Jabil Inc. (JBL) Earnings

Management highlights

Good morning, everyone, and thank you for joining our call today. Our second quarter exceeded expectations on both revenue and core operating margin, driving another step up in core EPS. Intelligent infrastructure continues to be the primary driver of growth. Regulated industries revenue came in about $200 million above Q2 guide, intelligent infrastructure was up nearly $300 million above Q2 guide. Connected living and digital commerce performance was largely in line with expectations. Q2 was a strong quarter, providing greater confidence in the outlook for the back half of fiscal year. Teams around the world showed focus and execution. Revenue upside in the quarter was broad-based. Intelligent infrastructure segment's growth is driven by AI data center build-out. Regulated industries' outperformance in automotive and renewables suggests markets have bottomed and are recovering. Teams delivered for customers and converted stronger demand into higher margins and strong core EPS growth.

Guidance

Anticipate regulated industries revenue of $3.1 billion in Q3 FY26, intelligent infrastructure revenue of $4.2 billion, connected living and digital commerce revenue of $1.2 billion. Total company revenue for Q3 is expected to be in the range of $8.1 billion to $8.9 billion. Expect core operating margin of approximately 5.7% for full fiscal year 2026. Expect adjusted free cash flow of more than $1.3 billion for full fiscal year. Updated outlook for fiscal 2026: intelligent infrastructure segment will be approximately $16.5 billion, an increase of $1.1 billion over previous expectations. Raising full-year outlook for revenue and core EPS.

Segment performance

Regulated industries generated $3 billion in revenue, up 10% year over year, core operating margin was 4.8%. Intelligent infrastructure revenue was $4 billion, a 52% year-over-year growth, core operating margin was 5.7%. Connected living and digital commerce revenue was $1.2 billion, down 8%, operating margin was 4.9%.

Risks & headwinds

Not detailedly discussed in the transcript

Analyst Q&A

• Q: Mike, you raised intelligent infrastructure revenue by $1.1 billion. Can you help us rank order where you see the most opportunity? Is it in compute, networking, or semi-cap? And this year, AI revenues are now growing almost 50% year on year. Is it reasonable to think that that strong growth can sustain beyond fiscal 26?

  A: Sure. Thanks, Rukhlu. I know this is a critical part of our story, so I'll try and be as detailed as I can. The intelligent infrastructure growth was really broad-based across all three And markets, I think I mentioned on my call, cloud and DCI was up approximately 600, networking and comms up about 400, and capital equipment up about 100 million. So the $1.1 billion raise in intelligent infrastructure is quite broad-based. In cloud and DCI, the $600 million increase, in September, we talked about the retrofitting of our of our site on the east coast of the U.S. to accommodate liquid-cooled racks. That would give us the optionality to do both liquid-cooled and air-cooled servers. It would be sort of backward compatible and future-proofed as well. I'm happy to say, as I mentioned on the call, that retrofit actually was done sooner than we expected. We're about two or three months ahead of schedule, and that opened up some capacity on the East Coast, and that's flowing through our DCI cloud and DCI line. In addition, if you think about some of the other, the second hyperscaler that we've talked about going really well in Mexico, it's on the AI compute storage ramp there. Some of our power business in Memphis, I think we've talked about that in the past, the LVMV switchgear. and the INRO heat exchanges that we do in Memphis is going extremely well. In fact, we have expansion plans for Memphis, again, as we've talked about in the past. And then if you look at networking and communications, which is up about 400 million, it was really good to see 300 million of that came in from the networking side, and 100 million of that came from 5G. I don't think we've talked about 5G in a very long time. and we're seeing some positive upside there as well. On the networking side, the demand for high-speed interconnect continues to expand. We're looking at both Ethernet-related demand, InfiniBand-related demand, strong execution that we've had across our networking programs. All that's coming across really well. Our sites in India are doing amazingly well, and We have some expansion plans for there as well. So networking and communications, again, well sort of spread out. And then last but not least, capital equipment. If you think of the strong demand in capital equipment continues, the rapid sort of evolution that we're seeing in chip technologies, the high-performance computer, AI applications, continuing to drive demand for testing. So automated tests, equipment is really doing well. And then if you go beyond that to wafer fab equipment, we're actually seeing some signs of improvement there as well. On the wafer fab equipment, just being a little bit more prudent, it appears a little lumpy, so we're being conservative there. And we'll take our numbers up on the WFE side going forward as we see some level of clear visibility as well. The $1.1 billion in intelligent infrastructure really well spread out. I think if you look at the AI piece that we talked about, that was a billion dollars year on year, sorry, from December outlook. And, again, all of that, I'm really pumped up with what's going on in intelligent infrastructure right now.

• Q: As a follow-up, can I ask, so it looks like, you know, it's a broad-based strength and you've raised total company revenue guidance by $1.6 billion, but op margin is still 5.7%. So can you talk about the factors that are going into that? Are intelligent infrastructure margins where you would like them at? How much is mix-a-factor? And what are the factors that help drive op margin to greater than 6% going forward, maybe in fiscal 2017?

  A: As a reminder, we did take margins up in December by 10 bips. I feel really good about the 5% right now, the 5.7% for the year in FY26. Could it be higher? Sure. I just feel a little sort of we want to be a little bit more conservative given everything that's going on in the world with the geopolitics. and the uncertainties out there. We'll update margin guidance in our next quarterly call for sure. But I'll be surprised if it doesn't go higher than 5.7% at this stage. But we're just being a little bit more prudent there. As it relates to 6% and beyond, I think we have a really high level of confidence in that 6% for FY20. Twenty-seven, I think I've said this in the past, I feel better about 6% than I have ever done before. I think if you look at the main drivers for 6%, we're getting a really good mix of business, not just at the enterprise level where some of the older, not the old, but the legacy businesses are coming back. And then within intelligent infrastructure as well, we're seeing some decent signs of margin improvements there, particularly as we bring on new capabilities online, such as power, such as liquid cooling, et cetera, which are at a higher margin. Silicon Protonix will be another one. So I think overall, I think the 6% mix is really good. If you think of the operating... leverage on a higher revenue base. We've taken up revenues, $4 billion this year, and that will pay dividends as well going forward as we take revenues up, the leverage on that. We're seeing some better capacity utilization as well. I think last year we were at 75%. Today we're coming in at 80%. So that will continue to be a driver of higher margin. And then if you add the acquisition that we made, the Hanley acquisition, that will scale with the intelligent infrastructure business, and that is going to be accretive to our margins as well. So all in all, 6% and beyond is highly doable.