The news of the coronavirus may have been stabilizing in some parts of China, but the impact is being felt as other nations are announcing more cases. The impact has been rather brutal to Asian economies, and that is now even worse. Jabil Inc. (NYSE: JBL), one of the world’s top outsourced manufacturing companies, has announced that the Covid-19 outbreak is having a negative impact on its second quarter of fiscal 2020.
The company had offered guidance back on December 17, 2019, and this effectively takes that down substantially. What matters here is that Jabil’s top original equipment manufacturer (OEM) customers are a who’s-who list of some of the top technology companies in the world. Some of those companies already have addressed how their business may be affected, but some have not yet made formal announcements. While many consumers are in various aspects of technology, here is a list of the industries its electronics manufacturing serves: automotive and transportation, capital equipment, cloud, computing and storage, defense and aerospace, industrial and energy, networking and telecom, print and retail, and smart home and appliances.
Jabil is diversified geographically, but it has significant exposure in Asia. Its top facilities are located in China, Hungary, Malaysia, Mexico, Singapore and the United States. On top of its electronics manufacturing services, the company’s diversified manufacturing services segment serves the material sciences, technologies and health care industries.
Jabil did not identify if some customers were being more affected than others, and it did not issue any breakdown of which factories were seeing the largest impact. Still, the implication here is that operations in China and Singapore would be the top impact points.
The company’s announcement from Tuesday stated that it has instituted broad testing and quarantine protocols to support its employees and workers who are on-site at its factories. Jabil also warned that many of its employees have been unable to return to work because of the travel restrictions that have been put in place.
While the news here is bad for many of Jabil’s top customers and locations (see below), the shares already had dropped handily from mid-January. The stock was at $43.13 a share on January 17, and it had fallen to $38.81 on the last day of January and closed at $35.69 as of Monday, February 24, 2020.
Based on the company’s net revenues for fiscal 2019, the net sales of $25.3 billion generated net income of $287.1 million. From its 2019 annual report, Jabil listed its largest customers by revenue as follows:
- Cisco Systems
- Keysight Technologies
- LM Ericsson
- Nokia Networks
CEO Mark Mondello outlined just how much production is currently offline:
After a stronger than anticipated start to the fiscal quarter, we’re now in a position to ‘read and react’ to this very dynamic labor and supply chain situation. The actions taken by our teams have been admirable, to say the least. As we sit today, our factories, which have been adversely impacted by the virus, are now running at roughly 65-70 percent capacity, while overall product demand remains largely as we anticipated at the beginning of the quarter. We’ll provide updated information during our Q2 earnings call, currently planned for mid-March. In the meantime, we are intensely focused on the well-being of our employees, as we work diligently to clear down product backlog, while serving our many customers.
After looking back at the earnings release from December, Jabil did offer formal guidance. For the current quarter, net revenues were put in a range of $6.0 billion to $6.7 billion (up 5%) with operating income of $155 million to $255 million and core adjusted earnings of $0.62 to $0.82 per share. It targeted DMS revenue growth of 4% and electronics revenue growth of 5% for the quarter. For fiscal 2020 (August-end), Jabil mentioned a “nice start to the year” with revenues of close to $26.7 billion and with core adjusted earnings of $3.45 to $3.60 per share.
Jabil shares were perhaps exhibiting some relief that perhaps things were not as bad as some of the worst-case scenarios. Its shares were last seen up almost 1% at $36.00, in a 52-week range of $24.50 to $44.20. The Refinitiv consensus target price was still up at $45.88.