Is a Turnaround in the Cards for This Company?

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It’s been a tumultuous year for shares of contract electronics manufacturer Jabil Circuit (NYSE: JBL) with the stock just about keeping its head above the water. However, there’s been a mini rally of sorts over the past couple of months with shares gaining close to 15% after skirting 52-week lows.

Therefore, the upcoming third-quarter results, due out on June 19, will play a vital role in determining whether the stock can keep up its momentum. Let’s take a look at what’s expected of Jabil and whether or not it can buck the weakness it has witnessed of late with a decent outlook.

On revenue

Analysts, according to Yahoo! Finance, expect Jabil to post revenue of $4.37 billion, which, if achieved, would translate into a growth of 2.7% from the year-ago period. But then, Jabil shouldn’t have much difficulty in at least meeting this target as the company itself had called for revenue of $4.3 billion to $4.5 billion the last time it had reported earnings.

The revenue estimate has moved down since the company’s last report as its guidance was below the analyst estimate of $4.53 billion at that point of time. Thus, with the revenue estimate already low and in Jabil’s own comfort range, the company shouldn’t have much difficulty in meeting on this front.

On earnings

The story is not much different as far as the bottom line is concerned, except the fact that a major drop is expected from the year-ago period. Analysts are expecting Jabil to earn $0.54 a share, which is way below the $0.64 a share it had earned in the year-ago period. However, this estimate sits right at the mid-point of the company’s own guidance of $0.50 to $0.58 per share.

Like we saw with the revenue estimate, the bottom line estimate has also been adjusted downward significantly from the initial $0.61 per share expectation. But given the wide band of Jabil’s earnings expectation, there are chances that it might even miss, as evidenced by a mixed track record in the past four quarters. The company has met once, missed twice, and beat just once on the bottom line in the last four quarters.

But then, the company has been ramping up capacity and this might have a positive effect on its margin, and earnings in turn, and help it satisfy the bottom line estimate.

On outlook

As always, the outlook will take center stage as investors would be looking for signs of a turnaround in the company’s business. A sloppy outlook last time is the reason why Jabil hasn’t taken off this year despite exiting 2012 on a high. However, the company had promised that growth will resume from the third-quarter onwards and as such, its outlook needs to reflect so.

However, a look at the latest results of another contract electronics manufacturer, Flextronics International (NASDAQ: FLEX), doesn’t paint a pretty picture. Flextronics had posted woeful results last time as one of its major customers, BlackBerry (NASDAQ: BBRY), decided to move away from it. Its revenue dropped 17% from the year-ago period while its bottom line went into the red to a net loss of $27 million from a profit of $143.3 million last year.

The loss of BlackBerry has undoubtedly been a problem area for Flextronics as its outlook wasn’t great. However, the loss of BlackBerry for Flextronics should be good news for Jabil, as it was chosen as the “go forward partner” for BlackBerry 10 last year. BlackBerry’s latest initiative is probably proving to be a boon for Jabil’s High Velocity business, which was under pressure last year, as the company expects a growth in revenue from this segment.

While how BlackBerry’s latest phones have been doing will only be clear when the company releases its results, chances are that the QWERTY-sporting BlackBerry Q10 has been doing well. The resurgence of the QWERTY will be important for BlackBerry if it has to bring back its loyalists, and given the good reception, chances are that it might continue doing well.

This bodes well for Jabil, but you seriously can’t count on just BlackBerry to drive revenue, can you? The fact that Jabil’s Diversified Manufacturing Services segment, which has been growing at a fast clip, makes the aluminum casing for the Apple iPhone certainly adds to its prospects in a much bigger way.

Jabil’s bottom line had suffered last year as it went out of its way to satisfy Apple’s requirements. However, the company has improved its capacity over time and is in the process of acquiring precision plastic products manufacturer Nypro. These moves should lead to bottom line improvements going forward and that fact that Nypro has strong operations with annual revenue of more than $1 billion makes this acquisition even more impressive.

The onset of production of the next iPhone and the continued strength of Jabil’s Enterprise & Infrastructure business should be tailwinds going forward, and the company might greet investors with an upbeat outlook this time.

There is a good possibility that Jabil Circuit would be able to provide impetus to its newfound momentum. To know more, check back this space again next week for the complete analysis of Jabil’s earnings and its outlook.

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