Jabil 2026 Q4 Earnings Call

Good morning, and welcome to Jabil's fourth quarter earnings call and ninth annual investor briefing. My name is Adam Berry. I am Senior Vice President of Investor Relations and Corporate Affairs. Thank you for joining us today. Each September, this call is an opportunity for us to both report the quarter as well as give you a deeper look at our business and the opportunities that lie ahead. As you will hear throughout today's presentation, we have a lot to feel good about as the momentum we have seen in fiscal 2026 continues into fiscal 2027. Before we begin, it is worth noting that today's presentation is being live-streamed. The slides are available in the investor relations section of jabil.com, and a recording will be available after this event.

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 first quarter and full fiscal year 2027 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 is identified in our annual report on Form 10-K for the fiscal year ended August 31st, 2025, and in other filings with the SEC. 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. Now, let me set the stage for what we will cover today.

We will begin with Greg Hebard, our Chief Financial Officer, who will review our fourth quarter and fiscal year results, cash flow and balance sheet, capital returns, as well as our first quarter outlook. We will then move to Steve Borges, who will cover our Regulated Industries segment, including Automotive & Transportation, Healthcare, and Renewable and Energy Infrastructure. Next, Matt Crowley will follow with Intelligent Infrastructure and how we are expanding our role across AI infrastructure as customer demand continues to accelerate. Following Matt will be Rafael Renno, who will discuss our newly renamed segment, Intelligent Devices & Robotics, or IDR, which will take the place of Connected Living and Digital Commerce. We feel this name change better reflects where the segment is heading in terms of automation and robotics capabilities as the mix of business continues to shift towards more highly complex engineered solutions.

Upon hearing from these three leaders, it will become further evident that the business remains strong and in good shape, with growth coming in many key areas. In fact, when you put all of this diversified growth together, we are anticipating adding in excess of $8.5 billion of revenue in fiscal 2027, after having added over $6 billion in fiscal 2026. That is an unprecedented amount of growth for Jabil. Hence, we felt it was critically important for Frank McKay, our Chief Supply Chain Officer, and Andrew Priestley, our Chief Operations Officer, to discuss how we are preparing to deliver this growth, as well as our unique model for working with both customers and suppliers to secure the necessary components to ensure customer success.

Our CEO, Mike Dastoor, will bring it all together, starting with how Jabil has evolved as an engineering-led, supply-chain-enabled manufacturing solutions company, followed by our fiscal 2027 outlook by end market, our capital allocation priorities, and how we're thinking about the business beyond fiscal 2027. We'll then open the call for your questions. As you will hear from the team, there are three key messages today. First, we're positioned for growth in fiscal 2027. Our strong customer relationships and capabilities are expanding what we can deliver, while committed customer demand is filling the additional capacity we have added. Second, our commitment to product, end market, and customer diversification continues to create meaningful value. AI remains strong with a broadening customer base, complemented by growth in automotive, defense and aerospace, healthcare, energy infrastructure, and warehouse and retail automation.

These businesses broaden our customer base and allow us to apply capabilities across markets. Finally, we're focused on converting this growth into earnings, cash flow, and shareholder returns through disciplined execution, investment, and capital allocation. With that, let's get started. It's my pleasure to introduce Chief Financial Officer Greg Hebard.

Thank you, Adam. Good morning, everyone, and thank you for joining us. I am very excited with our strong finish to fiscal 2026. Fourth quarter revenue and core earnings per share both exceeded the high end of our guidance, reflecting solid execution across the business. Revenue was approximately $10.6 billion, up 29% year-over-year, and more than $1 billion above the midpoint of our June outlook. The upside was driven from Intelligent Infrastructure and Regulated Industries. I'll provide additional detail on both segments later in my remarks. Turning to profitability, GAAP operating income was $602 million, or 5.7% of revenue. Core operating income was $675 million, representing a core operating margin of 6.4%. GAAP diluted earnings per share were $3.76, while core diluted earnings per share were $4.40, up 34% year-over-year. Net interest expense for the quarter was $87 million. Turning now to our performance by segment.

Regulated Industries revenue was $3.4 billion, up 9% year-over-year, and above our outlook for the quarter. Automotive & Transportation was the largest contributor to that upside, with demand stronger than we expected. Renewable and Energy Infrastructure also finished ahead of our outlook. Together, those businesses more than offset lower than expected revenue in Healthcare and Packaging, where results were impacted by delays in automation equipment and the timing shift of a customer program. Core operating margin for the segment was 5.8%. In Intelligent Infrastructure, revenue was approximately $5.8 billion, up 56% year-over-year, and roughly $900 million above our June outlook. The upside was driven by two factors. First, AI-related demand remained very strong and continued to accelerate, exceeding the significant growth we had already incorporated in our June outlook.

Second, capacity came online sooner than planned, and customer ramps progressed better than anticipated, allowing us to support that higher level of demand. That growth was supported by the ramp of our second hyperscaler in Mexico and continued strength in our networking programs in India. Our power business also performed better than expected, contributing to the upside for the quarter. After being capacity-constrained for much of the year, we are beginning to see our capacity investments drive growth. Core operating margin for the segment was 6.5%, up 60 basis points year-over-year, reflecting an improving mix, including the contribution of our margin-accretive Hanley Energy acquisition. In Connected Living and Digital Commerce, revenue was approximately $1.4 billion, roughly flat year-over-year. Core operating margin was 7.1%. As Adam mentioned, we will refer to this business as Intelligent Devices & Robotics in our outlook.

Turning to cash flow and our balance sheet, let me begin with inventory. We made solid progress in the fourth quarter, reducing net inventory days by approximately four days sequentially to 64, including inventory deposits. Gross inventory days ended the year at approximately 82. While net inventory days remain above our target range of 55 to 60 days, we expect continued improvement and a return to that range as we move through fiscal 2027. Cash from operations was $733 million in the quarter and approximately $2 billion for the full year. Net capital expenditures were $192 million in Q4 and $470 million for the year, or 1.3% of revenue. As a result, strong adjusted free cash flow was $541 million in the quarter and more than $1.5 billion for the year, exceeding our initial FY 2026 outlook of $1.3 billion-plus.

Looking ahead, we continue to expect net capital expenditures of 1.5%-2% of revenue. The asset-light nature of Intelligent Infrastructure enables us to support strong growth while continuing to invest across our diversified portfolio. We exited fiscal 2026 with a strong balance sheet, with debt to core EBITDA of 1.3 times and cash balances of approximately $1.7 billion. Turning to our capital structure, we ended fiscal 2026 with approximately $6.1 billion of total available liquidity, including $4.4 billion of unused borrowing capacity. Balance sheet debt was approximately $3.4 billion. Our strong financial position provides the flexibility to support customer growth, continue returning capital to shareholders while maintaining our commitment to an investment-grade credit profile. Turning to shareholder returns, we repurchased approximately $169 million of shares in the fourth quarter and approximately $1.1 billion for the full year. That builds on our consistent track record of returning capital to shareholders.

Since fiscal 2013, we have reduced shares outstanding from approximately 203 million to approximately 104 million, a reduction of 49%. Over that period, we have repurchased shares at an average price of $58 and returned $8.8 billion to shareholders through repurchases and dividends. During the fourth quarter, we completed our prior repurchase authorization and began repurchasing shares under the new $1.5 billion program authorized by our board in July. Approximately $1.4 billion remained available at year-end. Our long-term framework remains unchanged. Return 80% or more of adjusted free cash flow to shareholders over time while continuing to invest for growth. With that, let us turn to our first quarter guidance, beginning with revenue by segment. For Q1, we anticipate Regulated Industries revenue of approximately $3.5 billion, up about 12% year-over-year.

The growth is expected to be led by Automotive & Transportation, driven by programs in defense and aerospace, and automotive, along with continued momentum in Renewable and Energy Infrastructure. For Intelligent Infrastructure, we expect strong growth to continue, with revenue of approximately $6.3 billion, up about 63% year-over-year. AI hardware-related demand remains very strong and continues to accelerate. We expect customer ramps and additional capacity coming online to support that growth. In Intelligent Devices & Robotics, we expect revenue of approximately $1.2 billion, down about 10% year-over-year. Putting it all together at the enterprise level, total company revenue for Q1 is expected to be in the range of $10.6 billion to $11.4 billion. GAAP operating income is expected to be in the range of $481 million to $541 million. Core operating income is estimated to be in the range of $592 million to $652 million.

GAAP diluted earnings per share is expected to be in the range of $2.78 to $3.18. Core diluted earnings per share is estimated to be in the range of $3.80 to $4.20. Net interest expense is estimated to be approximately $95 million for Q1, and in the range of $390 million to $400 million for the full year. Our core tax rate for Q1 and for the fiscal year is expected to be 20%. Let me close with our full-year results and the longer-term progress shown on the next two slides. Since fiscal 2020, core operating margin has increased from 3.2% to 5.8%, and together with our share repurchase program, has driven core earnings per share at a compound annual rate of approximately 29%.