Ladies and gentlemen, thank you for standing by and welcome to Jabil’s fourth quarter and full fiscal year 2014 conference call. [Operator instructions] I would now like to turn today’s conference over to Beth Walters, Senior Vice President of Communications and Investor Relations. Please go ahead.

Thank you. Welcome to our fourth quarter of 2014 earnings call. Joining me today are CEO Mark Mondello and our Chief Financial Officer, Forbes Alexander. This call is being recorded and will be posted for audio playback on the Jabil website, jabil.com, in the Investors section. Our fourth quarter and fiscal year 2014 press release, slides, and corresponding webcast links are also available on our website. In these materials, you will find the financial information that we will cover during this conference call. We ask that you follow our presentation with the slides on the website, beginning with Slide 2, our forward-looking statement. During this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected first quarter of fiscal 2015 net revenue and earnings results, the financial performance for the company and our long-term outlook for the company. 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 are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2013, on subsequent reports on Form 10-Q and Form 8-K and our other securities 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.\ Today’s call will begin with opening remarks from Mark. We will then move on to fourth quarter and fiscal year results as well as guidance on our fourth fiscal quarter of 2014 from Forbes. We will then open it up to questions from call attendees. But for now, I will now turn the call over to Mark.

Thanks, Beth. Good afternoon everyone. I appreciate you taking time to join our call today. I’d like to start by thanking all of our people here at Jabil. You know, a team’s commitment and fortitude are tested when times are challenging and situational business conditions drive change. This illustrates directionally the environment we’ve experienced the past 12 months. Through all of this, our team has done an amazing job. Again, thank you. Let’s reflect a bit on a few of their accomplishments. We expanded our broad range of capabilities, a key catalyst for growth. Our net promoter scores are at an all-time high. This is so vital, as we pride ourselves on exceptional customer care. We also believe there’s a direct correlation between positive scores and our ability to gain market share. We began ramping our campus in Chengdu, China, in anticipation of future growth. The team successfully launched a variety of development programs, some of which exhibited substantial complexity, scope, and scale. Fixed assets have been successfully redeployed in relatively short order, resulting in new revenue streams for fiscal year 2015. We captured tremendous value with the sale of our aftermarket services business. The company returned approximately $330 million of capital to shareholders via share buyback and dividends, and we realized an exceptional outcome in managing our net working capital efficiency throughout the fiscal year. I maintain a high degree of confidence in our path forward. Our team continues to construct a solid foundation for which to build upon. To call our current business environment dynamic is an understatement. We’re seeing an infinite number of applied technologies, an exponential rate of change, and highly disruptive product innovation. This sums to an unprecedented landscape across the various markets we serve and results in many common mandates for our customers, mandates…

Thank you, Mark. Good afternoon everyone. I’d like to ask you to turn to slide three, where I will review our fourth fiscal quarter results. Net revenue for the fourth quarter was $4.1 billion, a decline of 10% on a year over year basis. GAAP operating income was $46.6 million, and on a net GAAP basis, there was a loss of $26.2 million. GAAP net diluted loss per share was $0.13 for the quarter. GAAP net earnings in the quarter included $20 million of restructuring and associated charges, $6 million associated with the amortization of intangibles, $2 million of stock based compensation, and adjustments associated with the sale of our aftermarket services business and the sale of a Nypro joint venture of some $12 million. Core operating income, excluding amortization of intangibles, stock based compensation, restructuring, and certain other expenses was $79.5 million and represented 2% of revenue. Core diluted earnings per share were $0.05. Turning to the full year, on slide four, net revenues for the full year were $15.8 billion, a decline of 9% year over year. GAAP operating income was $204 million, representing 1.3% of revenue. This compares to $452 million of income on revenues of $17.2 billion or 2.6% of revenue in fiscal 2013. Diluted net earnings per share were $1.19. Core operating income, excluding amortization of intangibles, stock based compensation, restructuring, impairment charges, and certain other expenses, was $345 million and represents 2.2% of revenue. This compares to $642 million or 3.7% for the same period in the prior year. Core diluted earnings per share was $0.53. Turning to slide five and our fourth quarter segment discussion, in the fourth quarter, our diversified manufacturing services segment declined 3% on a year over year basis, while it grew 11% sequentially. Revenue for the segment was approximately…

Great. Thank you, Forbes and Mark. Operator, we are just about ready to begin our question and answer session. Before we do, I’d like to remind all of our call participants that in customary fashion, we will not be addressing any customer or product specific questions out of respect for our customers and their respective businesses. So with that, thank you for your cooperation, and we’re ready to begin, operator.

[Operator instructions] Your first question comes from the line of Mark Delaney with Goldman Sachs.

I was hoping you could elaborate a little bit more on some of the new program ramps that you talked about for fiscal 2015. I know you mentioned you have several different ones underway. Could you just talk about how sustainable you think some of these new programs will be, or if some of these are just for a few quarters? And then if you could also discuss how you’re doing with some of the yields on some of these new program ramps?

The program ramps are all over the map. I talked about that, I think, in the last call. So I would characterize the program ramps as having different characteristics as far as time buckets and product lifecycles. So 80% of them will have an impact to FY15, a fairly material impact, I would characterize. And I would say upwards of 70% to 80% of them will have some level of impact into fiscal year 2016. And then there’s some development programs run again that I would imagine will have life cycles in the three to five year range.

And then maybe if you could just help us think a little bit about the margin trajectory. By my math, it seems like the fiscal 2015 guidance implies something for core EBIT margins in the mid 3% range. In past cycles, the company has hit the high threes or even the fours in parts of other cycles. You mentioned some investments that you’re still making. Maybe if you could just help us think about the potential for the company to get back to the historical margin levels over time.

I think you’re spot on. If you’re looking at modeling 2015 as we sit today in the mid threes, I think that’s appropriate. And as I mentioned in my prepared comments, we are working like heck to get our margins back to 4%. I think I would keep your models in the mid threes for FY 2015, at least for now. And that’s driven by a couple of different things. Number one is we’re coming off of a tough year. The team’s worked hard. I’ve talked a lot about their accomplishments. We have normalized a vast majority of our overhead costs based on some of the issues and decisions that were made in 2014, but we’re not fully there yet. So that will have a little bit of negative pressure on margins for 2015. And the other part is we’re seeing reasonably strong revenues for fiscal year 2015, and when we think about the strength of the business overall, we are going to go ahead and continue to make some investments and take on some development work in FY 2015 as well. So said another way, if we chose not to do any of that, I would guess that our operating margins for the year might be at 4%, but I don’t think that’s the right decision for the business over the long term.

Your next question comes from the line of Brian Alexander of Raymond James.

Mark, what’s the rationale for changing the reporting structure of the business now? And is this just a reporting change, or is there something more strategic or operational behind the change? And how is this going to affect things like org structure, management roles, responsibilities, etc., beyond just the reporting change? And then as far as the targets are concerned for the year, it looks like you took the revenue up versus what you had before, but you kept the EPS range intact. I just wanted to see if you could talk about that as well.

Let me start with your first question, which was around reporting structure. So, we felt like the timing was good to align the reporting structure at the beginning of the fiscal year with exactly how we’re running the business. So when we think about it, as CEO of the company, I look at the business in two buckets. I look at it as our EMS business and then our business that’s clearly not EMS-based. So, heavily around our Nypro brand and our Green Point brand. So, (a) it made a lot of sense for us to start reporting the business in the manner in which it’s run for this fiscal year. The other reason is, and what I tried to capture in my prepared comments, is the environments continue to change, and our businesses, again, are distinctly different. So I thought it appropriate to run the business and report the business based on attributes and characteristics to which they operate. So, again, as I said in the prepared comments, there’s a certain set of attributes and go-to-market strategies for our EMS business that are much, much different than the businesses that we take on for Green Point and/or Nypro. So that’s what drove the decision, and I’m glad we’re doing it, because, again, it ends up allowing us to report the business in the exact fashion to which we manage it and run it. Organizationally, there’s really no major organizational changes. One or two levels below myself, we have a management team that continues to take a hard look at the business in many different buckets. We’ll continue to do so. When you run a business like ours, with the margin structure that we have, we have to keep track of every nickel, and that’s done only by taking a hard look at managing the business in small bites, if you will. In regards to your question on taking revenue up, I don’t know where you’re getting that from. There’s a data point, I believe back in our March call, where there may have been a question around, when we first came out with the $1.65 to $1.95 number, I think there was a question around what revenue we were thinking about for the EPS range for 2015.

That’s right.

I don’t remember whether I gave the answer or Forbes gave the answer, but I think we gave an answer on or about $16.5 billion give or take a bit. Today, we’re giving a midpoint of $17.25 billion, something like that. So if that’s what you’re referring to, my commentary would be, again, we still haven’t normalized all of our overhead costs. I would remind you that as we went into fiscal year 2014, before we had some of the issues that took place, we had overhead and infrastructure both around our execution and operations and strategy to support a $18 billion, $18.5 billion, $19 billion business. Some of that overhead we’ve taken out of the company. Some of that overhead, I think it would be unwise to remove. I see that overhead structure normalizing as we get into fiscal year 2016, maybe sooner. But I wouldn’t model that. And then in addition, we’re seeing good strength in the business, and as I outlined in the prepared comments, I think it’s quite wise for us to make some of the investments we’re choosing to make.

Let me just ask it maybe a different way. As far as the long term targets, are you making any changes to your margin assumptions? So specifically, the EMS margins, the way you’ve recast it at 2% to 4%. That was actually your previous target for high velocity, which is the lowest margin within that group. The other EMS subsegments would have been higher than that, so I was maybe a little bit surprised that 2% to 4% is the range you went with for that consolidated group. And I’m just wondering, has anything changed versus the last time you updated the margin targets?

Brian, I could have this wrong, but I think our high velocity margins longer term, yeah, they were 2% to 4%. Enterprise infrastructure, I think, was 3% to 4%, if I have that right. And then industrial was in the diversified range. If you take a look at that at a blended, kind of weighted average, I feel comfortable with the 2% to 4% range for the entire EMS mix.

Your next question comes from the line of Amitabh Passi with UBS.

Mark, I just wanted to get some sense of how we should expect the ebb and flow for revenues throughout the year. I think your fiscal first quarter guidance of $4.3 billion is roughly a quarter of the full year guide. Should we expect things to be relatively flat quarter to quarter? Are you expecting seasonality as you normally do? Just wanted to get some help in terms of just how would sort of maybe guide us in terms of how to think about the revenue trajectory as you go through the year.

Sure. I would caution you, again, you know, we’ve given some ranges for the year, and we’ve given fairly discrete guidance for Q1. But in an effort to answer your question and help you with your models, if you will, our DMS business, especially the Green Point business - and I’ve talked about this for the last year - it’s great business, it has some volatility built in. So, again, there’s always risk in getting too cute with giving direction on how we shape out the business, but as we sit today, I think what Forbes talked about was kind of a midpoint for Q1 of about $150 million of core operating profits. If you model some seasonality similar to fiscal year 2013, from Q1 to Q2, and then you assume that the back half of the year was modestly higher than the first half of the year, I think that would be appropriate for your models as we sit today.

And then just a quick follow up, your enterprise and infrastructure segments seem to have come in better than I think you had anticipated when you gave us guidance. Would love to get some incremental insight in terms of maybe some of the moving parts, where you think the upside came from.

For the fourth quarter, it was pretty broad-based, actually. We were a little bit surprised, but you’re right, it was about $100 million above where we’d anticipated coming into the quarter. But I would say it was pretty broad-based across the areas we serve, the telecommunications, networking, and the storage areas.

Your next question comes from the line of Steven Fox with Cross Research.

Just going back to the new segment reporting, Forbes, is there any way to give us some color on how some of the cash flow characteristics break out between the two segments, capex, D&A, and also just the relative asset split, and will the businesses be sharing plants?

Let me take the last bit first. There’s an amount of shared capacity clearly across the corporation. And as we certainly ramp into our Chengdu facility also, that will be shared capacity across the corporation. In terms of cash flows, we weren’t going to report a specific cash flow basis, but as we move forward here, we’ll obviously be reporting the asset position of each of these segments, as we are required to do that in our filings. But specifically, we’re not going to focus on the cash flow reporting there. As we move forward into the fiscal year, I will endeavor to provide you guidance in terms of our capex. I think that’s appropriate, as we see where we’re making our investments, and see what the growth profile of that business is.

And at this point, can you give us sort of a rough sense for how much capex is going into each business this year?

At this stage, what we’re seeing is about $350 million to $450 million on an overall basis. But certainly, given the growth trajectory and the level of complexity, I would weight the capex more towards the diversified manufacturing services segment than the EMS segment.

And then one last question, Mark, you mentioned the ramps. Just putting aside the fixed overhead that you’re looking to fill with the new programs, in terms of the ramps themselves, can you just sort of characterize your execution in the last quarter and into this quarter? Is it a margin drag, or is it going about as expected? And then with the program ramps, is there sort of another layer up? Or is it sort of a consistent build, especially in DMS, off of the 30% growth you’re looking at this quarter?

The ramps I would characterize altogether as quite good. And again, I think that’s reflected in the confidence we’ve offered in the full year guidance. As far as, I think it was Mark that asked the question earlier, our program ramps have all different tails to them. So, again, we won’t get into those details. Some of them will go beyond 2015, and some of them will have three to five year product life cycles with them.

Your next question comes from the line of Jim Suva with Citi.

You know, looking at the EPS guidance, it’s very strong and encouraging for the next quarter, for the quarter outlook, the November quarter. If you were to annualize it at that, though, it would meaningfully surpass your guidance to your range. I’m just taking, for example, a midpoint of, say, about $0.50 for the November quarter. That would put you at about a $2 run rate. And when one considers that you’re still going to see benefits from restructuring and the flow through, and the realignments from all that, I guess one has to ask about the linearity of earnings and those cost savings, and why wouldn’t EPS be at the [inaudible].

Well, I think we addressed that somewhat in a prior question. There’s going to be some seasonality. Please, if I don’t answer correctly, I’ll try to restate the answer. There’s going to be some seasonality, we believe, in going from Q1 to Q2. So we feel pretty good about Q1, and there’ll be some seasonality to Q2. And again, if you take a look at a little bit of the shape of our earnings from 2013, I think that may help. And I would believe that, again, with that shape, the back half of the year has potential to be marginally higher than the first half.

And on that seasonality, is that segment related? Or is that companywide related? And my follow up would be, on the free cash flow, what do you plan on doing with the free cash flow? Would that be to pay down debt? Future strategic M&A? Stock buyback? Or how should we think about your free cash flow after you back out capex?

In terms of the seasonality, I would expect the dominant piece of seasonality to be within the diversified manufacturing segment. There will be some within the electronic manufacturing segment, but I would say the dominant piece would be within diversified. Then in terms of your follow up question, in terms of the cash flows, we expect another strong year in operating cash flow, $7 million to $8 million, capex $400 million at its midpoint. So at least $350 million, $400 million of free cash flow. You know, we’ll continue to appropriately measure what we do there. We’re obviously in a growth mode here, so we’d like to make some tuck-in acquisitions in terms of capabilities throughout the balance of the year. That is part of our growth and capability strategy. So certainly want to leave some room for that. And we’re committed to our dividend as we move through the fiscal year, and we’ll see where we go from there. But certainly we’re in good shape as we move through the year here.

Your next question comes from the line of Shawn Harrison of Longbow Research.

I just wanted to delve in a little bit more on the margins, specifically the DMS business. You know, you talked about the trajectory and the timing. When would you hit the low end, then, of the 5% to 7% target? Is that more of a second half of 2015 focus, or would that be pushed out at all, to 2016?

In terms of margin in DMS, certainly with the guidance we’ve provided for the first fiscal quarter, sequentially up 30%, we would certainly expect great opportunity to be in that range of guidance, 5% to 7%, actually, in the first quarter. You know, things are going well, and certainly we would expect to be in the range of the guidance for each of the quarters of fiscal 2015.

And just a clarification, I think in the opening remarks, you had mentioned 8% to 12% sales range for DMS, but on the slide, it says 8% to 10%. Is that just misprinted?

The range is 8% to 12% in terms of financial growth target.

Your next question comes from the line of Sherri Scribner with Deutsche Bank.

I have a question on incremental growth and if it’s being driven entirely by new program ramps, or what you’re seeing in the end markets, any signs of improvement.

The majority of the growth that we’re seeing, certainly within diversified manufacturing, is new program ramps. Mark, in his prepared remarks, did talk to multiple ramps, developments and ramps going on. So it’s predominantly new ramps that’s showing in that growth. As we look at the full year, from a company-wide perspective, overall, markets seem to be pretty stable. We saw a little bit of an uptick in Q4 there. I think that will be more normalized as we move into the fourth calendar quarter, if you will. So I characterize it as end markets being stable and these new ramps that we’ve been investing in providing the majority of the growth as we move through fiscal 2015.

Mark, I think you did talk about this previously. You mentioned that the operating margin targets for fiscal 2015 should probably be around the 3% range, but 4% remains your target. What revenue levels do you think are needed to return to those [unintelligible] of operating margin targets, and when do you expect to be able to reach these levels?

Let me clarify a little bit. I think what I said was I think it’s appropriate to model around mid-3% range for FY 2015. And to get there, I think we can get there with the guidance we’ve provided for the full fiscal year. I also said in the prepared remarks that, again, there was a lot of work done in fiscal year 2014. This year, it’s about optimizing the business and growing the business. And I think if we’re successful in that, we end up normalizing our overhead. I think a 4% range beyond FY 2015 is very achievable.

Your next question comes from the line of Nikhil Kumar with Stifel Nicolaus.

Just want to delve into the DMS business. You are guiding growth for 8% to 12%. So, is most of the growth coming from Green Point? Or are you seeing growth in Nypro and the packaging side as well?

We’re seeing growth from both, and that’s one of the things that has us excited. We’re seeing growth from both the Green Point side and the Nypro side.

Your next question comes from the line of Sean Hannan of Needham & Company. Sean Hannan - Needham & Company : There was a comment early about 30 new customers in fiscal 2014. Can you share what that might have been on a net basis first? And then secondarily, can you talk a little bit about the new win environment incrementally from what you already are starting to ramp in hand, the prospects that you’re seeing in the two segments that you’ll now be reporting on, and then specifically within EMS, whether the pricing variable is having any bit more of an impact there and any details on that would be great.

Let’s break that down a little bit. There was a lot of information there in the question. So let’s start with the customer wins. We won’t discuss those, and most of those wins were booked in 2014, and the vast majority will have some level of impact to us in 2015. But I would say that from a materiality standpoint, from a customer account perspective, most of the impact will be in 2016 and 2017, as far as magnitude of profit dollars. Sean Hannan - Needham & Company : I was actually looking to get some clarification around the number of net customers that we had for the year. If we added 30, what does that look like on a net basis?

Are you asking how many customers we have as a corporation? Sean Hannan - Needham & Company : If I understood correctly, we added 30 new customers. I’m assuming, general course of business, some customers lost. Just wanted to get a sense of what that might have looked like on a net basis.

I’d say our customer attrition and loss was very, very low relative to the 30 wins. Sean Hannan - Needham & Company : And then in terms of the prospects right now for DMS versus EMS, etc.?

Prospects for both are good. There are certain parts of our EMS business where the business is flat and not growing. But as I said in my prepared comments, it’s intriguing to me that as we see so many different technologies starting to converge so quickly, things like sensors, things like the additional bandwidth in wireless, things like cloud-based functions, things like appliances connecting to the internet, things going on in automotive. The opportunities that we’re seeing are exciting. As far as the diversified space, I’d say the same thing. We’ve got great opportunities in lifestyles, wearables. Our mobility business is strong. And then our Nypro team, it’s, again, fascinating to me to see what they’re doing in the areas of packaging, what they’re doing in the areas of smart packaging, what they’re doing in the areas of pharmaceuticals, what they’re doing in the areas of overall med devices. So again, the opportunities we have are widespread. Sean Hannan - Needham & Company : And then just last, on pricing?

Your question was exactly what? Sean Hannan - Needham & Company : Are we seeing any incremental price pressures within EMS, or that’s impacting any of the subsegments there?

We see pricing pressure every day. I would characterize it as the pricing pressure we’re seeing is very consistent with what we’ve seen in the last two to three years. It’s always there, and I would characterize it as intense. For me, it’s just a different degree of intenseness. It never goes away. Sean Hannan - Needham & Company : Normalized trends, as it’s been recently.

Normalized trends, that’s correct.

Operator, we have time for one more question, please.

Your last question comes from the line of Brian Alexander of Raymond James.

I wanted to ask about capex, Forbes. So, in the quarter, $200 million gross, and for the year, over $600 million. I think that was $100 million above your expectations a quarter ago, and well above your original outlook of $250 million to $350 million for the year. So is that all for incremental manufacturing capacity for DMS? Or is it for other segments? And more importantly, how confident are you that the capex range you gave today of $350 million to $450 million for fiscal 2015 will remain intact? Or might that be a moving target? And are you factoring in any equipment sales in fiscal 2015 as an offset? Is that a gross number, or a net number?

So, first of all, the net capex in fiscal 2014 was $460 million. We did accelerate acceptance of buildings in particular, in China, into Q4, to prepare for some ramps in 2015 here. So if you look at the [unintelligible], if you will, of spend last year, I think there was somewhere in the region of $250 million on physical footprint, so buildings, lease holds, associated with that. So that prepares us very, very nicely for 2015 and into 2016. So that gives me a level of confidence in the $350 million to $450 million on an overall net basis, looking at 2015. And there will be some minor equipment disposals, just very routine operational stuff, in 2015. But kind of on the midpoint of about 400. As I said in an earlier reply to an earlier question, on the split of that capex, I would expect it certainly to be more weighted towards the diversified area. A lot of development work going on there, a lot of program ramps in process, both across healthcare, pharma, food groups, and obviously across the broader Green Point area. There will be some incremental capex in the electronic manufacturing services arena. We do expect that to grow on a year over year basis, within the targeted range of zero to 5%. So expect some there, but the majority to go on the diversified side.