Jabil Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Jabil Inc. is a global manufacturing solutions provider, offering design, engineering, manufacturing, and supply chain services to a diverse range of industries.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Jabil Inc. (JBL) is a global manufacturing services provider, offering end-to-end manufacturing and supply chain solutions to diverse sectors. The company helps its clients bring new products to market by offering a range of services including:

  • Design & Engineering: Collaborating with customers to design and engineer products for manufacturability and cost-effectiveness.
  • Manufacturing: Scaled manufacturing capabilities in various geographies, ranging from printed circuit board assemblies to complete product assembly.
  • Supply Chain Management: End-to-end supply chain management services that include material sourcing, logistics, and delivery.

Jabil’s operations are diversified across various end markets, including:

  • Electronics: Manufacturing electronics components, including those used in smart home appliances.
  • Healthcare: Providing manufacturing and supply chain services for medical devices and other healthcare technologies.
  • Transportation: Offering solutions for the automotive industry and other transportation sectors, including electric vehicles
  • Packaging: Producing a variety of packaging solutions.

Jabil operates in a global landscape with a significant manufacturing footprint across Europe, the Americas, and Asia. They focus on helping large clients navigate the complexities of global supply chains to bring products to market.

Jabil is a middleman between OEMs and component makers, in that they don’t sell to end consumers.

The manufacturing services industry is characterized by several key trends:

  • Global Supply Chain Complexity: Increasing complexity and fragmentation of global supply chains, driving demand for comprehensive solutions that can manage the whole process from design to delivery. Companies increasingly favor end-to-end solutions.
  • Technological Innovation: Rapid advancements in technology, including automation and digitalization, are forcing manufacturing service providers to adapt and innovate continuously.
  • Focus on Sustainability: Increasing customer demand and regulatory pressure have forced manufacturers to embrace more sustainable production methods and material sourcing.
  • Shift Towards Regionalization: Some companies are shifting their manufacturing closer to their end markets to hedge supply-chain risks and improve response time.

Competitive Landscape

The Electronic Manufacturing Services (EMS) industry is highly competitive, with companies competing based on:

  • Scale: Large companies can often offer more competitive pricing due to scale economies.
  • Technical Capabilities: Companies with strong design and engineering capabilities, as well as investments in the latest manufacturing technologies are better positioned to win business.
  • Geographic Reach: Global companies are better suited to serve customers with global supply chains.
  • Customer Relationships: Solid, long-term relationships with important customers are needed to maintain revenue streams.

What Makes Jabil Different

Jabil differentiates itself in the market through:

  • Global Scale and Breadth of Capabilities: The company offers a comprehensive range of manufacturing services and operations that span the globe. This gives a competitive advantage when working with global companies.
  • Strong Engineering and Design Focus: Jabil’s product design capabilities help customers develop unique, cost-effective products.
  • Focus on Sustainability: Jabil is a global supplier focused on responsible and sustainable practices, and this is beneficial in an environment where sustainability is an important factor.

Financial Overview

Jabil’s financial performance is characterized by the following:

  • Revenue: Jabil’s revenues have trended upwards, but can see significant fluctuations depending on the overall economy and its clients. In the recent years, revenue growth was mostly fueled by healthcare, and auto industries. The company is looking to grow in these sectors, and also in connected devices. In Q3 2023 they did not achieve the 8% revenue growth predicted by the company earlier, and only posted 0.9% revenue growth in constant currency.

Jabil’s management lowered revenue outlook for the rest of the year in the Q3 2023 earnings call.

  • Margins: Jabil operates in a competitive environment where cost management is important for driving profits. Gross margin is relatively stable, but operating margins have some fluctuation due to various factors like capacity utilization.
  • Operating Expenses: As Jabil is largely a manufacturing company, it has to keep high capital expenditures for its operations.
  • Debt: Jabil carries a considerable amount of debt, but it also generates a fair amount of cash flow and has a strong market position. Jabil’s debt-to-equity ratio has gradually declined over the last few years due to a focus on reducing debt, but it’s still considered a leveraged company.
  • Cash flow: Jabil has generated sufficient cash flow in recent years, which it has utilized in debt repayments, share repurchases, and acquisitions. In fiscal 2023, cash flow from operations was $1.5 billion, while adjusted free cash flow was 1.1 billion.

Economic Moat Assessment

Based on analysis, Jabil’s moat is rated 2/5, it has some competitive advantages, but they aren’t always durable.

  • Strengths:
    • Scale: Jabil benefits from its global scale, which allows the company to handle larger clients and more complex projects.
    • Switching Costs: High customer switching costs because of Jabil’s unique offering and integration with the customer’s own operations.
    • Economies of Scale in Specific Niches: Jabil’s scale advantages allow them to offer services at a better cost than other competitors.
  • Weaknesses:
    • Intense Competition: Jabil faces fierce competition from similar firms, which can cause pricing pressures.
    • Limited Differentiation: In general, manufacturing can’t be much different between firms, which makes it easy for competitors to copy processes.
    • Reliance on Technology: In technology production cycles, tech changes rapidly which forces the company to reinvent itself.

Risks to the Moat & Business Resilience

Jabil’s moat and business are exposed to several key risks:

  • Technological Disruption: Rapid technological advancements could erode Jabil’s manufacturing prowess, especially when they are not able to keep up with the competition.
  • Geopolitical Risks: Trade wars and other geopolitical tensions can impact supply chains, especially in Jabil’s case, where manufacturing has global locations. For example, China is an important manufacturing location for Jabil and tensions with China may negatively impact the company.
  • Customer Concentration: Jabil derives a substantial portion of their revenues from a small number of companies. The loss of a major customer could negatively impact Jabil’s financial performance.
  • Economic Downturns: Economic slowdowns can lead to a decline in industrial production, which could reduce demand for Jabil’s services.

Understandability Rating: 3 / 5

Jabil’s operations are moderately complex because it is spread across a huge geographic base and many industries. Although the company itself is easy to understand, its revenue sources and various businesses can make it hard for an average investor to wrap their heads around. Thus, the rating is 3/5.

Balance Sheet Health: 4 / 5

Jabil has a relatively solid financial position, characterized by:

  • Reasonable debt levels: Management is aware of the need to reduce debt, and thus the debt is currently relatively stable. However, Jabil’s balance sheet is still highly leveraged.
  • Positive cash flow generation: The company is generating good cash flow, which it is putting into deleveraging as well as acquisitions and growth.
  • Adequate liquidity: Jabil’s current ratio has mostly stayed above 1.0 for the last few years, which indicates it is able to maintain a decent liquidity.
  • Focus on value creation: Management has focused on share buybacks and reducing debt to grow shareholder value, both of which support the positive assessment.

Given these factors, Jabil’s balance sheet is given a health rating of 4 / 5.