Jabil Circuit Earnings Call INSIGHTS: Revenue Levels, DMS Margin

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On Tuesday, Jabil Circuit, Inc. (NYSE:JBL) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Revenue Levels

Brian Alexander – Raymond James: Could you just provide more color on the revenue range required to get to you EPS target of 5% to 10% growth for fiscal ’13, and specifically whether your expect to see operating margins expand and if so would that be more in the back half of the year?

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Timothy L. Main – President and CEO: I think if you applied new growth rates that we have given you at kind of the midpoint, Brian, it would be – that would give you some guidance into the mid $18 billion range. We are getting off maybe to a little bit softer start. So, I think your revenue levels would be a little bit wide of that based on the current macro environment and that kind of thing. So we kind of look at it that way. I think from a margin expectation standpoint, again, we are starting off with a bit of a slow start in the first fiscal quarter in particular as we’re still handicapping in some underperformance in Specialized Services and continuing to mend our E&I performance in some of the other business areas, but as I said in my prepared remarks, I don’t think we’re far from quarters where the Company is earning well above $200 million per quarter in operating income. So, the back half of the year looks very good and similar to slightly up revenue levels. So, again, we started 2012 and looked at the prepared slide presentation for 2012 at the outset that we called for moderate revenue growth in 2012, fiscal 2012. We got that a little bit more. We started the year expecting a little bit better revenue growth than what we put up, but we think looking at fiscal year ’13 given the growth opportunities we have in DMS and really kind of resetting the bar to macroeconomic environment that we expect to continue to be somewhat lackluster. We think of 5% to 10% growth is very, very doable for us.

Brian Alexander – Raymond James: Then on DMS, you can’t talk about specific programs, but how comfortable are you that DMS margins bottomed in the August quarter and how should we think about the progression from here?

Timothy L. Main – President and CEO: Well, I think we move back towards 6% pretty rapidly. I don’t know that we will be there in Q1. We’re still handicapping in some underperformance from DMS in Q1, but as we get into Q2, Q3 and Q4, I would expect us to be back in that 6 plus range.

DMS Margin

Amit Daryanani – RBC Capital Markets: Maybe if I can ask question about DMS margin as well. Could you just maybe talk about if all the 120 basis points of degradation you saw in that segment on a sequential basis, was that all driven by the yield issues or where the other factors have placed at all?

Timothy L. Main – President and CEO: The way, handicap and not looking at that segment in particular, but kind of the Company overall, I think at $4.3 billion revenue levels you would have expected us to be between $195 million to $200 million in operating income, so kind of walking back down from that level. Call it about $10 million to $15 million due to the specialized services ramp, so inefficiencies associated with that, about $5 million associated with the mix change, negative mix change. Diversified Manufacturing Services revenue was down and High Velocity was up from expectations, so we called for a 17% increase in Diversified Manufacturing Services and we put up 12%. We called for a 22% decline in High Velocity and it only declined 10%, so negative mix change there, another $5 million. Ford’s mentioned some poor profitability in particular areas particularly Clean Tech which has been soft with cutbacks in government spending that’s solar as well as some other areas in defense and aerospace has been underperforming, so that’s another $5 million, so that accounts for the $20 million to $25 million of lack of margin performance.

Amit Daryanani – RBC Capital Markets: Then if I just look at the DMS sector outside of specialized services industrial and healthcare segments. I think they both were up about 3%, 4% year-over-year in 2012. Can you just talk about why did you see such muted growth in these segments and are you comfortable in the expectation of achieving a higher potentially double-digit growth within those segments in fiscal ’13?

Timothy L. Main – President and CEO: Our Industrial and Clean Tech marketing incorporates solar and year-over-year revenue level was negative and declined over the course of the year purely industrial areas of the business grew in the low double-digits and so it was actually a lower growth year than we’ve had historically, but we’re really comfortable with our progress there and think the industrial area continues to be very attractive area for us. I think longer term Clean Tech, if it doesn’t include solar, clean tech will continue to be all the energy related areas of industrial energy will continue to be attractive as well.

Amit Daryanani – RBC Capital Markets: Then just finally the $10 million to $15 million ramp-centric headwinds, I think your statements essentially imply that headwind will get smaller in Q1 and should be fairly neutral by the time you get to Q2, Q3 timeframe. Is that the right way to think about that?

Timothy L. Main – President and CEO: I think we should exit Q1 with much better results. It’s just difficult for us to tell at this point how much recovery we’ll get in Q1 and I think by Q2 we should be kind of out of the woods.

A Closer Look: Jabil Circuit Earnings Cheat Sheet>>

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