(By Mani) Jabil Circuit Inc. (NYSE: JBL), a contract electronics manufacturer, reported a mixed fourth quarter and lowered its November quarter outlook to prudently reflect a softer macro environment coupled with yield challenges in specialized services, which is believed to have been caused by Apple Inc. (NASDAQ: AAPL).
St. Petersburg, Florida-based Jabil gets about $2 billion in annual sales from Apple, which accounts for more than 10 percent of revenue. Jabil is an integral supplier to Apple and manufactures casings and accessories for the company through its GreenPoint operations.
Jabil estimates that the yield issues resulted in an income headwind of $10 million to $15 million, or about 5 cents to EPS, and should be resolved by February quarter, if not earlier.
For the fourth quarter, the company earned $82.8 million, or 39 cents per share, down from $114.3 million, or 52 cents per share, for the year-ago quarter. Excluding items, it earned 54 cents per share, missing the Street view by 4 cents.
Operating margin for the quarter narrowed to 3.3 percent from 3.9 percent a year earlier, while adjusted operating margin dropped to 4.0 percent from 4.4 percent last year.
Net revenue for the fourth quarter grew 1.4 percent to $4.34 billion from $4.28 billion in the same quarter last year. Ten analysts had a consensus revenue estimate of $4.22 billion for the fourth quarter.
Looking ahead to the first quarter, the company sees net revenue of $4.3 billion to $4.5 billion, earnings of 37 to 50 cents per share, and adjusted earnings of 51 to 62 cents per share. Analysts currently expect the company to earn .67 cents per share on revenue of $4.52 billion for the first quarter.
"In our view, the quarter saw higher than expected complexity and yield issues with a 10 percent customer, Apple, and margins should improve as FY13 progresses," RBC Capital Markets analyst Amit Daryanani wrote in a note to clients.
While the macroeconomic climate remains challenging, the company's long-term goals and competitive position are intact and earnings are expected to increase between 5 and 10 percent in fiscal 2013.
Among the catalysts, Apple's revenue share is likely to increase further upon the iPhone 5 launch when production increases could mean more revenue for Jabil in the long run.
"Given the new form factor, we believe initial yields could be lower at JBL with lower margins in the early part of the iPhone 5 ramp. Such was the case with the iPhone 4, as well," UBS analyst Amitabh Passi said in a client note.
On Wednesday, shares of Jabil Circuit declined more than 10 percent to $18.77, the biggest decrease since August 2011. The stock had gained 9 percent in the past year.
However, the increasing spending among all of the markets the company serves should boost its earnings and revenue in the next two years.
Jabil Circuit has grown to be one of the largest virtual electronic manufacturing services providers in the world by offering a full range of design (used in 50 percent of sales), material procurement, prototype, printed circuit board and full-system assembly, test, logistics, and repair services to original equipment manufacturers.
The company is organized around a global account structure that is supported by individual business units within a network of more than a dozen manufacturing sites located across the globe.
"Notably, a P/E of 11x remains attractive should JBL be able to sustain its 10-15 percent revenue and 15 percent-plus EPS growth over the next several years," Daryanani said.