Jabil Q1 2025 Earnings Call Transcript

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Provided by Quartr
December 18, 2024

Key Takeaways

  • Jabil started FY 2025 with Q1 revenue of $7 billion, up 1% year-over-year excluding last year’s mobility divestiture, delivering a core diluted EPS of $2.00 and 5% core operating margin despite 10–20 bps of hurricane impact.
  • The Intelligent Infrastructure segment led growth with revenues up 5% to $2.5 billion on strong AI-related cloud and data center demand, boosting its margin by 10 bps and prompting management to raise AI revenue guidance to $6.5 billion for FY 2025.
  • Regulated Industries revenue fell 7% to $3 billion due to continued weakness in renewable energy and EV markets, though segment margins improved slightly by 10 bps to 4.7%.
  • Jabil generated $312 million in operating cash flow and $226 million in adjusted free cash flow in Q1, exited the quarter with $2.1 billion in cash and a 1.4× debt/EBITDA ratio, and repurchased $232 million of shares with $768 million still available.
  • Full-year guidance remains for roughly $27.3 billion in revenue, a 5.4% core operating margin, $8.75 core EPS, and $1.2 billion in free cash flow, balancing divestiture impacts, program ramps and cost initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
Jabil Q1 2025
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Operator

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. Session. It's now my pleasure to introduce your host, Adam Berry, Senior Vice President, IR and Communications. Adam, please go ahead.

Adam Berry
Adam Berry
Senior Vice President of Investor Relations & Communications at Jabil

Good morning, and welcome to Jabil's Q1 fiscal year 2025 earnings call. My name is Adam Berry, and I'm Senior Vice President of Investor Relations and Communications. Joining me on today's call are Chief Financial Officer, Greg Hebert and Chief Executive Officer, Mike Dastoor. We're happy to be joining you today from St. Petersburg, Florida.

Adam Berry
Adam Berry
Senior Vice President of Investor Relations & Communications at Jabil

As a reminder, we conducted our September earnings call hours before Hurricane Helene made landfall in the Tampa Bay area followed by Milton thereafter. Although these storms caused significant damage to the southeast, our two sites in St. Petersburg, Florida and our 2 sites in North Carolina were all operational within 10 days. The tireless efforts of our employees to get these sites back up and running, considering many of them experienced damage to their own homes and communities was incredible. Thank you to all those that helped.

Adam Berry
Adam Berry
Senior Vice President of Investor Relations & Communications at Jabil

With that, please note that today's presentation is being live streamed. And during our prepared remarks, we will be referencing slides. To view these slides, please visit the

Adam Berry
Adam Berry
Senior Vice President of Investor Relations & Communications at Jabil

Investor Relations section of jabil.com. After today's presentation concludes, complete recording will be available on the website for playback. 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 ks for the fiscal year ended August 31, 2024 and other filings with the SEC.

Adam Berry
Adam Berry
Senior Vice President of Investor Relations & Communications at Jabil

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'd now like to turn the call over to Greg.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

Thank you, Adam. Good morning, everyone. Thanks for taking the time to join our call today. I'm pleased to report that we're off to a solid start for FY 2025. With Q1 revenue coming in at $7,000,000,000 up 1% year on year, excluding the approximately $1,450,000,000 associated with the mobility divestiture in the prior year quarter.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

Core operating income for the quarter came in at $347,000,000 Core operating margins came in at 5% in spite of a roughly 10 to 20 basis points of hurricane related impact. Net interest expense in Q1 came in better than anticipated at $60,000,000 reflecting continued good working capital management by the team. On a GAAP basis, operating income was $197,000,000 and our GAAP diluted earnings per share was $0.88 Core diluted earnings per share was $2 Turning now to our performance by segment in the quarter. Our regulated industry segment reported revenue of roughly $3,000,000,000 down 7% year on year due to continued weakness in our renewable energy and EV markets. Despite this, core operating margins for the segment increased by 10 basis points to 4.7%.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

In the Intelligent Infrastructure segment, we saw revenue of $2,500,000,000 up 5% year on year. This growth was primarily driven by strong demand in our AI related cloud, data center infrastructure and capital equipment markets. The core operating margin for the segment was 4.8%, a 10 basis point improvement compared to the prior year quarter. In our Connected Living and Digital Commerce segment, revenues were $1,500,000,000 down 46% year on year due to our mobility divestiture. Excluding the mobility divestiture from the prior year, revenue growth for this segment was approximately 12%, reflecting strong year on year growth across our digital commerce and warehouse automation markets.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

Core operating margins for the segment came in at 5.8% in Q1. 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. After adjusting for inventory deposits, net inventory days were 56, a 2 day increase quarter over quarter, but as expected and within our long term target range of 55 to 60 days. Thanks to disciplined working capital management by the team, our Q1 cash flow from operations were very strong coming in at $312,000,000 Net capital expenditures for the Q1 were $86,000,000 and for the full year we continue to expect net CapEx to be between 1.5% to 2% of revenue.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

As a result of the solid first quarter performance and cash flow generation, adjusted free cash flow for the quarter came in at $226,000,000 We continue to expect strong free cash flow for the year to come at $1,200,000,000 We exited the Q1 with a healthy balance sheet with debt to core EBITDA levels of approximately 1.4 times and cash balances of approximately $2,100,000,000 In Q1, we repurchased 1,800,000 shares for $232,000,000 We have $768,000,000 remaining on our current $1,000,000,000 share repurchase authorization as of the end of Q1. We remain fully committed to completing the current share repurchase authorization by the end of FY 'twenty five. Before I discuss the next quarter guidance, I would like to conclude my remarks on Q1 by acknowledging the Jabil team's strong execution this quarter, which delivered solid results to start FY 2025 amid a highly dynamic environment. The company continues to demonstrate high resilience and is well positioned for future revenue growth, margin enhancement and robust free cash flow generation. With that, let's turn to the next slide for our Q2 FY 2020 5 guidance.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

Beginning with revenue by segment, we anticipate revenue for our regulated industries will be $2,700,000,000 down 8% year on year, reflecting continued softness in the renewable energy and EV markets. For our Intelligent Infrastructure segment, we expect revenue for the quarter to be $2,400,000,000 up 8% year over year, reflecting broad based growth across capital equipment, advanced networking, cloud and data center infrastructure markets. In our Connected Living and Digital Commerce segment, revenues are expected to be $1,200,000,000 This is down 20% year over year mainly due to our mobility divestiture. Total company revenue for Q2 is expected to be in the range of $6,100,000,000 to $6,700,000,000 Core operating income for Q2 is estimated to be in the range of $286,000,000 to $346,000,000 GAAP operating income is expected to be in the range of $183,000,000 to $263,000,000 Core diluted earnings per share is estimated to be in the range of $1.60 to $2 GAAP diluted earnings per share is expected to be in the range of $0.69 to 1 $0.27 Net interest expense in the 2nd quarter is estimated to be approximately $60,000,000 And for FY 'twenty five, we now expect it will be $235,000,000 down from what we thought in September.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

Our core tax rate for Q2 and for the year is expected to be 21%. With that, I'd like to thank you for your time this morning and for your interest in Jabil. I'll now turn the call over to Mike to dive deeper into our strategic growth areas and the exciting opportunities ahead.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Thanks, Greg.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Good morning and thank you for joining our call today. As Greg just highlighted, our 1st fiscal quarter results came in stronger than we had anticipated, driven mainly by incremental strength in our Intelligent Infrastructure segment. As a result, the team was able to deliver strong core EPS, margins and cash flows during the quarter. Furthermore, we distributed the majority of the generated free cash flow to shareholders via our dividend and buyback programs. To summarize, I'm extremely pleased with these financial results and the positive trajectory of our year.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

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 and return capital to shareholders. In a few moments, I'll provide some details regarding our updated outlook for the balance of the year. But before I jump into those details, I want to take a moment to thank the global team here at Jabil for their commitment, dedication and hard work in a highly dynamic operating environment. As the world continues to evolve, this team is working hard to ensure Jabil remains nimble, agile and resilient for many years to come. For instance, during the quarter, our team opened a large scale manufacturing site in Croatia, which currently supports a European based automotive OEM.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

And beginning in FY 'twenty seven, the site will also support our healthcare customers, specifically in the GLP-one drug delivery space as demand continues to exceed supply. The team also relocated and ramped multiple existing programs to the U. S. As many of our customers continue to seek a broader geographic manufacturing solution. We added to our capabilities during the quarter too through the acquisition of Mycros Technologies, a leader in engineering liquid cool solutions.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

These capabilities, we believe, will support our future growth in verticals in both the data center ecosystem and other end markets that require thermal management like automated test equipment for semiconductors, batteries, energy storage systems and electric vehicles. And all the while, our team was bouncing through major hurricanes in St. Pete, Asheville and Hendersonville. I would like to take this opportunity for a quick shout out to our teams for not only taking care of each other, but also taking care of our communities during this trying time. The Jabil culture was truly on display.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I'd now like to shift our focus to fiscal year 2025 and our outlook by both end market and segment. I'll begin with regulated market segment where anticipate continued year over year weakness in automotive and transportation driven by lower global sales of electric vehicles. Over the longer term, we feel comfortable that our automotive and transportation business will improve as our technology, agnostic capabilities position us to capture growth in both EV and hybrid vehicle solutions. In Healthcare and Packaging, as we previously anticipated, we continue to execute on a pipeline of new wins, including the launch of GLP-one auto injectors and continuous glucose monitors. As a reminder, due to the long qualification cycles in healthcare, it often takes 18 to 24 months to ramp these programs.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

However, once these programs are ramped, they generally enjoy very long product life cycles and multiyear stable returns. Renewables and Energy Infrastructure, the energy infrastructure space continues to do well with solid growth in battery power management. This growth is largely offset by previously indicated weakness in renewable applications, primarily focused on solar. Throughout the solar downturn, we've worked hard to better position ourselves as we wait for recovery in the end market. This includes share gains with key customers and operating cost reductions.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

In the near term, renewables continue to weigh on segment core operating margins. Turning to Intelligent Infrastructure segment, which is driving the majority of our growth in FY 2025. In capital equipment, the rise of AI is driving demand for semiconductor fabrication and test equipment, which we expect to continue throughout FY 2025 and beyond. In addition, in the data center space, we continue to deepen our existing relationship with our largest hyperscaler with continued strength in their custom AI driven GPU rack integration business. As we had previously indicated, we've also won programs with the new hyperscaler in the silicon photonic side of our business.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

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 thermal demands of AI service. Year on year, we now expect the Intelligent Infrastructure segment to be up by approximately $1,500,000,000 after adjusting for the exit of legacy networking businesses last fiscal year. Our Connected Living and Digital Commerce segment has 2 distinct aspects. Connected 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 has been driven higher by the automation of the retail and warehouse experience. Now let's discuss our global network of factories, which we believe is a significant competitive advantage.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Consistent with my comments in September, we placed considerable value on maintaining a large scale global manufacturing footprint. And as the geopolitical situation continues to evolve, our ability to adapt combined with our designation as a U. S. Domicile manufacturing service provider and our significant U. S.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Footprint is becoming increasingly important for our customers. And in my opinion, Jabil is among the best positioned companies in the world to help customers navigate these complexities. 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. Here's what we can share as of today. As a reminder, while tariffs may impact end customer demand, any changes in tariff costs have historically been largely a pass through cost for Jabil.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

For starters, most of our business in China is predominantly local for local or local for regional with a very small portion of our revenues generated from that region being U. S. Bound. Secondly, in Mexico, our footprint has evolved over the past 8 years as many of our customers sought manufacturing solutions that were closer to the final customer. We remain well prepared due to proximity and corporate resources for any reverse lift and shift of operations from Mexico to the U.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

S. 3rd, our U. S. Manufacturing footprint has never been bigger than it is today. And while I do feel there will be some challenges to overcome such as labor, our investments and experience in tried and tested automation lines and robotics will certainly help expedite any transfers.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I personally feel there is no company better positioned than us to grow manufacturing in the U. S. Of course, we'll have to see how all this plays out over the next several years. But right now, I see our large scale manufacturing footprint as a major competitive advantage. Shifting now to full year guidance.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

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. This is mainly due to the following drivers. 1st, as a reminder, our Mobility divestiture 1st, as a reminder, our mobility divestiture last year makes the historical seasonality more pronounced. And then the ongoing program ramps in the first half of the year in cloud, data center infrastructure and warehouse automation have weighed on core operating margins. Additionally, the anticipated continued recovery of our relatively higher margin semi capital equipment business will contribute to higher earnings in the second half.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

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. For all these reasons, we anticipate stronger earnings and margins in the second half of the year. Putting it all together for the coming year, we now anticipate approximately $27,300,000,000 in revenue with core operating margins of 5.4%. Core earnings per share now are expected to be $8.75 Importantly, we continue to foresee another robust year of free cash flow generation in FY 2025 of $1,200,000,000 In closing, I want to say thank you to the entire Jabil team for your dedication and to our investors for your continued trust and support. I would like to wish everyone a safe, happy and prosperous New Year.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I will now turn the call back over to Adam.

Adam Berry
Adam Berry
Senior Vice President of Investor Relations & Communications at Jabil

Thanks, Mike. That concludes our prepared comments. Operator, we're now ready for Q and A.

Operator

Thank you. And I'll be conducting a question and answer session. Our first question today is coming from Ruplu Bhattacharya from Bank of America. Your line is now live.

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Hi. Thank you for taking my questions and congrats on the quarter. Can you talk about the relative margins of each segment and what we should expect for fiscal 2025? So for regulated industries and intelligent infrastructure and 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?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Thanks, Ruplu. So I think for the 3 different segments, I would expect margins to be north of 5% for all 3 of them. Right now, we're seeing some level of underutilization of capacity on our EV side and on the renewable side, which is a little bit of a drag. But that means the opportunity for increased margins going forward once these end markets recover a little bit is much higher there. I do see our intelligent infrastructure piece about 5 percent as well.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I think that's where we see the biggest level of growth over the next few years as well. So doing relatively well on that whole piece with capital equipment. Obviously, we're expecting a bit of a recovery in the second half of the year, which is still very much in play today. And our margins, as you're aware, there are slightly higher than our other end markets. From a Connected Living perspective, look, that's mainly all consumer driven.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

There's a high level of seasonality, especially with Equity One doing really well on the consumer side as always. I think the digital commerce piece is a bit that's driving the future. That will be high margin. It's new product lines, new technologies, new design engineering capabilities in their high-tech sort of stuff going on in that end market. And I feel really good about that having double digit growth rates, albeit from lower base.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

But the opportunities are there in all three segments today.

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Okay. Thanks for that. Mike, has your expectation for AI related revenues changed? I think you had guided $6,000,000,000 last time for AI revenues in fiscal 2025. But since cloud is doing well, do you think your revenues can related to AI can be higher?

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

And can you talk about some of the new opportunities you have in this segment going forward?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Sure. So I do think I think last time you said it was $5,000,000,000 to $6,000,000,000 We did increase that to $6,500,000,000 So we all 500 $1,000,000 of that increase is in the AI space. About $100,000,000 of that is being driven by semi cap. We already had a recovery baked in, in semi cap. So $100,000,000 there.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

And I reckon about $400,000,000 is on the data cloud infrastructure piece where we seem to be doing really well with our largest hyperscaler. We've actually deepened our relationship there. So again, the AI piece is the one that's going to drive a lot of our future growth. Dollars 1,500,000,000 year on year is a big number on that $5,000,000,000 base from last year. So that's a 30% growth rate right there.

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Okay. Got it. And maybe the last one for me. Can you talk about your capital allocation plans? How should we think about the cadence of buybacks?

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

You did can you talk a little bit more about the acquisition you talked about? What is the revenue contribution from that? And what is your focus on further M and A in this year? Thanks.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

Yes. Good morning, Ruplu. This is Greg. I'll take the first part of that question. So from a capital allocation perspective, we're still going with approach of 80% of our free cash flow going to share buybacks.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

We are committed to completing our $1,000,000,000 share authorization in FY 2025. I would say, from a buyback perspective, we'll be weighted a little bit more heavily in the first half versus the second half, 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 still have a guidance of $110,000,000 to $112,000,000 on the lasso for the year.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

And on the acquisition piece, Ruffalo, I think you're referring to the Micros liquid cooling acquisition that we did. It was all around core thermal engineering, cold plate manufacturing capabilities. There's a whole bunch of engineers who've been designing cold plates for a very, very long time. We're really excited to have that team join Jabil. The revenues that we've acquired are relatively small.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

That's not we did not acquire it for revenue direct revenue, I should say. It was the engineering capability. This opens up a complete vertical solution for us for hyperscalers, for other cloud solutions and the whole data center infrastructure piece as well. The opportunity here is huge. Right now, I would temper the revenues a little bit as a from a direct acquisition perspective.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

But over the next few years, as we expand vertically in that segment, I think we'll see the benefits of this acquisition for sure.

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Thanks for all the details. Congrats on the results.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Thank you.

Operator

Thank you. Next question today is coming from Matt Sheerin from Stifel. Your line is now live.

Matt Sheerin
Matt Sheerin
Managing Director at Stifel Financial

Yes. Thank you. Good morning, everyone. Mike, I wanted to follow-up on your comments regarding the hyperscale customers. Could you you mentioned that you're deepening your relationship with your largest customer.

Matt Sheerin
Matt Sheerin
Managing Director at Stifel Financial

Could you elaborate? Does that mean you're just winning more business? Or are you doing other things for that customer? And then in terms of that second hyperscale customer that you announced on the Photonics side, could you give us the potential size of that opportunity? Thanks.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

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. There's a very good relationship. There's a very good sort of performance that we've sort of performed for that customer.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

So definitely good growth potential there. As it relates to the second hyperscaler that was more in the silicon photonics piece, not on the data cloud infrastructure side. It's mainly 100, 200, 400 gs right now that we're working on. We're actually looking at sort of quoting 800 in the first half of twenty twenty five. And then $1,600,000 as we get into $25,000,000 or towards the end of twenty twenty five.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

And if you recall, we made this acquisition from Intel, I think it was last year. We're seeing the benefits of that acquisition. It's always been our play. We go out and acquire a capability. That's what we did with this one as well.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

And I'm glad to see that it's actually paying really good dividends based on what we paid for.

Matt Sheerin
Matt Sheerin
Managing Director at Stifel Financial

Thank you. And is part of the strategy with that new customer, for instance, to cross sell the systems integration skill sets that you have, and as you look at other hyperscale customers as well?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Yes. I think the if you think of it as an ecosystem, one of the things we've always done with our intelligent infrastructure strategy, we're not product based. We don't go in and try and double down on product or just focus on single products. We're providing an engineering design architecture sort of platform. Then we co design with our customers.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

We integrate all sorts of vertical solutions. So it's not just a rack and stack sort of business. There's a very high level of complexity and engineering linked to that.

Matt Sheerin
Matt Sheerin
Managing Director at Stifel Financial

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 higher revenue growth in the back half of fiscal twenty twenty five?

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

Yes. Hi, this is Greg. On inventory, again, there's some cyclicality during the year, but we still feel the range on our net inventory number will be between 55 60 days. And in the back half, we would say that would be in the lower part of that range. So we still feel confident we're able to manage inventory to those levels.

Matt Sheerin
Matt Sheerin
Managing Director at Stifel Financial

Okay, great. Thanks very much and happy holidays.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Thanks, Matt.

Operator

Thank you. Next question is coming from Steven Fox from Fox Advisors. Your line is now live.

Steven Fox
Founder & CEO at Fox Advisors, LLC

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 from a 2 perspectives?

Steven Fox
Founder & CEO at Fox Advisors, LLC

1, you mentioned that you moved some more programs into 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.

Steven Fox
Founder & CEO at Fox Advisors, LLC

S. Say, over the next 6 to 9 months versus your willingness to sort of add capacity as we see some changes in tariffs? And then I had a follow-up.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Sure. So the movements in the U. S, the ramps that we've had here are mainly in the battery power management piece. We've actually had some businesses ramp even on the data cloud infrastructure side. Look, we've always if you look at the sites that we've grown over the last few years, I think I mentioned on my last call, the number of sites that we have in the U.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

S. Now is 30, three-zero. That's a big number. So we're constantly moving business across. That's our model.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

We move manufacturing to wherever the customer wants to go. And there does seem to be more interest in the U. S. Today, which we're happy to deliver. I think we're really, really well positioned.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

If you think of our geography, you think of the locations that we have, you think of the knowledge that we have, you think of all the people, local expertise, etcetera. I think we're well positioned for any sort of move. And I think that's the point I was trying to bring to the table in my prepared remarks. I think this is a really good opportunity for a company like Jabil because customers and even non customers or potential customers will need help. And that's our model right now.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

So I think we'll be in a good position to help. Can you repeat your second question, Steve?

Steven Fox
Founder & CEO at Fox Advisors, LLC

I'm just wondering sort of like how capacity is currently to meet some of these needs in the near term versus maybe you have to start considering expansions at some of your sites and when that would happen?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Yes. So I think expansion and so one of the things we try and do is most of our factories have land where we have first right of refusal on the adjacent pieces of land. So we can do that. I'll tell you one thing. We opened up a factory in St.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Petersburg. I think it was in a record time. It was in less than 6 months. We went down, hired a whole bunch of people, set up the factory floors. So we have the expertise, we have the knowledge, we have the capabilities, we have that experience.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Manufacturing is our core. So happy to set anything up for anyone. Today, the capacity, we have some level of surplus capacity, but it's not huge. So there will be some pockets of expansion if it comes down to it.

Steven Fox
Founder & CEO at Fox Advisors, LLC

Great. That's helpful. And then on the cloud piece, you covered a lot of the details already. But I was just curious specifically as your largest cloud customer moves to a new silicon, like what does that mean for Jabil in general as we see these advanced silicon to roll out? Is that helping your business, neutral? What are the general impacts? Thanks.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Yes, Steve. So it's early days, but I do think it will be a driver of growth, a driver of new business. I think it's I think that the custom chip will drive new revenues for Jabil. I can't sort of put my finger on what exactly that means for revenue. We'll provide more color as we move forward through FY 2025.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

For now, we've given our best estimate for FY 2025. I don't think FY 2025 is going to change that much. We might have a little bit more growth rate in FY 2026. And then beyond, I do think there's a handful of opportunity to expand that relationship further.

Steven Fox
Founder & CEO at Fox Advisors, LLC

Great. That's helpful. Happy holidays.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Thank you, Steve. Happy holidays to you as well.

Operator

Thank you. Our next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Mark Delaney
Mark Delaney
Stock Analyst at Goldman Sachs

Yes. Good morning, guys. Thanks so much for taking the questions. I guess first to follow-up on the tariff discussion. Can you give us a better sense of how costs compare in the U.

Mark Delaney
Mark Delaney
Stock Analyst at Goldman Sachs

S. Relative to Mexico, maybe for example, fully loaded labor costs in the U. S. Versus Mexico? And as you're engaged with customers and they're thinking through potentially having to move some of their capacity, do you think the cost is something that they can get that they'd be able to overcome?

Mark Delaney
Mark Delaney
Stock Analyst at Goldman Sachs

Or would they more generally just look to absorb tariffs and maybe keep their business in Mexico when they think about some of the cost differential?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Thanks, Ron. The end markets that we're in, I think we need to sort of look at each end market specifically. There are certain end markets which are more price elastic than others, easier to pass on sort of cost increases there. Obviously, if you move from Mexico to the U. S, the costs will be higher.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

The question is, how much of that is it? Is it going to be more than tariffs? Can it be passed on? Can it be absorbed by our customers? I'll reiterate Jabil, this is a pass through cost for us.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

It's not something that we absorb. If you actually look back from a historical perspective, we've almost doubled our revenues ex the mobility divestiture since the last time this administration took office. So I see this as a big positive. I'm not suggesting we grew because of it, but we've grown quite a bit. So it's a huge positive.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I think the whole U. S. Domicile corporation piece, the capabilities that we have across the different end markets. But above all, when you're moving manufacturing, automation, robotics, they play a big part. AI, ML that we use across our sites play a huge part in all those decisions.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

So I think from an automation and robotics standpoint, we're really well positioned to move our business across.

Mark Delaney
Mark Delaney
Stock Analyst at Goldman Sachs

Thanks for those thoughts, Mike. My other question is just trying to better conceptualize how you're seeing the business for the full year relative to your prior outlook. Company B earnings relative to its guidance in 1Q by $0.15 You took up the full year EPS guidance by $0.10 So it does imply, at least just from the basic math, that there's slightly lower expectation for earnings for the next three quarters relative to what you'd previously been expecting. Are you actually seeing any meaningful change over the next three quarters in the business environment? Or is that just putting too fine a point on the old versus new EPS guidance? Thanks.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

So I think it's puts and takes, Laurent. The piece that we're most excited about is the data cloud infrastructure. We took that up. I think if you look at some of the other end markets, we adjusted our automotive down a little bit, post election. Our automotive down a little bit post election.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

There's uncertainty, especially on the EV side. As we transition from EVs to hybrids, that comes back. So we have definite we have the capabilities to help companies navigate this transition from EV to hybrid, maybe hybrids come back to EVs. We'll be right in the middle of it, but for FY 2025, we're just being a little bit more prudent. Renewables is another one.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I think if you look at some of the solar plays, I think we're just being a little bit more cautious, particularly post election. So I think it's a series of puts and takes, Mark. And overall, we're trying to be as prudent as we can on our forward looking guidance.

Mark Delaney
Mark Delaney
Stock Analyst at Goldman Sachs

Thank you and happy holidays.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Happy holidays. Thank you.

Operator

Thank you. Next question is coming from George Wang from Barclays. Your line is now live.

George Wang
Vice President at Barclays Investment Bank

Hey, guys. Thanks for taking my question and congrats on the quarter, strong results. I have 2 quick ones. So firstly, I just want to double click on the semi cap equipment. Obviously, you guys dialed up the guidance for this year, implying 25% growth year over year.

George Wang
Vice President at Barclays Investment Bank

And can you kind of pass out the ATE versus WFE? It seems ATE should still have relatively better performance this year. And how about any update on the WFE? Are you guys still expecting modest recovery this year?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Yes. So on the WFE, I think the AI related business continues to be strong. Other parts of the WFE, on EVs, autos, consumer, all that is weak as everyone knows. There's a little bit of a geographic spread as well with Chinese players still dominating that piece. For us, the biggest driver of growth is on the automated test equipment side.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

That is much, much stronger. I think you're seeing a whole bunch of newly fabricated silicon chips out there, more and more customization, people need the testing, hyperscalers need testing. There's a whole bunch of nuances to the automated testing piece, which is good for us. If you look at some of the scale, we're looking at first it was the shift to 3 NM, now it's 3 NM going to 2 NM, all that requires additional testing. So I can actually see our shift in this whole capital equipment market shifting from, let's say, roughly 55 percent ATE to a much larger percentage as well going forward.

George Wang
Vice President at Barclays Investment Bank

Okay, great. And just a quick follow-up on the SIFO transceiver business. Obviously, you guys are gaining share heading to 800 gs, 1.60 potentially. And just concerning kind of the next generation design, potentially beyond the transceiver, you guys alluded to some share gain in the medium term just because of silicon photonics on the eventually go to CPO, maybe in the intermediate term, you have LPO, LRO. Can you talk about some of the upside for Jabil, like silicon photonics design kind of lead to further share gains just as we saw the head look beyond pluggables?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

So I think the silicon photonics piece started with our acquisition from Intel last year. So it was with our acquisition from Intel last year. So it was a very small base. We've actually done a great job in taking it out today. It's in that $300,000,000 $400,000,000 range.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

We do expect with the engineering capabilities that we acquired with that acquisition, the design engineers, the capacity, the experience, we expect to sort of try and get that out to a lot more customers. Obviously, this whole front end and back end on the switchgear piece might have slightly different requirements. But the 100 to 100 and 400 is what we're doing today for sure. The 800 is catching is catching up next year. And we're already looking at the whole 1.60.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

So that could be an exciting piece where we see some level of growth over the next few years. But I do want to caution, it's not a big base to start with. So I think it will be baby steps on that one.

George Wang
Vice President at Barclays Investment Bank

Okay, great. I'll go back to the queue. Thank you. Thank you, guys.

Operator

Thank you. Next question is coming from Melissa Fairbanks from Raymond James. Your line is now live.

Melissa Fairbanks
Melissa Fairbanks
Vice President at Raymond James Financial

Hey, guys. Thanks so much. I'm not sure if Steve Borges is in the room. If not, I'll just put this out to the team. I wanted to see if we could go into a little more color on what you're seeing in auto and transport.

Melissa Fairbanks
Melissa Fairbanks
Vice President at Raymond James Financial

Over the past earnings cycle, most recent earnings cycle, we've heard of some improvement in the China EV market from across the supply chain. 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?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Right. So, Melissa, on the EV side, obviously, there's a little bit of weakness right now, especially again post election, there's a little bit of uncertainty there. We're well positioned from a capability standpoint. So one of the things we've obviously done is pivoted, not pivotable, we've always played in those capabilities that go across different platforms. So they go across the ICE platform, they go across hybrid, they go across EVs as well.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

So I do think as we transition from EVs to maybe hybrids back to EVs, we're well positioned regardless. We're almost and I think I used the word technology agnostic on my prepared remarks. I think the China play is very much the play that is it's up right now. Europe and the U. S.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

On the EV side are not doing as well as the China play. So we're definitely participating in that. Transport, we have an agricultural sort of element in there. That's a little bit slow to recover. We do have transportation in other sort of segments as well.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I think overall, the EB business, I don't expect it to show some big growth rates suddenly in FY 2025, maybe not even in FY 2026. But I do think we have the potential to play in multiple platforms. And I do think the China play at some point in time will soften a little bit. So we're just being prudent again on that whole piece, Melissa.

Melissa Fairbanks
Melissa Fairbanks
Vice President at Raymond James Financial

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 answer it quite yet. When mobility was a piece of the business, the seasonality of the model was a little bit easier to predict.

Melissa Fairbanks
Melissa Fairbanks
Vice President at Raymond James Financial

I know with the resegmentation, a lot of people are trying to parse through, is there any pattern of seasonality within either of the any of the 3 segments? Or do we just kind of there are too many moving parts at this point, none of them are as big as Mobility was as a monolith to move things?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

So there's a little bit of that where it is all across the board. The mobility piece, I think we need to clarify a little bit as well. Q3 and Q4 historically have always been ramped quarters in that mobility space, and that was always dilutive to our margins. I reckon first half versus second half on that that's why we feel good about the margins is maybe it's a 25, 30 bps sort of impact positive impact to margins because of the mobility divestiture. I just want to since you brought up the margin question, we do have some ramps in the first half, especially in the DCI and warehouse automation side.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

We did the higher margin semi cap business, the recovery is mainly second half baked in. So I think there's multiple reasons. And then if you top that up with our cost optimization initiatives where Q4 will be the biggest beneficiary of that, that could be a 10, 20 bps pickup there as well. So there's multiple reasons for the first half, second half story. It's balanced across 3 or 4 reasons that I just talked about, not just the mobility piece.

Melissa Fairbanks
Melissa Fairbanks
Vice President at Raymond James Financial

Okay.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

Melissa, this is Greg. Just one other thing to add on the seasonality and more just on the capital intensity of the mobility business that was divested. CapEx going forward, we see this now below 2%, where the mobility business was very capital intensive. So definitely going to see free cash flow improving with the divestiture and that CapEx line going down.

Melissa Fairbanks
Melissa Fairbanks
Vice President at Raymond James Financial

Okay, great. Thanks so much. That's super helpful. That's all for me. Happy holidays, guys.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Happy holidays, Melissa.

Operator

Thank you. Next question is coming from Samik Chatterjee from JPMorgan. Your line is now live.

Manmohanpreet Singh
Equity Research Associate at JP Morgan Chase & Co

Hi. This is MP on for Samik Chatterjee. Thanks for taking my question. So my first question is around like I was saying despite some upward revisions to volume for FY 2025, your expectations for operating margins are similar to prior. So should we think that you are embedding some level of conservatism there?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I would call it appropriate conservatism. It's not we're not being overly conservative. We're not I think these are the numbers that we provided, the guidance that we provided, I think are actually extremely valid. I don't I wouldn't say conservative or aggressive. They're appropriate.

Manmohanpreet Singh
Equity Research Associate at JP Morgan Chase & Co

Okay. So another question I had is like can you please help us dissect the impact of potential repeal of EV tax credit in U. S? And like how big an impact can that be for your automotive or EV business?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Sorry, can you repeat that? I missed the main part of the question.

Manmohanpreet Singh
Equity Research Associate at JP Morgan Chase & Co

Can you please help us dissect the potential the impact of the potential repeal of EV tax credit in U. S?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Yes. The EV tax credit, look, it's going to have an impact on certain OEMs for sure. Don't forget, our largest customer in that space has the lower levels of credits. If any, their ability to pass on or their ability to pass on some level of rebates, etcetera, is much higher than some of the other OEMs. I do think OEMs will respond.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

It's not going to be all consumer impacted. There will be some level of absorption. There will be some level of sort of end market demand. But a lot of that is already baked in. If we were forecasting a huge EV growth, I'd say we'll have to adjust the numbers.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

We're not expecting that in the first place. So as far as FY 2025 is concerned, we're in good shape. We'll provide more color in FY 2016 beyond if the ED credit piece does have a huge impact. My guidance is just my own personal opinion. There will be a small impact.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I don't think it's going to be a huge impact to be honest.

Manmohanpreet Singh
Equity Research Associate at JP Morgan Chase & Co

Okay. Thank you. Thanks for that color there. And my final question is regarding the cloud and AI piece like you saw robust growth there and it's also driving like large part of the upward revision to the outlook. So any particular any more color around there like which particular product segments or which sort of infrastructure is being driving more impact to the outlook there?

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Yes. So I think I mentioned earlier that we've taken up our AI driven business up by from $1,000,000,000 to $1,500,000,000 The $1,500,000,000 is mainly driven by, let's call it about $900,000,000 of cloud, capital equipment is another driver of that piece, that's about 400,000,000 and then the networking gear, liquid cooled switching, etcetera, along with the silicon photonics piece, etcetera. So that's about another 200,000,000 year on year increase. So the 1.5 $1,000,000 is spread out mainly among these with cloud being the main cloud and data center infrastructure being the main driver of that growth.

Manmohanpreet Singh
Equity Research Associate at JP Morgan Chase & Co

Thank you. Those are my questions. Happy holidays.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

Thank you. Happy holidays.

Operator

Thank you. Next question is coming from David Vogt from UBS. Your line is now live.

David Vogt
David Vogt
Managing Director at UBS Group

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?

David Vogt
David Vogt
Managing Director at UBS Group

I know there's typically in an industry that has some pretty competitive players hasn't been sort of the best gross margin and or segment margin for you guys. So can you kind of talk through sort of that 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, buybacks and dividend, but we didn't hear much in the way of M and A. And I know M and

David Vogt
David Vogt
Managing Director at UBS Group

A has been a part of the strategy. Maybe can you kind of talk to where the focus is today? Obviously, healthcare has kind of been a flattish business for you, If I factor in sort of the packaging sub segment as well, is that kind of what we should be focused on in 2025 and beyond is sort of opportunistic technical deals in other segments outside of the more traditional datacom and networking space at this point? Thanks.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

So let me start with the margin question, David. I think Greg mentioned in his prepared remarks, I mentioned as well, the hurricane did have a 10, 20 bps sort of impact on our margins in Q1. Obviously, that flows through into FY 2025. But overall, the data the cloud and data set infrastructure businesses is at enterprise margin. It's not dilutive.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

I don't know where that perceptions come from, but it is an enterprise level margin. Our semi cap business is actually above enterprise margin. So I think there were nuances to FY 2025. We talked about that on the last call. If you remember, we have about 20, 30 bps impact due to our surplus capacity.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

We do have capacity. We did open up Croatia that comes online in came online in Q1. And we only get to fill it up in FY 2025. We've obviously done a really great job pivoting from the EV end market, which was supposed to be the main driver of that side to GLP-1s, the qualifications, etcetera, will take a bit of time. And that's where I suggested GLP-1s will be live in Croatia by FY 'twenty seven.

Mike Dastoor
Mike Dastoor
CEO & Director at Jabil

But overall, look, the margin piece is good. We've said 5.4 percent. If you factor in some of the nuances I just mentioned, it's an extremely healthy margin. So I don't see us going backwards on the margin perspective as well at all.

David Vogt
David Vogt
Managing Director at UBS Group

Great. And Greg, on capital allocation?

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

Yes. Hi, David. It's Greg. So on capital allocation, to continue to focus on M and 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.

Gregory Hebard
Gregory Hebard
Chief Financial Officer at Jabil

In addition to that, and we're really focusing on markets for growth, and continue to be really thoughtful in that space. And if you look at the certain markets end markets that we're focusing on, it would be healthcare and the markets intelligent infrastructure, where we do see some focus on from an M and A capability and focus. In general, though, we're still doing 80% of our capital allocation to share buybacks at this time and that 20% to M and A, but continuing to be super thoughtful in that area to see where we can grow.

David Vogt
David Vogt
Managing Director at UBS Group

Great. Thanks, Greg. Thanks, Mike.

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.

Adam Berry
Adam Berry
Senior Vice President of Investor Relations & Communications at Jabil

That's all for our call today. Thank you very much and happy holidays.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Executives
    • Adam Berry
      Adam Berry
      Senior Vice President of Investor Relations & Communications
    • Gregory Hebard
      Gregory Hebard
      Chief Financial Officer
    • Mike Dastoor
      Mike Dastoor
      CEO & Director
Analysts
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