, you've covered a lot of the details already but I was just curious specifically as your largest cloud customer moves to a new new silicon.
Speaker Change: Like what does that mean for Jabil in general as we see these advanced silicon to rollout is that is that helping your business neutral what what what is the general impacts. Thanks.
Speaker Change: Yes. It is.
Speaker Change: It's early days, yet, but I do think it'll be a driver of growth a driver of new business are I think it's a I think the that the custom chip.
To drive our new revenues for Jabil I E.
I can't sort of.
Speaker Change: Put my finger on what exactly that means the revenue.
Speaker Change: To provide more color as we move forward through FY 'twenty five for now we've given our best estimate for FY 'twenty five I don't think FY 'twenty five is going to change that much we might have a little bit lower growth rate in FY 'twenty six and then beyond.
Speaker Change: I do think there's there's us ample opportunity to expand that relationship with them.
Steven Fox: Great. That's helpful Happy holidays. Thank you, Steve happy holidays to you as well thanks.
Speaker Change: As a reminder, that star one to be placed in the question queue. Our next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.
Mark Delaney: Yeah. Good morning, guys. Thanks, so much for taking the questions I guess first to follow up on that the tariff discussion can you give us a better sense of how costs compare in the U S relative to Mexico.
Mark Delaney: For example, fully loaded labor costs in the U S versus Mexico, and you know as you're engaged with customers and there you know thinking through.
Mark Delaney: You potentially having to move some of their capacity do you think the.
Mark Delaney: The the cost or something that they can get that they'd be able to overcome or were they more generally just spoke to absorb tariffs and maybe keep keep their business in Mexico, when they think about sort of the cost differential.
Speaker Change: Thanks Rhonda.
Speaker Change: And markets that we're in a I think we need to need.
Speaker Change: We need to sort of look at each end market. Specifically there are certain end markets, which are more price elastic than others are easier to pass on.
Speaker Change: Easier to basketball and sort of cost increases that are obviously, if you've moved from Mexico to the U S. The costs will be higher are the question is how much of that is it is it going to be more than tariffs gonna be passed on are gonna be absorbed by our customers I I'll reiterate our jabil.
Speaker Change: This is a pass through cost for us it's not something that we are that we are.
Speaker Change: That will be absorbed if you actually look back from a historical perspective.
Speaker Change: We've almost doubled our revenues ex the mobility divestitures since the last time.
Speaker Change: This administration took office job so I see this as a as a big positive I'm not suggesting we grew because of it but it's what we do.
Speaker Change: We've grown quite a bit so it's a it's a huge.
Speaker Change: Positive I think the whole U S Domicile Corporation piece out there.
Speaker Change: The capabilities that we have across the different end markets, but above all when you're moving.
Speaker Change: When you're moving manufacturing automation robotics, they play a big part AI ml that we use across our sites are play a huge part in all of those decisions. So I think from an automation and robotics standpoint, we're really well positioned to move the business across.
Speaker Change: Okay. That's it makes those thoughts Mike My other question is just trying to better conceptualize, how youre seeing the business for the full year relative to your prior outlook company be earnings relative to its guidance and <unk> by 15 cents you took up the full year EPS guidance by 10 cents. So it does imply at least just from the basic math that there's.
Speaker Change: This was slightly lower expectation for earnings for the next three quarters relative to what you've previously been expecting or are you actually seeing any any any meaningful change over the next three quarters and in the business environment or is that just putting too fine a point on the old versus new EPS guidance. Thanks.
Speaker Change: So yeah I think it's puts and takes are there on the.
Speaker Change: The piece that we're most excited about is the data cloud infrastructure. We took that up I think if you look at if you look at some of the other end markets. We are we adjusted our automotive down a little bit post.
Speaker Change: Post election, there's uncertainty, especially on the E side as we transition for me. These two hybrids that comes back. So we have definite we have the capabilities to help our companies.
Speaker Change: Companies navigate this transition for me to hybrid maybe hybrids come back to Evs will be must be right in the middle of it but cap or FY 'twenty five with just being a little bit more prudent renewables is another one I think if you look at.
Speaker Change: Some of the solar outlays are I think we're just being a little bit more cautious, particularly post election. So.
Speaker Change: I think it's a it's a series of puts and takes are logging now where we're overall.
Speaker Change: We're trying to be as prudent as we can on our Oh looking guidance.
Speaker Change: Thank you and happy holidays.
Speaker Change: Thank you.
Speaker Change: Thank you next.
Speaker Change: Question is coming from George Wang from Barclays. Your line is now live.
George Wang: Hey, Thanks for taking my question and congrats on the quarter stellar results.
George Wang: Two quick ones firstly.
George Wang: Double click on the semi cap equipment.
George Wang: Obviously, you guys dialed up the guidance for this year, implying 25% growth year over year and can you kind of parse out 80 buses as W. E seems a T E. S. She still has a relatively better performance this year and how about any update on the W. E are you guys still expecting.
George Wang: Modest recovery this year.
Speaker Change: Oh, yeah, so oh the W. P. A I think the AI related business continues to be strong our other parts of the W. E. One and E. D's autos consumer all of that is as a week as everyone knows there's a little bit of.
Speaker Change: The geographic spread as well the Chinese players so dominating that piece for us the biggest driver of growth is on the on the automated test equipment side are that is a much much stronger I think youre seeing a whole bunch of newly fabric.
Speaker Change: Fabricated Sullivan chips out there are more and more customization people need the testing hyperscale as need testing, there's a whole bunch of nuances to the automated testing piece, which is a which is good for us. If you look at some of the the the the scale.
Speaker Change: Oh, well I didn't know what we're looking at we're looking at first it was the shift to a three N M and now it's three and I'm going to do at them all of that requires additional testing so I could actually see a shift in this whole capital equipment market shifting.
Speaker Change: From let's say I'm, a roughly 55% a D to a much larger percentage as well going forward.
Speaker Change: Okay, Great and just a quick follow up on the Sighful transceiver business.
Speaker Change: Obviously, you guys are gaining share are you know heading into 800 G. What par 16, potentially and just being concerned any kind of a next generation design you.
Speaker Change: You know potentially be on the transceiver you guys alluded to some share gain you know in the medium term just because of silicon photonics on the eventually go to CPO.
Speaker Change: Maybe the intermediate term you have a L. P O L. Al can you talk about some of the.
Speaker Change: Outside the pool Jabil, a slightest silicon photonics design kind of lead to further share gains just as we saw the had to you know look beyond it applicable.
So I think the silicon Photonics piece are started with our acquisition from Intel last year. So it was it was a very small base, we've actually done a great job and are taking it up today. It's in that $304 million range are we do expect but the engineering capabilities that we.
Speaker Change: And Whit.
Speaker Change: With that acquisition are the design engineers the capacity the experience, we expect to sort of try and get that out to a lot more customers obviously.
Speaker Change: This whole front end and back end on the switch gear ERP shop might have slightly different requirements, but that's the unadorned 400 is what we're about.
Speaker Change: What we're doing today are for sure are the 800 is catching up on next year.
Speaker Change: And well well well what we're already we're already looking at the old 116, so that could be an exciting piece, where we see some level of growth over the next few years, but I do want to.
Speaker Change: Caution, it's not a big base to start with so.
Speaker Change: I think it'll be a it'll be baby steps on that one.
Okay, Great I'd go back to the queue. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you next question is coming from Melissa Fairbanks from Raymond James Your line is now live.
Melissa Fairbanks: Hey, guys. Thanks, so much I'm not sure if the board just as in the room, if not I'll just put this out there that to the team I wanted to see if we could go into a little more color on what you're seeing in the auto and transport them over the past you know earnings cycle. Most recent earnings cycle, we've heard of some improvement in the China EV market from across the supply chain.
Melissa Fairbanks: It's also my understanding you have some new programs coming in transport like with buses I'm, just wondering about some of the moving parts, there and what's incrementally weaker.
Melissa Fairbanks: Right. So so Melissa on the EV side are ultimately a there's a little bit of weakness right now, especially again.
Speaker Change: Selection is a little bit of.
Speaker Change: Uncertainty there are where we're well positioned from a capability standpoint, and so one of the things we want to sleep.
Speaker Change: Don has visited not pivoted when we've always played in those people the needs that go across different platforms. So they go across the ice platform. They go across hybrid that go across a E. D's are as well. So I do think as we transition for me. These two maybe hybrids back.
Speaker Change: <unk> is well positioned regardless, we're almost I don't know.
Speaker Change: I used to we're technology agnostic out on my.
Speaker Change: Prepared remarks, I think I think the the China play is very much a the play that is a it's up right now are Europe and the U S. On the <unk> side are.
Speaker Change: Not doing as well as the China places, we're definitely participating in that transport.
Speaker Change: Yeah, what we have in agricultural agriculture sort of element in there that's a little bit slow to recover or are we do have drops flotation and other.
Speaker Change: There is sort of segments as well.
Speaker Change: I think overall, our overall the E B business I don't expect it to show some big growth rates suddenly in FY 'twenty five maybe you don't even in FY 'twenty six but.
Speaker Change: But I do think we have the potential to play in multiple platforms and they are I do think that the.
Speaker Change: Our play at some point in time, we will will soften a little bit. So we just we're just being prudent again on that whole piece Melissa.
Speaker Change: Okay, Great. That's great color. Thank you as my follow up this is something that I get asked constantly and you may or may not be able to to answer it quite yet.
Speaker Change: When mobility with a piece of the business the seasonality of the model was a little bit easier to predict I know with the re segmentation a lot of people are trying to parse through you know is there any pattern of seasonality within either of the any of the three segments or do we just kind of.
Speaker Change: There are too many moving parts at this point none of them are as big as mobility was you know as a monolith to move things.
Speaker Change: So theres, a little bit of that where it it is all across the.
Speaker Change: For the mobility piece, I think we need to clarify a little bit as well Q3, and Q4 historically have always been ramped orders in the mobility space and that was always huh.
Speaker Change: Dilutive to our margins our Iraq in.
Speaker Change: First half was a second half on that that's why we feel good about the margins as maybe it's a 25 30 bps are sort of impact a positive impact to margins because of the mobility divestiture I just want to know since you brought up the margin question Oh, we do have some ramps are in.
Speaker Change: First half, especially in our in the in the D. C. I a warehouse automation side, we did yeah, well the higher margin semi cap business the recoveries, mainly yeah second half baked in.
So I think there's multiple reasons and then if you took that up with.
Speaker Change: Our cost optimization initiatives were well Q4 will be the biggest beneficiary of that that could be a 10 20 bip pick.
Speaker Change: Pick up there as well so there's multiple reasons for the first half second half story that it's it's it's.
Speaker Change: It's balanced across three or four reasons, just like that I just talked about not just the mobility.
Speaker Change: Okay.
Greg Hubert: Melissa This is Greg just one other thing to add on the seasonality and one more just on the capital intensity of the mobility business that was divested.
Greg Hubert: Capex going forward, we see this now below 2%, where the mobility business was very capital intensive so definitely going to see a free cash flow improving with the divestiture and that Capex line going down.
Speaker Change: Okay, great. Thanks, so much that's super helpful. That's all for me happy holidays guys.
Speaker Change: All of this mission.
Speaker Change: Thank you next question is coming from semi Cherokee from JP Morgan Your line is now.
Speaker Change: Hi, This is M P on for <unk>. Thanks for taking my question.
Speaker Change: First question is it only that wasn't displayed from upward revisions to volume for FY 'twenty by your expectations for operating margins in a similar to Brian. So should we think that you are embedding some level of conservatism there.
Speaker Change: Oh, I I wouldn't put appropriate conservatism. It it's not we're not being overly conservative but not a I think these are.
Speaker Change: The numbers that we provided the guidance that we provided are I think are actually extremely valid I don't I wouldn't say conservative or or aggressive there are they're appropriate.
Speaker Change: Okay.
Speaker Change: Another question I had is can it be a help us dissect the impact of potential repeal of Iridex credit in U S and like how big an impact can that before your automotive business.
Speaker Change: Sorry can you repeat that I missed a miss the main part of the question.
Speaker Change: Oh, it can at least help us dissect the potential or the impact with the potential repeal of Phoebe tax credit in the U S.
Speaker Change: Yeah. The the E V. A tax credit look it's it's going to have an impact.
Speaker Change: On on certain Oems for sure right don't forget our largest.
Speaker Change: Customer in that space.
Speaker Change: Has a the lower levels of credits are if any are there their ability to pass on oh that ability to pass on some level of rebates et cetera is much higher than some of the other Oems.
Speaker Change: I do think.
Speaker Change: I do think Oems will respond and that's not going to be all.
Speaker Change: Consumer impacted our there'll be some level of absorption there'll be some level of.
Speaker Change: Sort of end market demand, but a lot of that is already baked in if we were forecasting a huge EV growth Oh, I'd say, we'd have to adjust the numbers were not expecting that in the first place so as far as FY 'twenty five is concerned we're in we're in good shape, but we'll provide more color in FY 'twenty.
Speaker Change: Six and beyond.
Speaker Change: D credit that piece does have a huge impact I. My my my you have got and this is just my own personal opinion, there will be a small impact I don't think it's gonna be a huge impact to be honest.
Speaker Change: Okay. Thank you thinking about that going out there and my final question is regarding the cloud NTIA Beasley you saw robust growth there and it's also driving upward more of like a large part of the upward revision to the outlook. So any particular you know.
Speaker Change: Any more color there linked which particular.
Speaker Change: Direct segment obviously.
It's sort of infrastructure that has been driving more you know.
Speaker Change: More impact with you have looked at.
Speaker Change: Oh, yes, sorry, I think I mentioned earlier that we've taken up our AI driven business up by from 1 billion to 1.5. The one five is mainly driven by that's bothered about 900 million of cloud.
Speaker Change: I capital equipment is another driver of that piece, that's about 400, and then the networking gear the liquid cooled switching et cetera, along with the silicon photonics fees et cetera. So that's that's about another 200 million a year on year increase of 1.5 is spread out mainly among these with.
Speaker Change: Cloud being the main cloud and data center infrastructure being the main driver of that growth.
Speaker Change: Thank you those are all my questions happy holidays. Thank you happy holidays.
Speaker Change: Thank you next question is coming from David vote from UBS. Your line is about life.
Speaker Change: Great. Thanks, guys, Mike one for you and maybe one for Greg can you I appreciate all the color on the cloud and data Center can you maybe talk to the sort of the margin Delta from that revenue uplift I know theres typically in an industry that has some pretty competitive players hasnt been sort of the best gross margin <unk> segment margin for you guys. So can you kind of talk through sort of that.
Speaker Change: Revenue uplift and is that impacting sort of your overall margin outlook for the year and then one for Greg you talked about capital return.
Speaker Change: Backs and dividend, but we didn't hear much in the way of M&A and I know M&A has been a part of the strategy. Maybe can you kind of talk to where the focus is today you know obviously health care has kind of been a flattish business for you if I factor in sort of the packaging subsegment as well is that kind of what we should be focused on in 2025 and beyond and sort of.
Speaker Change: Mr Tactical deals in other segments outside of the more traditional datacom and and networking space at this point. Thanks.
So let me let me start with the margin question, David I think if I think Gregg mentioned it in his prepared remarks, I mentioned as well the hurricane did have a 10 to 20 bps, a sort of impact on our Oh no margins in Q1, obviously that flows through.
Speaker Change: Into FY 'twenty five.
Speaker Change: But overall the data.
Speaker Change: The cloud and data center infrastructure businesses is that enterprise margin it stopped dilutive a I don't know.
Speaker Change: Where that perceptions come from but it's it is it is it enterprise loves emerge in our semi cap business is actually above the enterprise margin. So our I think our I think there are nuances to FY.
Speaker Change: FY 'twenty five we talked about that on the last call. If you remember we have about 2030 bps impact.
Speaker Change: Due to our surplus capacity are we do have capacity.
Speaker Change: We did open up Croatia that comes online.
Speaker Change: I came on late in Q1 and now.
Speaker Change: We only get to fill it up in FY 'twenty five to go obviously got a really great job pivoting from the E V. A N market, which was supposed to be the main driver of that site to G. L. P ones are the qualifications et cetera would take a bit of time, and that's where I suggested G. L. P ones will be.
Speaker Change: We are alive and Appalachia by FY 'twenty seven but overall look the margin piece is good we've set by four if you factor in some of the some of the nuances I. Just mentioned are it's a it's an extremely healthy margins. So I don't I don't see us going backwards Oh, the on the margin perspective as well.
Speaker Change: At all great.
Speaker Change: And Greg talk capital allocation.
Speaker Change: Hey, David it's Greg so on capital allocation.
Speaker Change: To continue to focus on M&A, we're continuing to look at capabilities that we want to expand on I think the micros acquisition. We did in Q1 is a great example of that.
Speaker Change: In addition to that and we're really focusing on markets for growth.
Speaker Change: And continue to be really thoughtful in that space.
Speaker Change: Look at the certain markets end markets that we're focusing on with the health care and the market's intelligent infrastructure, where we do see some.
Speaker Change: From an M&A capability and focus are in general, though we're still doing 80% of our capital allocation to share buybacks at this time in that 20% to M&A.
Speaker Change: But continuing to be super thoughtful in that area.
Speaker Change: To see where we can grow.
Speaker Change: Great. Thanks, Mike Thanks, Mike.
Speaker Change: 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.
Speaker Change: That's all for our call today, Thank you very much and happy holidays.
Speaker Change: 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.
Speaker Change: Yeah.