Will This Electronics Manufacturer Shock Investors?

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Jabil Circuit (NYSE: JBL) an independent provider of electronic manufacturing services and solutions reported its results for the fourth quarter with a 27.6% decline in profit from the same quarter last year. Decline in earnings is due to greater costs and low demand for the company’s products in all its segments. As the results were below expectations Shares were down 2.9% at $20.37 after hours of the fourth quarter of the fiscal year.

Jabil has presented a strong balance sheet over the period with decent sales and smooth liquidity. The share price from a rock bottom $4 in 2009 crisis have risen up to $27 which have been only possible because of companies strong fundamentals.

The Concerns

The company posted net income of $82.8 million, for the fourth quarter, down from $114.3 million. Diluted earnings per share fell from $0.52 last year to $0.39 in the final quarter of 2012. Operating income fell from $165.6 million last year to $144.3 million in the past quarter.

The next quarter also does not hold very big promises for Jabil operating earnings and revenue seems to be at the same average as the last few quarters. The fear of small margins and an overall macroeconomic slowdown among the investors is keeping them away from having faith in stocks of the company.

The company faces strong competition from Flextronics International (NASDAQ: FLEX) as its recent acquisition of Stellar Microelectronics should increase Flextronics’ aerospace, defense, and medical customer portfolio. This should better the revenues and thereby boost Flextronics’s profitability in the coming months but also provide stiff competition to Jabil Circuit with the acquisition. Even Flextronics had to face a weak quarter the last time around as its revenue plunged 20%. Hence, the company is trying to make a comeback and would intensify competition with Jabil.

The Silver Linings

Apple's (NASDAQ: AAPL) launch of iPhone5 and new redesigned iPods should work well in the favor of Jabil. Jabil is an integral supplier of casings and accessories for Apple, generating about $2 billion sales from the mobile and personal computer giant. Apple's latest iPhone has shattered records of the previous iPhone 4S, selling more than 5 million units in three days. It is expected that the iPhone 5 will surpass sales of the previous iPhone and thus, Jabil is going to be benefitted a lot in the long run as it was in the case of iPhone 4.

Revenue for the quarter rose to $4.34 billion from $4.28 billion, a year earlier and over a period of last few years Jabil has been generating cash decently. Good cash flows show its potential for an increase in dividend than the current 8 cents a share with cash and cash equivalents of $1.22 billion at end of fiscal 2012. The company also has up to $100 million approved for the repurchase of stock over the next year.

Growth in the Mobility, Healthcare, Instrumentation and Industrial, Clean Tech and other segments will help the revenues to grow. Expansion of business globally and strategic acquisitions should add sustainable value to the stock.

My take

Jabil is well positioned to grow over a long term time horizon. Stable and improving dividends, strong balance-sheet and a committed work force will pay off in the companies favor. A number of market leading customers have helped the company to grow in a sustainable manner in a period of last five years. A boost in profitability is expected because of lower cost of production due to expansion of capacity in China.

Investment in the company is a safe bet keeping in mind the strong financial position of the company. The returns from Jabil might be sidelined keeping in view the global economy in view. People with positive vibes about improvement of global economy should go for Jabil.

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tarunbachhawat has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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