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    JBL
    Earnings call· Feb 2025(Q2 FY25)

    JABIL INC JBL

    Mar 20, 2025 Source

    Executive summary

    Jabil Q2 FY25 — AI-Driven Growth and Strong Cash Flow

    Jabil delivered strong Q2 FY25 results, driven by robust demand in AI-related cloud and data center infrastructure, leading to a significant increase in AI-associated revenue expectations for the fiscal year. The company is leveraging its global manufacturing footprint and U.S. presence to navigate potential tariff complexities, while maintaining a prudent outlook for certain end markets like EVs and renewables. Strategic acquisitions in photonics and pharmaceuticals are expanding capabilities and addressable markets.

    Highlights

    5

    • Q2 revenue of $6.7 billion, with 3% year-on-year growth excluding divested mobility business.

    • Intelligent Infrastructure segment revenue grew 18% year-on-year to $2.6 billion, driven by AI-related demand.

    • AI-associated business now expected to represent approximately $7.5 billion in revenue for FY25, a 40% year-on-year increase.

    • Free cash flow for FY25 now anticipated to exceed $1.2 billion, up from prior expectations.

    • Core diluted EPS of $1.94 in Q2, up $0.26 from Q2 last year.

    Concerns

    4

    • Regulated Industries segment revenue decreased 8% year-on-year due to weakness in renewable energy and EV markets.

    • Connected Living & Digital Commerce segment revenue down 13% year-on-year due to Mobility divestiture and weaker consumer demand.

    • Inventory days increased 4 days sequentially to 80 days, slightly above the targeted 55-60 days (net of customer deposits).

    • Caution warranted in EV and renewables markets, with some derating of forecasts.

    Guidance & targets

    18
    CategoryTargetConfidence
    Regulated Industries segment revenue
    $3 billion
    medium materiality
    Medium
    Intelligent Infrastructure segment revenue
    $2.8 billion
    high materiality
    High
    Connected Living & Digital Commerce segment revenue
    $1.2 billion
    medium materiality
    Medium
    Total company revenue
    $6.7 billion to $7.3 billion
    high materiality
    High
    Core operating income
    $348 million to $408 million
    high materiality
    High
    GAAP operating income
    $282 million to $352 million
    high materiality
    High
    Core diluted earnings per share
    $2.08 to $2.48
    high materiality
    High
    GAAP diluted earnings per share
    $1.50 to $1.99
    high materiality
    High
    Net interest expense
    approximately $61 million
    medium materiality
    Medium
    Net interest expense
    $240 million to $245 million
    medium materiality
    Medium
    Core tax rate
    21%
    medium materiality
    Medium
    Core tax rate
    21%
    medium materiality
    Medium
    Total company revenue
    approximately $27.9 billion
    high materiality
    High
    Core operating margin
    5.4%
    high materiality
    High
    Core earnings per share
    $8.95
    high materiality
    High
    Free cash flow
    more than $1.2 billion
    high materiality
    High
    Net Capital Expenditures
    1.5% to 2% of revenue
    medium materiality
    Medium
    Share repurchase authorization completion
    by the end of FY '25
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Regulated Industries
    Revenue decreased due to expected weakness in renewable energy and EV markets, but core operating margin increased due to favorable mix.
    Core operating margin: 4.8% (up 20 bps YoY)
    		$2.7 billion-8%—4.8%
    Intelligent Infrastructure
    Growth primarily driven by strong demand in AI-related cloud, data center infrastructure, and capital equipment markets, exceeding expectations. Core operating margin improved significantly.
    Core operating margin: 5.3% (up 110 bps YoY)
    		$2.6 billion18%—5.3%
    Connected Living & Digital Commerce
    Revenue decline due to Mobility divestiture and weaker demand in consumer-driven Connected Living products, partly offset by strong growth in digital commerce and warehouse automation. Sequential revenue down 13% due to seasonality.
    Revenue growth (excluding divested Mobility): ~4%
    		$1.3 billion-13%-13%4.5%

    Operational metrics

    21
    Revenue
    $6.7 billionup 3% YoY (excluding divested Mobility)
    Q2 FY25

    Total company revenue.

    Core operating income
    $334 million
    Q2 FY25
    Core operating margin
    5%
    Q2 FY25
    Net interest expense
    $61 million
    Q2 FY25
    GAAP operating income
    $245 million
    Q2 FY25
    GAAP diluted earnings per share
    $1.06
    Q2 FY25
    Core diluted earnings per share
    $1.94up $0.26 from Q2 FY24
    Q2 FY25
    Inventory days
    80 daysup 4 days sequentially, down 7 days YoY
    Q2 FY25

    Reflects typical seasonality.

    Inventory days (net of customer deposits)
    61 daysup 5 days QoQ
    Q2 FY25

    Slightly above targeted range of 55 to 60 days, mainly due to timing in Intelligent Infrastructure segment.

    Capex
    $73 million
    Q2 FY25
    Net leverage
    1.4x
    Q2 FY25

    Healthy balance sheet.

    Cash and investments balance
    $1.6 billion
    Q2 FY25
    Shares repurchased
    2.5 million shares
    Q2 FY25
    Share repurchase authorization remaining
    $364 million
    Q2 FY25

    Expected to be completed by end of FY25.

    AI-related revenue
    approximately $7.5 billionup approximately 40% YoY
    FY25

    Updated outlook, driven by demand for servers, racks, photonics, advanced networking gear, storage and testing equipment.

    Digital Commerce revenue growth
    14%
    FY25

    Team continues to help customers drive automation in retail and digital commerce.

    Intelligent Infrastructure revenue growth
    17%reported basis
    FY25

    Well positioned to deliver growth.

    Silicon Photonics revenue
    $300 million to $400 million
    current

    Aggressively working with new hyperscalers.

    Legacy networking revenue
    $300 million
    Q2 FY24

    Revenue from divested business, used for year-over-year growth comparison.

    Total Revenue YoY Growth
    8.5%
    Q2 FY25

    Pro forma growth rate.

    Intelligent Infrastructure Revenue YoY Growth
    37%
    Q2 FY25

    Pro forma growth rate.

    Industry KPIs

    6
    MetricValueDetails
    M a contributionPharmaceutics International, Inc. acquisition
    Segment revenue growthRegulated Industries: $2.7 billion; Intelligent Infrastructure: $2.6 billion; Connected Living & Digital Commerce: $1.3 billionUSD
    Design wins product cycle ramps1.6T capability
    Capacity expansion internal sourcingExpansion in Gujarat, India
    End market revenue mix organic growthRegulated Industries: -8% YoY; Intelligent Infrastructure: 18% YoY; Connected Living & Digital Commerce: -13% YoY%
    Operating margin incremental leverageRegulated Industries: 4.8%; Intelligent Infrastructure: 5.3%; Connected Living & Digital Commerce: 4.5%%

    Deals & partnerships

    1
    Pharmaceutics International, Inc.Acquisition of U.S.-based pharmaceutical company to enhance aseptic filling and dry oral dosage capabilities.

    Enhances Jabil's existing pharmaceutical solutions (auto-injectors, pen injectors, inhalers, on-body pumps). PII brings advanced capabilities and state-of-the-art manufacturing facilities in the U.S. and 300 people.

    Risks & headwinds

    6
    Weakness in EV market demandNear-term

    Regulated Industries segment revenue decreased 8% YoY due to this.

    Mitigation: Jabil is being prudent with expectations and derating some forecasts, partially offset by strong Chinese OEM performance and power-related products.

    Slow recovery in renewable energy marketNear-term

    Regulated Industries segment revenue decreased 8% YoY due to this.

    Mitigation: Not seeing much recovery outside of energy storage; Jabil is being prudent with expectations.

    Lower demand in 5G end marketQ3 FY25

    Expected to slightly offset strength in Intelligent Infrastructure segment.

    Mitigation: Offset by broad-based growth in capital equipment, advanced networking, cloud, and data center infrastructure.

    Potential tariffs and geopolitical uncertaintyOngoing, with potential impact beyond 6 months

    Tariff costs are pass-through for Jabil, but could lead to end customer demand reduction (macro issue).

    Mitigation: Jabil is a U.S.-domiciled manufacturing service provider with a large global and U.S. footprint (30 sites), well-positioned to help customers navigate complexities and adapt to manufacturing shifts. Most China business is local-for-local, minimal Canada exposure, 80-90% Mexico business is USMCA compliant.

    Weaker demand in consumer-driven Connected Living productsNear-term

    Connected Living & Digital Commerce segment revenue down 16% YoY (partially due to this, alongside Mobility divestiture).

    Mitigation: Offset by continued growth in digital commerce space.

    Inventory days (net of customer deposits) slightly above targeted rangeQ2 FY25

    61 days, 5 days QoQ increase, above 55-60 day target.

    Mitigation: Anticipated to normalize into targeted range as the fiscal year progresses; mainly due to timing within Intelligent Infrastructure segment supporting strong growth.

    What to watch in Q3 FY25

    5

    Intelligent Infrastructure segment growth

    Q3 FY25
    Current18% YoY (Q2 FY25)
    TargetContinued strong growth, especially AI-related

    Why it matters

    This segment is a key driver of Jabil's overall revenue and margin expansion, particularly with AI-related demand.

    For our Intelligent Infrastructure segment, we expect revenue for the quarter to be $2.8 billion, up approximately 22% year-over-year on broad-based growth across our capital equipment, advanced networking, cloud and data center infrastructure markets.

    Q&A highlights

    6

    Can Jabil's U.S. footprint support manufacturing moves, and is it cost-effective for customers?

    Jabil has 30 sites in the U.S. and extensive experience, capable of rapid setup (e.g., 0 to running in 6 months). Some end markets like healthcare and Intelligent Infrastructure are already largely U.S.-based and more tolerant of cost changes, while consumer-related products are more price-elastic and harder to move.

    “Today, if you look at the number of sites we have, we have 30 sites in the U.S. all over the place. And I think if you look at the expertise that we have, the knowledge, the experience and all the capabilities that are required to move to the U.S., we have all of that.”

    asked by Ruplu Bhattacharya · answered by Michael Meheryar Dastoor

    2 min read5 chapters

    Detailed Narrative

    01

    Global Manufacturing Footprint & Tariffs

    Jabil emphasizes its U.S. domiciled manufacturing service provider status and significant U.S. footprint (30 sites) as a key advantage in navigating evolving geopolitical situations and potential tariffs. While tariffs may impact end customer demand, any changes in tariff costs are pass-through for Jabil. The company believes it is well-positioned to help customers adapt to complexities, including potential shifts to U.S. manufacturing, leveraging its experience and investments in automation and robotics. Most of Jabil's China business is local-for-local, it has minimal Canada exposure, and 80-90% of its Mexico business is USMCA compliant.

    02

    AI-Driven Growth in Intelligent Infrastructure

    The Intelligent Infrastructure segment is experiencing robust growth, particularly in AI-related cloud, data center infrastructure, and capital equipment markets. AI-associated business is now projected to reach approximately $7.5 billion in revenue for FY25, representing a 40% year-on-year increase. This growth is fueled by demand for servers, racks, photonics, advanced networking gear, storage, and testing equipment, with GPU integrated racks and liquid-cooled data centers accelerating. The segment's Q2 FY25 revenue of $2.6 billion was up 18% YoY, and would have been 37% YoY excluding the legacy networking business divested in Q2 FY24, which contributed $300 million in revenue.

    03

    Silicon Photonics Expansion

    Jabil is expanding its photonics capabilities, particularly in India (Gujarat), following its acquisition of Intel's silicon photonics business. The company is actively working with hyperscalers, currently generating $300-$400 million with one, and is showcasing 1.6T capability, positioning itself for significant future growth in this market. The Intel acquisition provided critical engineering and cleanroom capabilities for transceiver modules. Jabil is also well-positioned for Co-Packaged Optics (CPO) assembly, with development lines and embedded laser technology, expecting CPO to grow in 1-2 years and 'explode' by 2028.

    04

    Strategic Acquisitions & Market Expansion

    The recent acquisition of U.S.-based Pharmaceutics International, Inc. (PII) in early February allows Jabil to better serve pharmaceutical and healthcare customers in aseptic filling and dry oral dosage, opening up a $20 billion addressable market. This enhances Jabil's existing pharmaceutical solutions and has generated significant interest, particularly in light of GLP-1s and other alternatives. The liquid cooling acquisition from last year is also performing well, opening doors for vertical and customized solutions, with its potential for future growth not yet included in current forecasts.

    05

    Prudent Outlook for Specific End Markets

    Despite overall strong performance, Jabil maintains a cautious outlook for certain end markets. The EV market continues to warrant prudence, with some forecast derating, although this is partially offset by strong performance from Chinese OEMs and power-related products. Renewables, outside of energy storage, are not seeing much recovery, and 5G infrastructure demand is slightly lower, contributing to a prudent approach in the overall guidance. The company's overall Q2 FY25 revenue growth, excluding the divested mobility business, was 3% YoY, but would have been 8.5% YoY excluding the legacy networking business.

    AI-generated summary of the company’s earnings call. Not investment advice.