Jabil Inc.

Moat: 2.5/5

Understandability: 3/5

Balance Sheet Health: 3/5

Jabil Inc. is a global manufacturing services and solutions provider specializing in electronics, design, production, and product management for industries including healthcare, technology, and consumer products.

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 operates in the electronics manufacturing services (EMS) industry, providing comprehensive solutions encompassing design, production, and supply chain management for a wide range of industries. This essentially means that they help other companies design, create and distribute a vast array of electronic and manufactured goods. They work as contract manufacturers, meaning they do not sell products under their own brand, they manufacture products for their customers and ship them to their clients or direct to consumers.

Jabil reports its business under two segments:

Electronics Manufacturing Services (EMS): This segment comprises the majority of the company’s revenues. It focuses on designing and manufacturing electronic and computing components, data storage devices, networking equipment, and telecom infrastructure. Products can range from circuit boards to highly advanced tech equipment, like telecom networking equipment.
Diversified Manufacturing Services (DMS): This segment is comprised of precision plastics, tooling, industrial design, consumer packaging, and healthcare. Essentially this group creates a variety of parts from components used in medical devices to luxury packaging. This business segment is more capital intensive and often has lower margins than the EMS segment.

Revenue Distribution:

EMS: ~ 75% of Revenue
DMS: ~ 25% of Revenue
Jabil’s customer base is diversified in multiple sectors: Industrials, Consumer, Healthcare, Automotive, Transportation, and Packaging sectors.

Industry Trends:

Globalization: The company has locations and customers globally, which indicates that they are trying to capitalize on globalization.
Supply Chain Resiliency: The increasing geopolitical tension and supply chain issues are pushing companies to build stronger supply chains, for this they may require Jabil’s services.
Technological Innovations: Rapid changes in technology, such as AI, machine learning, 5G, cloud computing, are forcing many companies to partner with companies that can help them with product development and manufacturing of cutting edge tech products. These companies may benefit from a relationship with Jabil.
Sustainability: Growing environmental and social concerns are pushing for more environmental manufacturing strategies, especially within consumer and packaging products. This should help with demand in Jabils diversified manufacturing services segment.
Increased Demand: Growing consumer base, rising disposable income, and increased awareness of new technologies is creating more demand for the type of products that Jabil manufactures.

Margins:

The company typically has gross margins around 8 to 10 percent and operating margins around 3 to 4 percent. This low margins suggest that Jabil’s business is mostly based on commodity manufacturing and their value comes from efficient distribution and supply chain management.

Competitive Landscape: Jabil competes against a number of well known contract manufacturers like Foxconn, Pegatron, Flex, Wistron, and many others. To be the most successful they have to be effective at manufacturing, have a strong supply chain and be better than their competitors at it. The main differentiator for these firms tend to be their pricing.

What Makes Jabil Different?:

Scale & Global Reach: Jabil’s broad manufacturing network and global presence (locations on several continents) enable them to serve clients efficiently and reliably.
Vertical Integration: Jabil provides a holistic service approach from design to distribution for its clients, this vertical integration allows them to have a streamlined value chain and may attract clients seeking a one-stop-shop for production needs.
Technology & Engineering Capabilities: Jabil invests a lot in engineering and design, which enables them to have the technical expertise to support their client’s new products. This is a differentiator that may provide them an advantage in specialized products.
Supply Chain Management: Jabil has focused on building a complex supply chain, which makes it hard for competitors to out-compete them at the distribution and supply chain level, which is crucial for companies reliant on just-in-time inventories.
Focus on Efficiency and Process Improvement: Continuous improvement and operational excellence have created an edge for them over competition.

Financials:

Revenue: Jabil has had a positive revenue growth. Their latest fiscal year (ending Aug 31, 2023) revenues came in at $34.7 billion, compared to the previous year of $33.5 billion. The revenues have been growing for years.
Gross Profit: In 2023 gross profits were $3.37B which has increased since 2020 (1.9B) indicating that management has been able to increase the prices at a higher level than its expenses and COGS.
Operating expenses: Operating expenses have been steadily increasing from 2.27B in 2020 to 2.97 in 2023, they are growing less than the revenues.
Net Income: The company had net income of $735.1 in 2023, compared to $729 million in 2022. Jabil has had a good few years after recovering from the initial 2020 shock.
Cash flow: Cash flow from operations in 2023 was positive 1.73B versus 1.36 in 2022 and 1.15B in 2020.

Balance Sheet:

Balance Sheet Health: 3 / 5

Current Ratio: Jabil’s current ratio (current assets divided by current liabilities) is ~ 1, indicating some vulnerability to financial stress. If a problem occurs with its earnings or revenue, they may not be able to pay off all their short term debts. A good sign is that the inventories are around 50 days, which means the company is effective at turning their inventory to revenue.
Debt-to-equity Ratio: At 1.15, Jabil’s debt-to-equity is relatively high. Most debt-intensive businesses tend to not perform well during economic downturns and also are highly sensitive to increased debt costs, this means a higher risk for a potential investor.
Net Debt: Total debt is at about $4.3 billion as of Aug 31 2023. On the other side, Jabil is holding around 2.17 billion in cash, meaning its debt net of cash is roughly $2.1 billion. As a result their risk profile is somewhat lower, it is not highly debt-intensive.
Goodwill and Intangibles: Goodwill and acquired intangibles are roughly $2.8 billion, which is a significant part of its assets. These assets are tricky to value and are easily written off, which may lead to large loss spikes.

Risks to the Moat and Business Resilience:

Customer Concentration: The top ten customers account for around 30% of Jabil’s revenue. A substantial loss of business from their key customers could significantly impair their revenue and earnings.
Commodity Business: Jabil’s core business is contract manufacturing, which is usually in a commodity segment with little brand differentiation and limited price control.
Supply Chain Dependence: Although Jabil prides itself on a robust supply chain, its performance is still dependent on third-party suppliers and logistics providers, and disruptions here can cause major problems in Jabil’s production, and therefore decrease its competitive advantage.
Technology Obsolescence: If a new technology or production method emerges, competitors can try to implement them and cause Jabil’s current operations obsolete. This is one of the largest risks to technology related businesses.
Currency Fluctuations: A strong international business exposes Jabil to currency risk, which can cause the company’s income to be affected by unfavorable forex movements, a problem for other large multinationals as well.
Economic Cycles: The company’s performance is tied to broader economic cycles. A recession will cause a decline in the demand for their clients’ products, and they are prone to cyclical industries.
Labor Cost: Some of Jabil’s manufacturing plants are located in areas with rising labor costs. This may make it more difficult to compete in pricing with other companies in cheaper countries.

Moat: 2.5/5

Rationale: Jabil’s moat can be categorized as “Narrow” because there are some factors that are favorable to it, but also several risk factors that might destroy its moat. While it has an excellent global presence and a great customer base, it lacks a real differentiator against its competition, other than having very efficient manufacturing processes. Its main profit driver lies in its scale, which is quite easily copied if a competitor builds plants that are as large as Jabil’s. Jabil does not have any proprietary technology or products that may give it a long term advantage against others, other than perhaps its supply chain. Therefore, a rating slightly above average for Jabil’s moat is warranted.

Understandability: 3/5

Rationale: Jabil’s business can be relatively hard to understand. The complex interactions of companies producing components in supply chains can make them hard to analyze and understand. It can be difficult to accurately assess all the risks and the various external forces that may act upon the business. It is also a B2B (business-to-business) company, which makes it difficult to understand, as a consumer may have never experienced any of their products firsthand. They sell to a range of other businesses, from retail to healthcare, and understanding these industries as a whole and the interplay they have with Jabil is very difficult and adds another level of complexity. All of this makes the business somewhat hard to understand, thus a rating of 3/5 is given to its understandability.