Jabil Inc. (NYSE:JBL) Q3 2019 Earnings Conference Call June 18, 2019 4:30 PM ET
Adam Berry - VP, IR
Mark Mondello - CEO
Mike Dastoor - CFO
- 亚当贝瑞 - IR副总裁
- Mark Mondello - 首席执行官
- Mike Dastoor - 首席财务官
Adam Tindle - Raymond James
Steven Fox - Cross Research
Paul Coster - JPMorgan
Ruplu Bhattacharya - Bank of America Merrill Lynch
Matt Sheerin - Stifel Nicolaus
Steve Milunovich - Wolfe Research
Mark Delaney - Goldman Sachs
Jim Suva - Citi
- 亚当Tindle - 雷蒙德詹姆斯
- 史蒂文福克斯 - 交叉研究
- 保罗科斯特 - 摩根大通
- Ruplu Bhattacharya - 美国银行美林证券
- Matt Sheerin - Stifel Nicolaus
- Steve Milunovich - 沃尔夫研究
- 马克德莱尼 - 高盛
- 吉姆苏瓦 - 花旗
Greetings, and welcome to the Jabil Third Quarter Fiscal Year 2019 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.
I would now like to turn the conference over to your host, Mr. Adam Berry, Vice President, Investor Relations. Thank you, sir. You may begin.
致欢迎词，欢迎来到Jabil第三季度2019财年电话会议。 此时，所有参与者都处于只听模式。 问答环节将在正式演讲之后进行。 [操作员说明]请注意正在录制此会议。
我现在想把会议转交给您的主持人，投资者关系副总裁Adam Berry先生。 谢谢你，先生。 你可以开始吧。
Good afternoon, and welcome to Jabil's third quarter of fiscal 2019 earnings call. Joining me on today's call are Chief Executive Officer, Mark Mondello; and Chief Financial Officer, Mike Dastoor.
Please note that today's call is being webcast live, and during our prepared remarks, we will be referencing slides. To follow along with the discussion and view the slides, you will need to be logged into our webcast on jabil.com. At the end of today's call, both the presentation and a replay of the call will be available on Jabil's Investor Relations Web site.
Please note that during today's conference call, we will be making forward-looking statements, including, among other things, those regarding our outlook for business and our expected fourth quarter and fiscal '19 net revenue and earnings.
These statements are based on current expectations, forecast, 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-K for the fiscal year ended August 31, 2018, and other filings. 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, it's now my pleasure to turn the call over to CEO, Mark Mondello. Mark?
下午好，欢迎来到Jabil的2019财年第三季度财报电话会议。今天与我联系的是首席执行官Mark Mondello;和首席财务官Mike Dastoor。
Thanks, Adam. Good afternoon. I appreciate everyone taking time to join our call today. As usual, I'll begin by offering our people a warm thanks for their hard work and continued dedication. I'm proud of the fact that keeping our people safe is a top priority for all of us here at Jabil. Before I get into our financial results, I'll offer a few thoughts around what we're seeing in terms of trade and tariffs.
Today, very few customers are moving existing production out of China. I believe this decision made by those customers is based on three factors. One, the deep-rooted mature supply chain that's foundational to China; two, many of our customers don't see a reasonable payback associated with such a move; and three, a decent percentage of our China revenue is for final consumption in geographies other than the United States. With that said, if the landscape shifts and customers change their mind, Jabil is well-positioned to author and implement safe and practical solutions which best serve the needs of our customers. In fact, I believe Jabil is positioned better than most especially when considering the commonality of our IT systems embedded throughout our seamless network of factories around the globe.
Now, turning to slide four, let's take a look at our third quarter results. The team generated core operating income of $186 million on revenues of $6.1 billion, and core earnings per share of $0.57. This was in line with our guidance, and 24% higher than last year, Q3-to-Q3. Within our EMS segment, we saw 26% revenue growth year-on-year, which was driven by cloud, point-of-sale, 5G and wireless, and our industrial sector. Our DMS segment delivered a core operating margin of 2.6% for the quarter, representing a 130 basis point improvement year-on-year. When I step back and I look at the first nine months of the year, I see further demonstration of our financial stability; all in all another fine quarter. Mike will provide more detail around our quarter and speak to our forward guidance during his prepared remarks.
So moving to slide five, you'll find the specific areas that currently have management's attention. These priorities are the foundation from which we serve our customers and our shareholders. With that, let's take a look at slide six, where you'll find the first area of focus, which is market and product diversification. This colorful pie chart represents a wonderful building block of our story. Within the company, we speak frequently about the importance of diversifying our business, but diversification for the sake of diversification has little relevance. What is relevant is knowing that as we become less dependant on any single product or product family we realize much improved reliability around our cash flows. With this improved reliability comes greater simplification of the business, enhancing our ability to execute. Our results in fiscal '18, and thus far in '19, gives us confidence that our approach is working.
I'll now turn your attention to slide seven, where a key element of our strategy is the natural growth of our new business wins. Today, our execution has been sound and our performance is ahead of plan. This gives us a high degree of confidence that this $2.4 billion in new business will have a favorable financial outlook in fiscal year '20, just as we committed at the beginning of the year. For today's call, I want to provide an update on our collaboration with Johnson & Johnson Medical Devices Company. But before I speak to the slide, I'm pleased to welcome our new team members from the cities of Elmira, Brandywine, and Monument, the three J&J factory locations we transferred over to Jabil during the quarter. These new colleagues now join their peers from Torres and Albuquerque in becoming an integral part of our team, and again, welcome to all.
In terms of the collaboration itself, I'm happy to report that both Wave 1 and Wave 2 are now complete, and completed on time. Wave 3 will be next, and we trust that it'll also be very successful and completed on time. Our revenue forecast for this business remains in the range of $800 million to $1 billion for fiscal year '20. Thanks to everyone involved, the teamwork between Jabil and J&J has been sensational.
Now, turning to slide eight, if you consider the midpoint of our Q4 guidance provided today, fiscal year '19 remains intact, and consistent with the commitments we made at the beginning of the fiscal year. Specifically, revenue looks to be $25.3 billion for the year, core operating income would expand to $875 million at the midpoint of the guidance, up 14% from a year ago. And we're on target to deliver $400 million of adjusted free cash flow, and uplift of 60% when compared to fiscal year '18. Altogether, fiscal '19 is shaping up to be another nice year. As we move through the fourth quarter, our goals remain unchanged, putting us in good light for next year.
Speaking of fiscal year '20, let's jump to my final slide, slide nine. When I think about the tremendous progress we've made, I conclude that our business is solid and on firm ground financially, operationally, and commercially. Much like last September, we plan to have another investor briefing as we head into fiscal year '20. This briefing will be held on September 24th via webcast. We'll open the session by reporting our fourth quarter and full-year results, followed by a review of our priorities, and highlighting how they'll positively impact fiscal '20. Add to this a discussion on end markets and observations specific to the macro environment as it presents itself at that time. Mike will conclude the September session by offering a fiscal '20 financial outlook as we prioritize margins and cash flows. Mike will lay out how we plan to increase free cash flow roughly 25% year-on-year, fiscal '19 to '20, expand core operating margins, and provide another year of double-digit core EPS growth.
Mike will also break down the shape of the year by quarter in terms of expected core EPS contribution. Finally, we'll wrap up the September session by sharing a well balanced capital return framework for which we remain fully committed. In closing, I like our strategy. We're clear on our mission and our priorities, and what we're doing is working. Our team is experienced, and the discipline we're showing is reflective in our results. I'd like to once again extend my thanks to everyone here at Jabil and all our new employees from J&J and to all of those on the call today.
With that, I'll now turn the call over to Mike.
就协作本身而言，我很高兴地报告Wave 1和Wave 2现已完成，并按时完成。第3轮将是下一个，我们相信它也将非常成功并按时完成。我们对该业务的收入预测在20财年仍然在8亿美元到10亿美元之间。感谢所有参与者，Jabil和J＆J之间的团队合作非常激动人心。
Thank you, Mark, and good afternoon. I'm very pleased with our performance in both segments during Q3. During the quarter, our teams executed extremely well, delivering solid year-over-year core operating margin expansion on strong double-digit revenue growth.
Our solid Q3 results are yet another proof point that our diversification strategy is working. Net revenue for the third quarter was $6.1 billion, an increase of 13% year-over-year. GAAP operating income was $140.9 million and our GAAP diluted earnings per share was $0.28. Core operating income came in $11 million better than the midpoint of our guidance during the quarter at $185.8 million, an increase of 24% year-over-year, representing a core operating margin of 3%.
Turning to interest and tax, net interest expense during the quarter was approximately $58 million, above previous expectations, driven mainly by the timing and scale of our ongoing new business awards. Our core tax rate for the quarter was 30.4%, approximately 300 basis points above expectations driven by the geographical mix of earnings. In summary, core operating income came in stronger than expected, offset by higher interest and tax expense which negatively impacted the quarter by approximately $0.04. Altogether, this resulted in core diluted earnings per share of $0.57 in line with expectations.
Now turning to our third quarter segment results, revenue for our DMS segment was $2.1 billion, down 6% year-over-year. This was mainly due to continued weakness in mobility demand offset by strength in our healthcare and packaging businesses. In Q3, core operating income for the segment nearly doubled on a year-over-year basis to $54.9 million, and as a percentage of sales improved 130 basis points to 2.6%. These impressive results highlight our improved business mix, and once again underscores the tremendous progress we've made in our diversification efforts.
Revenue for our EMS segment increased by 26% year-over-year to $4 billion. We continue to see exceptional growth in EMS associated with our new business wins in 5G wireless, cloud, and automotive. Core margins for the segment declined 50 basis points year-over-year to 3.3% due primarily to continued softness in the semi-cap space and costs associated with our new business awards.
Next, I'd like to outline our updated expectations for revenue in fiscal year 2019 by end market. Within DMS, we now expect slightly higher growth within edge devices and accessories. Our expectations for mobility and healthcare and packaging remain consistent with our outlook in March. Given our updated outlook, we now expect core operating margin for DMS to come in at 3.9%, a 20 basis point improvement from a quarter ago on slightly lower revenue of $9.9 billion.
Turning to EMS, we anticipate stronger revenue in our print, point of sale, 5G wireless and cloud end markets. Within our semi-cap business, we now anticipate the weakness to persist into the second half of calendar year 2020.Given our updated outlook we now expect core operating margins of 3.2% on slightly higher revenues of $15.4 billion.
Turning now to our cash flows and balance sheet, during the quarter, our days in inventory remained elevated mainly due to timing differences and came in below expectations at 64 days, a decline of only one day sequentially. I'm confident as we move into Q4 and beyond, inventory levels will contract to below 60 days as growth moderates and the component market continues to normalize.
Cash flows provided by operations were $5 million in Q3 and net capital expenditures totaled $229 million. Core return on invested capital for Q3 was 14.7%, an improvement of 180 basis points over the prior year. We exited the quarter with a total debt to core EBITDA level of approximately 1.9 times and cash balances of $694 million.
Turning now to our capital return framework, since the inception of our capital return framework in June of 2016, we have returned approximately $1.4 billion to shareholders including repurchases and dividends. We remain committed to balance capital returns and look forward to outlining our capital allocation framework for FY 2020 in September.
Turning now to our fourth quarter guidance, DMS segment revenue is expected to increase 4% on a year-over-year basis to $2.5 billion while the EMS segment revenue is expected to increase 22% on a year-over-year basis to $4.1 billion. We expect total company revenue in the fourth quarter of fiscal 2019 to be in the range of $6.3 billion to $6.9 million for an increase of approximately 14% at the midpoint of the range. Core operating income is estimated to be in the range of $215 million to $275 million with core operating margin in the range of 3.4% to 4%.
GAAP operating income is expected to be in the range of $169 million to $235 million. Core diluted earnings per share is estimated to be in the range of $0.76 to $0.96. GAAP diluted earnings per share is expected to be in the range of $0.47 to $0.71.
The tax rate on core earnings in the fourth quarter is estimated to be in the range of 27% to 29%. As we move into the final quarter of FY 2019, I'm confident in our team's ability to execute and efficiently manage working capital and generate strong cash flows. Working capital improvements will come mainly through the combination of improved inventory levels as growth moderates and the component market continues to normalize.
These factors give me confidence in our ability to deliver adjusted free cash flows of $400 million for the year. In summary, fiscal 2019 is shaping up to be a great year, and we hope to build upon this positive momentum in FY 2020. Moving forward, I expect growth in both earnings and free cash flow will come through meaningful margin expansion and improved working capital efficiency.
I'll now turn the call back over to Adam to begin Q&A.
Thanks, Mike. Before we begin the Q&A session, I'd like to remind our call participants that per our customer agreements, we will not address any customer or product-specific questions. We appreciate your cooperation. Operator, we're now ready for Q&A.
谢谢，迈克。 在我们开始问答环节之前，我想提醒我们的电话参与者，根据我们的客户协议，我们不会解决任何客户或产品特定问题。 我们感谢您的合作。 接线员，我们现在准备好进行问答了。
Thank you. [Operator Instructions] Our first question comes from the line of Adam Tindle with Raymond James. Please proceed with your question.
谢谢。 [操作员说明]我们的第一个问题来自Adam Tindle与Raymond James的合作。 请继续你的问题。
Okay, thanks, and good afternoon. I just wanted to start, Mark, it looks like you're on track for the $3 EPS target that you talked about around three years ago based on this quarter-end guidance. At the end of last fiscal year you gave a navigational beacon of $4 of EPS and a free cash flow number per share that implied a similar amount. So the question is I'm just hoping that maybe you can reflect on the obstacles related to the $3 that looks like you're on track to achieve and how the path that $4 navigational beacon may be similar or different. It sounds like Mike kind of mentioned obviously margin improvement and cash flow improvement for the $4 versus $3 is more revenue growth. So if you could just touch on those dynamics to start that'll be helpful?
好的，谢谢，下午好。 我只是想开始，马克，根据这个季度末的指导，看起来你在三年前谈到的3美元每股盈利目标正在按计划进行。 在上一财政年度结束时，您给出了每股4美元的导航信标和每股自由现金流数量，这意味着数量相似。 所以问题是我只是希望你可以反思与3美元相关的障碍，看起来你有望实现以及4美元导航信标的路径可能相似或不同。 听起来像迈克有点提到的利润改善和现金流改善4美元兑3美元的收入增长更多。 那么，如果你能够触及这些动态，那么开始它会有所帮助吗？
All right. Well, good multi-question. For question one, I think the best way to think about it, Adam, is as follows. I think all year back starting in September, we've been talking about $400 million of free cash flow, margins at about 3.5%, core EPS in the neighborhood of $3. If you take the midpoint of our guidance, sum everything together, I think it sums at like $2.97 or $2.98, which I think puts us squarely in the neighborhood of $3, so check the box to that.
What I'm pleased with is at the beginning of the year we thought operating income would be about $850 million. I think we took that up either in the second quarter call -- first or second quarter, December-March call we took it up to like $865 million, and now if you take the midpoint of our guidance it's all the way up, at $875 million. So, one of the things I'm really pleased with is, is the operational earnings power of the company is stronger than we thought. And I thought we had some pretty aggressive numbers at the beginning of the year. As I think about where the company is headed in fiscal '20 and '21, maybe a really simplistic way to think about the company financially.
Our tax rate overall for this year is higher than I'd like. That's just a direct calculation in which both geographies', jurisdictions' incomes generated. I think that'll normalize back to a more normalized level as we move forward to '20 and '21. In addition to that, our interest expense is a little more fluffy, for lack of a better word, than we thought it would be. Beginning of the year we thought interest expense would be in the $210 million, maybe $215 million range. It's probably going to be more like $225 million for the year. That'll normalize as well if I think of one of the -- or one of the ways I look at interest expense for the company is kind of as a percentage of EBITDA. We're probably 150-200 basis points higher than what I'd call normal. But that's a bit intentional.
And what I mean by that is, is we've taken on what I think is very, very good new business wins that's come very naturally to us. I use the term in the slides this time, kind of natural growth. It wasn't forced. And so what I think of is very short-term, it's a bit of tradeoff of interest expense on a temporary basis being a little higher than we thought. But it really sets the foundation nicely for fiscal '20 and '21. If I think back to the navigational beacon, I think I shared two slides back in September. One was the navigational beacon where I thought we'd get to or on a path to 4% operating margins, and then I showed kind of a fiscal '21 outlay where I thought we'd get to $3.80 in earnings, also with very good margin.
So, I think what we'll be able to share with you in September is, our plan is a little bit ahead of schedule, and I think we'll be able to share with you that by taking on a little bit more interest expense in '19, as you start seeing where we're going in '20 and then '21, as I said in my prepared remarks, one is as I think you're going to see -- continue to see double-digit growth on the core EPS line. I think free cash flow next year will be in the range of about $500 million, and again we'll continue to press on margin. So, again, all in all, if I think about what we said we'd do at the beginning of the year, where we're at today really, really pleased with the earning power on our core outline. And certainly the journey for us is to get the company to $4 a share in earnings, as well as 4% margins.
我很满意的是，今年年初我们认为营业收入约为8.5亿美元。我认为我们在第二季度电话会议上取得了这个成绩 - 第一季度或第二季度，12月至3月电话会议我们接受了8.65亿美元，现在如果你采取我们指导的中点，它会一直上涨，价格为875美元百万。因此，我真正感到高兴的是，公司的运营盈利能力比我们想象的要强。而且我认为今年年初我们有一些相当激进的数字。当我想到公司在20财年和21年的财务状况时，可能是一种非常简单的方式来考虑公司的财务状况。
我们今年的整体税率高于我的预期。这只是一个直接计算，其中两个地区的，管辖区的收入产生。我认为随着我们向前迈进'20和'21，这将恢复正常化水平。除此之外，由于缺乏比我们想象的更好的词汇，我们的利息费用会更加蓬松。从年初开始，我们认为利息支出将在2.1亿美元左右，可能是2.15亿美元。今年可能会更像2.25亿美元。如果我想到其中一个 - 或者我考虑公司的利息费用的方式之一，那么这也会正常化，这有点像EBITDA的百分比。我们可能比我称之为正常值高出150-200个基点。但这有点故意。
所以，我认为我们9月份可以与您分享的是，我们的计划有点提前，我想我们可以通过承担更多的利息费用与您分享在19年，当你开始看到我们将在20年和21年前后去的时候，就像我在准备好的评论中所说的那样，我认为你会看到一个 - 继续看到两位数的增长核心EPS线。我认为明年的自由现金流将在5亿美元左右的范围内，我们将再次继续追求利润率。所以，总而言之，如果我想到我们今年年初所做的事情，我们今天真的非常高兴我们的核心大纲上的盈利能力。当然，我们的旅程是让公司每股盈利4美元，以及4％的利润率。
Okay, that's helpful. And I'll keep it to one part on a quick follow-up, more near-term on EMS revenue guidance for the Q4 quarter. You've had a number of customers experiencing weakness in the old E&I segment, so just maybe hoping that you can talk about the buildup for EMS revenue in Q4 because it looks still fairly healthy. Obviously year-over-year is benefiting from ramps, but I'm just thinking on a normal seasonal, sequential basis it seems pretty stable versus the customers who are experiencing some weakness. So helping just trying to understand where the delta lies in terms of the strength you're seeing. Thanks.
好的，这很有帮助。 我将在第四季度的EMS收入指导中进行快速跟进，更近期的一部分。 您有许多客户在旧的E＆I细分市场中遇到了弱点，因此可能希望您能在第四季度讨论EMS收入的增长，因为它看起来仍然相当健康。 显然，同比逐年受益于坡道，但我只是考虑一个正常的季节性，连续的基础，它似乎相对于正在经历一些弱点的客户来说相当稳定。 因此，帮助您尝试了解三角洲在您所看到的力量方面的位置。 谢谢。
Yes, I think one thing that's really cool is we are seeing weakness in legacy EMS business. We kind of have our EMS business broken up into two sectors, kind of enterprise infrastructure, and then our engineering solutions group. I think we'll confirm that we're seeing some weakness in legacy, E&I customers. And yet if I look at the numbers, and I'd have to go back and check this, Adam, I could have this wrong. But I think the midpoint to where we guided you and showed you on the slides where EMS revenue is going to be midpoint of guidance for 4Q. Again, I want to go check it, but I think that might be a record quarter in terms of revenue for EMS. And in fact you roll that in with DMS, I think it might be a record revenue for the company overall midpoint of guidance.
So, I think that just speaks to what we're up to, which is we've got deep pockets of weakness that we've been talking about, semi-cap on the EMS side, we've been talking about mobility on the DMS side. And then we've got kind of this dither of different pockets of divots and weakness scattered through, as you framed it, some of the legacy customers. And yet revenue for Q4, both on the EMS segment as well as the company are going to be at record levels. So, again I think it speaks volumes for what we're up to in terms of the diversification of the business.
Yes. Thank you very much.
Our next question comes from the line of Steven Fox with Cross Research. Please proceed with your question.
我们的下一个问题来自Steven Fox与Cross Research的合作。 请继续你的问题。
Thanks. Good afternoon. Two questions, please. First of all, Mark, the outlook for 5G and cloud has increased significantly since the beginning of the year. Can you maybe just provide a little bit more of a detailed walk on why you're having so much success there, and what you would attribute it to? And then secondly, you guys seem to be operating from a different playbook than the rest of the industry. There's a couple of competitors that are seeing their stock price incredibly depressed versus just a year ago. And I'm curious as to how that may affect you going forward, if it does at all. It seems like the model that's developed over the last three years to be a lot different than they be a lot of the competitors. Thanks.
谢谢。 下午好。 请两个问题。 首先，Mark，自今年年初以来，5G和云的前景已显着增加。 您是否可以稍微详细了解为什么您在那里取得如此大的成功，以及您将其归于何种？ 其次，你们似乎是在与其他行业不同的游戏手册中运作。 有一些竞争对手看到他们的股价与一年前相比令人难以置信的低迷。 而且我很好奇这可能会影响你前进，如果它确实如此。 看起来过去三年发展的模型与许多竞争对手的情况大不相同。 谢谢。
Thanks, Steve. So on the 5G cloud, I think there's a couple of catalysts there, one is, if I could start with 5G, there's tons in the media 5G is pushing to the last, no it's not, maybe it is. 5G is coming. I think it's going to be transformational. There's lots being written about the tensions between Huawei and the U.S. I can tell you just in general, our legacy wireless business is about, as planned, maybe a little bit stronger. On the 5G side we're really, really pleased with our partners. I think they're positioned quite well in the overall infrastructure rollout for the U.S. and Europe. And we're fortunate to be right in the middle of that. So, today, we've taken, I think a reasonably, slightly conservative outlook for our 5G business, but all in all we feel pretty good on how we're positioned. And we'll see where that goes.
On the cloud side, our team has built good partnerships with the hyperscale folks as well as some of the smaller folks. And our solution is, we've talked about it before, it's an asset-light solution. I think the main thesis around it is, is rapid configuration, significant reduction in overall network invested capital for all parties involved, and it seems to have been adopted, embraced, and as we sit today, in relatively good shape. I think you're correct, again, I don't have the exact numbers in front of me, but 5G and cloud I think at the beginning of the year combined we said would be in the range of $3 billion. And I think today it's in the range of closer to $4 billion. So that's just illustrative of a lot of hard work, success in terms of generating some new business, and then winning some market share from maybe a few other players on the 5G side.
In terms of what we're doing, I appreciate the compliments. I think what we're doing is working. I think it's a combination of our structure, our approach. I think we're on to something here with this diversification strategy. Again, you think about our company, we've got some deep pockets of softness, and yet we're able to take our core operating income and grow it 14%-15% year-on-year on the operating line. And again I think it's due to the hard work of the team. But again I also think it's fundamental to our overall strategy. So, at a high level, I'd suggest we got a lot of hard work to do. We got to keep our nose down and serve our customers. But I think a lot of it has to do with our structure and our solutions. And at least for now it seems to be working, so we'll take it.
Great, that's very helpful. Thank you.
Yes. Have a good day.
Our next question comes from the line of Paul Coster with JPMorgan. Please proceed with your question.
Yes, thanks for taking my questions. I've got two questions, Mark. First up, the revenue guidance for the fourth quarter, it's quite a wide range. I'm just wondering what assumptions have gone into that? And the second question is, notwithstanding your quite reassuring comments on China, I'm just wondering if there's any vulnerabilities or component shortages or other issues that have arisen that you're navigating for yourself or on behalf of your customers?
是的，谢谢你回答我的问题。 我有两个问题，马克。 首先，第四季度的收入指引，它的范围相当广泛。 我只是想知道这些假设是什么？ 第二个问题是，尽管您对中国的评论非常令人放心，但我只是想知道是否存在任何漏洞或组件短缺或其他问题，而这些问题是您为自己或代表客户进行导航的？
Yes, thanks, Paul. On the revenue guidance, Paul, we kind of use a standard range plus or minus 10%-12%. I think it's been that way for a while. We haven't really changed it much. In the fourth quarter, we got to be careful because in the mobility sector we're always ramping new products and things could go bump in the night. We don't anticipate that here. If we wanted to I guess we could probably narrow the range a bit, but I kind of like the safety of a little bit of a wide range. If you look at our performance in the last 12 quarters or so we've been pretty close to the center points of the range, and haven't been in the outer limits, certainly not on the down side. So there's not a whole lot to that other than kind of consistency for the last 20 quarters or so in the ranges we said, especially the fourth quarter, again when we're going through ramps.
In terms of China, if I think back to my prepared remarks, there's just been a lot of questions. And we felt like we'd get out in front of it early on in some commentary. And again, truth be told, today we have lots and lots of scenario planning going on with customers. I feel really good because we've got some of the greatest brands on the planet that really, really trust us to run lead for them on their scenario planning and what-if scenarios. But even with all the scenario planning going on we're just not seeing a lot of customers moving existing production. There is some customers where they've made some choices maybe to ramp some of their new products in other geographies. I think that's really healthy. It's really good for us because it continues to help us balance factories and factory loading. We're not seeing a lot of component shortages. And certainly component shortage is getting worse than they were two-three quarters ago.
If I had to scope that out for you, Paul, I'd say that the components stress and strain and shortages probably peaked about two to three quarters ago. We're actually seeing the overall supply chain globally start to normalize. I think if things stay the same I think the supply chain normalizes fully by the fall timeframe of 2019, which might be earlier than we had anticipated. And I think the other thing for us is, is all in all, not too many customers picking out, moving out of China. But I said in my prepared remarks, if that happens, if things were to worsen, Jabil I think is one of the best companies on the planet to help these brands, largely around the fact that we've got an excellent global footprint. We got about 50 million square feet of manufacturing space. But I think the real interesting thing in all that, Paul, is, is our factories are all weaved together with a very common IT system, and that's really, really beneficial to the customers.
So, again, would like things to get settled, and settled as soon as possible between the U.S. and China. But again, I think we're in relatively good shape either way. I would close out that comment to say if things got really, really bad either short-term or long-term I think it's going to be tough on everybody, us included, but let's hope that that doesn't occur.
Very good. Thank you.
Yes, thanks, Paul.
Our next question comes from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your question.
我们的下一个问题来自美国银行的Ruplu Bhattacharya系列。 请继续你的问题。
Hi, thanks for taking my questions. I have one on DMS and one on EMS. The first one on the diversified manufacturing services, I was just wondering if you can just comment on the revenue and margin performance. I mean revenues were better than expected, and margins significantly improved. So what drove the outperformance, any color there would be beneficial. And do you have any revenue shift from 4Q into 3Q?
嗨，谢谢你接受我的问题。 我在DMS上有一个，在EMS上有一个。 关于多元化制造服务的第一个，我只是想知道你是否可以评论收入和利润表现。 我的意思是收入好于预期，利润率显着提高。 所以推动表现优异的是什么，任何颜色都会有益。 你有从第四季度到第三季度的收入转移吗？
That question was solely around DMS, correct?
That's right, only on DMS.
Okay, because I heard you say two. So let me address that, and then we can come back to your EMS question, Ruplu. Yes, I'm pretty excited about the results in DMS. So we expanded margins. Q3 is always a little bit of a soft quarter for us. We have product ramps going on in the mobility space. This year is no different, but I got to tell you the current team we have in place running that business today is doing an outstanding job on cost management, some factory re-layouts, the ability to maybe to ramp product a little bit more efficiently, more cost effectively. And then the other part on the DMS space is if you take a look at our packaging and healthcare growth, even if you took it back, say, 3Q of '18 versus 3Q of '19, the growth in healthcare and packaging has been substantial on a percentage basis. And when you think about the margin structure and the overall business in that area, that certainly was a contributor. So again, the revenue being up, it was -- I think DMS revenue for the quarter was up little over $100 million, not immaterial but not substantial, not all that uncommon, but what's really exciting for me is the margins on DMS we're starting to get a better blend quarter-on-quarter and not so much volatility, and again I think that's a good statement to our strategy.
好的，因为我听到你说两句话。所以让我解决这个问题，然后我们可以回到你的EMS问题，Ruplu。是的，我对DMS的结果非常兴奋。所以我们扩大了利润。 Q3总是对我们来说有点软。我们在移动领域正在进行产品升级。今年也不例外，但我得告诉你，我们现有的团队正在运营这项业务，在成本管理，工厂重新布局，以及更有效地提高产品能力方面做得非常出色。 ，更具成本效益。然后在DMS领域的另一部分是，如果你看一下我们的包装和医疗保健增长，即使你把它拿回来，比如说，在18年第3季度与19年第3季度相比，医疗保健和包装的增长是巨大的按百分比计算。当你考虑该领域的利润结构和整体业务时，这肯定是一个贡献者。再次，收入增加，它是 - 我认为该季度的DMS收入略高于1亿美元，不是无关紧要但不实质，并非所有这些都不常见，但对我来说真正令人兴奋的是我们的DMS利润率重新开始实现季度和季度的更好融合，而且我认为这对我们的战略来说是一个很好的陈述。
Yes, that makes sense, and thanks for the color on that. Then my second question on EMS, I guess you have a lot of new programs that are ramping. I think the slide on fiscal 2019 core operating margins suggested 3.2%, which is slightly lower than what you had before. I know you're not giving guidance for fiscal 2020 but just conceptually as these programs ramp, is there any reason to think that EMS margins in fiscal '20 can't be higher than what the 3.2% that you're projecting for fiscal '19. So any puts and takes there would be helpful.
是的，这是有道理的，并感谢它的颜色。 然后我关于EMS的第二个问题，我猜你有很多新的程序正在崛起。 我认为2019财年核心经营利润率下滑3.2％，略低于之前的水平。 我知道你没有为2020财年提供指导，但从概念上讲，随着这些计划的增加，有没有理由认为2010财年的EMS利润率不能高于你预计的财政收入的3.2％。19。 所以任何看跌期权都会有所帮助。
Okay, I'll try to get myself not wrapped up or get myself in trouble or too far ahead of everything. So I think we're going to roll that out with quite a bit of detail on September, but I'd be highly disappointed if our EMS margins aren't higher than 3.2% next year. And I think we'll show you a path that you'll be pleased with in September. But again remember at the beginning of the year, I showed a chart, it was something along the lines of our base business in the company for fiscal '19 would be in the margin range of about 3.7%, and then the new business wins and at the time we thought across the company the new business that we're taking on would be in the $2 billion range, of which the vast majority of that was in EMS. I think if you look at the numbers today, the new business platforms are going to be bumping up against $2.5 billion. So, decent growth there, very select growth, intentional growth, and growth that we've been very selective and kind of letting the leash out on.
And we said at the beginning of the year that business would generate about 1%. I think Mike, either the last call or the December call had kind of framed out and said, "Look, we're going to have a lot of investment in the front-half of the year on a lot of this business growth, and then it's going to start to normalize in the back half of the year." And again it's rough numbers, if you take a look at the EMS margins, Ruplu, I think blended for Q1, Q2 first-half of '19 EMS blended out about 2.3%, 2.4%, back-half of the year for EMS is going to be blended probably closer to 4%. So again, I think we're on an appropriate trajectory, and again I think you and your peers will be pleased with what you hear in September in terms of our EMS margins for '20.
Okay, great. Thank you so much for the color. I appreciate it.
好，太棒了。 非常感谢你的颜色。 我很感激。
Yes, you're welcome.
Our next question comes from the line of Matt Sheerin with Stifel. Please proceed with the question.
我们的下一个问题来自Matt Sheerin与Stifel的系列。 请继续提问。
Yes, thanks and good afternoon. Just following up on the questions related to the strong growth you're seeing in EMS and specifically in the cloud area, I know there's been some big share gains, you've made some big investments in that space, but I know there is it's lumpy in terms of limited number of very big players particularly the hyperscale players. How diversified are you within that space in terms of your customer base?
是的，谢谢，下午好。 刚刚跟进有关您在EMS，尤其是云领域看到的强劲增长的问题，我知道有一些大的收益，你已经在那个领域做了一些大的投资，但我知道它有它的 在数量有限的非常大的球员，尤其是超大型球员方面，这些球员很不稳定。 在您的客户群方面，您在该领域的多元化程度如何？
Yes, Matt. So this question came up in kind of a similar format last call. Not going to get into the number of brands we serve and then it was asked about brands and then we were asked about hyperscale versus small folks. We won't get into any of that. We may get into that more in the September call. The one thing though that is pretty cool about that business is we've made lots of investments on a variable basis in terms of engineering and process, but in terms of -- in terms of fixed costs, if I was going to contrast that, say, with our mobility business that is heavily fixed cost weighted. Our fixed cost investments and for that matter working capital investments on the cloud business is what -- maybe for lack of a better word, statement whatever it's very, very asset-light. So it's very flexible. We can ebb and flow as volumes go up and down, and we don't have the stress and strain of the load of large fixed assets in that business, which by the way is a gem in terms of our solution and the potential variability of that business going forward.
是的，马特。所以这个问题在最后一次调用时出现了类似的格式。不打算进入我们服务的品牌数量，然后询问品牌，然后我们被问及超大规模与小人物。我们不会涉及任何一个。我们可能会在9月份的电话会议上进一步讨论。尽管如此，关于这项业务非常酷的一点是我们在工程和流程方面已经在可变的基础上进行了大量投资，但就固定成本而言，如果我要对比这一点，比方说，我们的移动业务是固定成本加权的。我们的固定成本投资以及对云业务的营运资本投资就是 - 可能是因为缺乏一个更好的词汇，无论它是非常非常轻微的资产。所以它非常灵活。随着产量的上升和下降，我们可以起伏不定，而且我们没有那个业务中大型固定资产负荷的压力和压力，顺便说一下，就我们的解决方案和潜在的变化而言，这是一个宝石。那个生意向前发展。
So, the swing factors there would be really working capital then, and then maybe some variable labor costs or assembly-related costs?
That's right. I would characterize it as that business is -- it has a high, high degree of the variable cost infrastructure, which we can ebb and flow quite quickly. So, I feel comfortable with our solution being well-matched with that marketplace.
那就对了。 我将其描述为业务 - 它具有高度，高度的可变成本基础设施，我们可以迅速退潮。 因此，我觉得我们的解决方案与该市场非常匹配。
Okay, great. And then your commentary on free cash flow improving 25% or so next year, is that also kind of a function of working capital coming down? I mean I know you're going to -- you plan to grow your operating profits, but you also talked about the component environment being more favorable and plans to bring down inventory working capital, is that how we get there? And also I guess CapEx?
好，太棒了。 然后你对自由现金流明年提高25％左右的评论，这也是营运资本下降的一种功能吗？ 我的意思是我知道你会去 - 你计划增加你的营业利润，但你也谈到组件环境更有利并计划降低库存营运资金，我们是如何实现这一目标的？ 而且我猜CapEx？
Hey, Matt, I'll take -- I'll catch my breath and let Mike take that one.
嘿，马特，我会接受 - 我会喘不过气来让迈克拿走那个。
Hey, Matt. So, the increase in free cash flow for next year is a combination of improvement in margin. Obviously our EBIT goes up and working capital normalizes. I think I mentioned in the past that inventory is at a higher level than we like it to be. Each day of working capital, each day of inventory is about $60 million. So you see improvements coming through on an annualized basis of just one or two days and you're getting there. We're about -- I'd expect a completely normalized inventory run rate to be around 55 days. Right now we're in 64. I think we'll be down to 60 relatively soon in Q4, and going forward if we take a day or two out, the free cash flow number 25% that sounds highly achievable.
嘿，马特。 因此，明年自由现金流量的增加是利润率改善的结合。 显然，我们的息税前利润上升，营运资本正常化。 我想我过去曾提到库存水平高于我们喜欢的水平。 每天的营运资金，每天的库存约为6000万美元。 因此，您会看到仅仅一两天的年度化改进即将到来。 我们的意思是 - 我希望完全正常化的库存运行率大约为55天。 现在我们已经64岁了。我认为我们将在第四季度相对较快地降至60，如果我们花一两天时间继续前进，那么自由现金流数量25％听起来非常可行。
Okay. And just quickly have you given CapEx guide for next year yet? I may have missed that.
好的。 很快你就明年给了CapEx指南了吗？ 我可能错过了。
No, you didn't miss it. We haven't given it, but we'll be talking about that in September for sure.
Okay, very good, and congratulations.
Our next question comes from the line of Steve Milunovich with Wolfe Research. Please proceed with the question.
我们的下一个问题来自Steve Milunovich与Wolfe Research的合作。 请继续提问。
Thank you. Well, many of the semi-cap companies had predicted a second-half bounce back this year, you guys had pushed out your semi-cap improvements to 2020, and now you're pushing it out to the second-half, so I guess what are you seeing that's causing you to do that and how much confidence do you have in that?
谢谢。 好吧，很多半封顶公司都预测今年下半年会有反弹，你们已经把你的半封帽改进推到了2020年，现在你把它推到了下半年，所以我猜 你看到的是什么导致你这样做以及你对此有多大的信心？
I don't know that we have high degree of confidence in it. We have as much confidence, Steve, as our market intelligence would tell us. We have got great relationships with big brands there, and again remember, in our capital equipment is both front-end and back-end, so we pay a lot of attention to both. I actually think that we're starting to frame out timeframe and period for recovery is pretty consistent with the overall marketplace. So I think I'd be surprised if people are going to start seeing a big recovery in semi-cap by this fall. I think our take anyway has been that the market -- there was a small probability that we see some degree of modest recovery in the fall in '19. That probably won't happen. I think the modest recoveries will start if anything very late in calendar '19, and will start picking momentum up for recovery in early '20 and into the say late spring, early summer. The nice thing is I think the snapback on that business isn't going to be a step function, I think it will be improvement over time. So I would hope to see our semi-cap business start to perform better in our 1Q of '20 and then see the gradual progression from there.
我不知道我们对它有很高的信心。正如我们的市场情报告诉我们的那样，我们对Steve充满信心。我们与那里的大品牌建立了良好的关系，并且再次记住，我们的资本设备既是前端又是后端，所以我们非常关注这两者。我实际上认为我们已经开始制定时间表，恢复期与整体市场非常一致。因此，如果人们准备在今年秋季开始看到半封闭大回升，我会感到惊讶。我认为无论如何我们的看法一直是市场 - 我们在19年秋天看到一定程度的适度复苏的可能性很小。那可能不会发生。我认为，如果19日历中任何事情都很晚，那么适度的复苏就会开始，并且会在20年初的早些时候开始为复苏提供动力，并进入早春，初夏。好的一点是，我认为该业务的回升不会是一个阶梯功能，我认为随着时间的推移它将会有所改善。因此，我希望看到我们的半封顶业务在20年第一季开始表现更好，然后看到从那里逐步发展。
Hey, Steven, when Mark mentioned EPS growth rates of 10% plus and free cash flow of plus 25% in FY '20 that the semi-cap issue is already being considered in there.
Okay, excellent. Thank you.
Our next question comes from the line of Mark Delaney with Goldman Sachs. Please proceed with your question.
Yes, good afternoon. Thanks for taking the questions. First is on healthcare, if I recall properly this year, the J&J business was supposed to be about $200 million and the slides have it for $800 million to $1 billion for next year. I think it's supposed to go from around EBIT breakeven to 2.5% to 3% EBIT margin next year. And I was just hoping to just better understand what needs to be done in order to get the margins up to the targeted range and what kind of linearity there may be as that's achieved?
是的，下午好。 感谢您提出问题。 首先是关于医疗保健，如果我今年回想起来的话，强生公司业务应该是2亿美元左右，明年幻灯片的价格为8亿美元到10亿美元。 我认为它应该从明年的EBIT盈亏平衡到2.5％到3％的息税前利润率。 我只是希望能够更好地了解需要做些什么才能使利润率达到目标范围，并且可以达到什么样的线性度？
Okay, thanks, Mark. Yes, I think the one thing I feel very good about is we came out with the announcement of the deal very, very early in the year. And if anything -- I was going to say nothing's changed, but actually there has been change, and it's all been changed to the positive. There're different waves of transference of capability leadership people and insights. Those are all to plan or ahead of plan. And the difference between this year and next year is so I think you're spot on, I think revenue this year for the overall relationship will be in the $250 million to $300 million range. I think that next year will still be in the $800 million to $1 billion range. I think this year will be close to breakeven, maybe a hair above, but I think it's fair to say breakeven all around. And the next year I think your numbers of 2.5% to 3% makes sense. And again, I would see that as a natural slope up from there as we move to fiscal 2021 and beyond. And the biggest issue is again the complexity and just the overall magnitude of the business in terms of IT systems bringing the teams over payroll, administrative types of things; the safety part of it is we've acquired an excellent team.
So, unlike other transactions where we have to scramble around, add headcount, train inexperience, we acquired a fabulous group of people. On my prepared remarks today, I talked about the second wave of three sites coming onboard. Those teams are -- every bit is exceptional as the first two factories in Turis and Albuquerque. And then the other thing that's just kind of amazing to me is we felt like we were going to gather really, really good marketable capabilities as part of this deal, and those capabilities and what we plan to do with them are well ahead of expectations. So, it's pretty exciting.
好的，谢谢，马克。是的，我觉得我觉得非常好的一件事就是我们在今年很早就宣布了这笔交易。如果有的话 - 我会说什么都没有改变，但实际上已经发生了变化，而且一切都变成了积极的。能力领导者和洞察力的转移有不同的波动。这些都是计划或提前计划。今年和明年之间的差异是如此，我认为你是现货，我认为今年整体关系的收入将在2.5亿至3亿美元的范围内。我认为明年仍将在8亿至10亿美元的范围内。我认为今年将接近盈亏平衡，也许是一个头发，但我认为公平地说全面盈亏平衡。第二年，我认为你的2.5％到3％的数字是有意义的。再次，当我们进入2021财年及以后，我会看到这是一个自然的斜坡。而最大的问题又是IT系统的复杂性和整体业务规模，使团队超过工资单，管理类型的东西;它的安全部分是我们收购了一支优秀的团队。
因此，与我们不得不争先恐后的其他交易，增加人数，培养缺乏经验，我们收购了一群神话般的人。在我今天准备好的评论中，我谈到了三个站点的第二波浪潮。这些团队 - 作为Turis和Albuquerque的前两家工厂，每一个都是特殊的。然后另一件让我感到惊讶的事情是，我们觉得我们将收集真正的，非常好的市场化能力作为这笔交易的一部分，而这些能力以及我们计划用它们做的事情远远超出预期。所以，这非常令人兴奋。
Yes, thanks. Thanks for that. And my follow-up on the free cash flow guidance for next -- for this year, but would imply for next quarter, Mike, I know you talked about taking inventory days down to 60 or below. I think with the higher revenue that that doesn't drop that much of a change in inventory dollars quarter-to-quarter, given the higher volumes that are projected. So, maybe just a little bit more detail on what drives the increased working capital from a dollars perspective for next quarter to get to the free cash flow guidance? Thank you.
对了谢谢。 感谢那。 我对下一季度的自由现金流量指导进行了跟进 - 今年，但是暗示下一季度迈克，我知道你谈到将库存天数降至60或以下。 我认为，由于预计销量增加，因此收入增加不会使库存季度的变化大幅下降。 那么，或许只是更详细一点，从下一季度的美元角度推动增加的营运资金到达自由现金流指导是什么？ 谢谢。
It's just a combination of all working capital metrics. If you go back last couple of years, Q4 has been an extremely strong quarter from a cash flow perspective. If you take that as a percentage of revenues, Q4 of this year is extremely consistent with those trends. I feel really good. It's a combination of all working capital. It's a combination of the EBITDA that we'll be generating and all other metrics that makes the free cash flow number.
它只是所有营运资本指标的组合。 如果你回到过去几年，从现金流的角度来看，第四季度是一个非常强劲的季度。 如果你把它作为收入的百分比，今年的第四季度与这些趋势非常一致。 我觉得很好。 它是所有营运资金的组合。 它是我们将产生的EBITDA与产生自由现金流数量的所有其他指标的组合。
Our next question comes from the line of Jim Suva with Citi. Please proceed with your question.
我们的下一个问题来自Jim Suva和Citi的合作。 请继续你的问题。
Thank you. I only have one question, but I just certainly hope the answer is not both. And the question is you have clearly, honorably and impressively outperformed your peers for revenue growth. So the question is does that mostly come from your partnership with customers who have seen new product growing up and share gains or has there been execution issues by some of your competitors that you've been more agile to take advantage of it? Again, congratulations on the great growth, which is clearly stronger than your peers.
谢谢。 我只有一个问题，但我当然希望答案不是两者兼而有之。 问题是你在收入增长方面已经明显，光荣和令人印象深刻地超越同行。 所以问题是，这主要来自于您与看到新产品成长并分享收益的客户的合作伙伴关系，还是您的一些竞争对手的执行问题让您更加敏捷地利用它？ 再一次，祝贺大幅增长，这显然比同行更强大。
Well, thanks Jim. I appreciate the compliment. I don't want to comment on our peers. I think we have plenty in front of us to focus on. I do think, Jim, there's a differentiation with our IT systems. I said in my prepared remarks and I put it in there intentionally, you know, our team has really experienced and some times the experienced people get a little tired. You know what, our team is experienced and fully wound up, clear on the mission, clear on what our priorities are, I think our structure is outstanding in terms of decisions we're making, speed of decisions.
I would tell you that even with the uplift in operating margins this year going from 8.50 to 8.75, again a 14%, 15% growth in core operating income year-on-year. With the growth we've put on top of the company, one of the things we pride ourselves on is our factories run really, really, really efficiently and really well. I think we've got a little bit of creaking going on with some of our factories because of the growth. I bring that up because the good news is our factory's performance is only going to get better next year, because growth won't be as great. And then you add to it the fact that the growth that we've taken on, and again we've said this over and over and over again, it was really good selective growth that adds great capabilities to the company and the growth that we have is growth rate in our sweet spot that we can execute on. So again, I don't have an opinion, or maybe I have opinions, but not opinions I want to share with our competition. I got a lot of respect for the challenges they have, but I really like what we're up to, and I like our path forward.
Thank you so much for the details and clarifications. That's greatly appreciated.
Yes, thanks, Jim.
Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. Adam Berry for any closing remarks.
Thank you for joining us today. This now concludes our event. Thank you.
感谢您今天加入我们。 现在结束了我们的活动。 谢谢。
This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.
这就结束了今天的电话会议。 您现在可以断开线路。 感谢您的参与，祝您度过愉快的一天。
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