Jabil Inc. (JBL) Q3 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Jabil's Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn today's conference over to Adam Berry, Senior Director of Investor Relations. Please go ahead.

Thank you, Jacob and good afternoon everyone. Welcome to our third quarter of fiscal 2017 earnings call. Joining on the call today are Chief Executive Officer, Mark Mondello; and Chief Financial Officer, Forbes Alexander. This call is being recorded and will be posted for audio playback on jabil.com, in the Investors section. Our third quarter 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 now 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 among other things, those regarding the anticipated outlook for our business such as our currently expected fourth quarter of fiscal 2017 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 are identified in our Annual Report on Form 10-K for the fiscal year ended August 31, 2016, and our 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. On today's call we'll begin with an update from Mark followed by third quarter results and fourth quarter guidance from Forbes. Following our prepared comments, we will open it up to your questions. I will now turn the call over to Mark.

Thanks, Adam. Good afternoon. I appreciate everyone taking time to join our call today. Before we get into prepared remarks, I thought it's appropriate to let you know why Beth is not on the call today. So Beth is attending to her husband Michael, who underwent some fairly complicated medical procedures over the past number of weeks. The best part in all this news is, is I'm happy to report that the patient is now at home and resting comfortably, and nurse Beth is also getting some much needed rest. So please keep Michael and Beth in your thoughts and prayers and our extended best in wishes if you're listening Beth, to you and Michael to make a full-on complete recovery and we miss you. So now on to the prepared remarks. As always, I'll start with a big thanks to our people here at Jabil for their hardwork and never ending dedication and commitment. In addition, I want to recognize the team for their continued focus on always keeping our people safe; safety is at top of mind for all of us. Now taking a look at our third quarter results. The team delivered approximately $114 million in core operating income on revenues at $4.49 billion resulting in core earnings per share of $0.31. Core operating margin came in at 2.5% as anticipated during this heavy investment period representing a 50 basis point pickup over 3Q of last year. I'd also like to note that our team continues to do a good job managing capital expenditures, setting us up for what I believe will be free cash flow for the year in the range of roughly $435 million. All good news, especially when paired with our solid outlook. So as customary, Forbes will provide detail around our results and speak to our forward guidance during his prepared remarks. I'll now share a thought which underline my confidence in the business. For starters, our Greenpoint team is currently doing a wonderful job managing complicated program ramps which are most critical to our customers, this all in the heels of a very demanding third quarter. A quarter characterized by precision engineering development, demonstrated proficiency in material sciences, notable execution, and robust cost controls against complex roadmaps that exhibit significant scale. As we sit today, I'm pleased to report that all program ramps are on-track while product yields are going largely as planned. Lastly, I'll reaffirm that our Greenpoint business continues to diversify within existing products as well as across new product pipelines; a true testament to the value placed on our solutions. Moving to our healthcare and packaging businesses, it's clear that demand for affordable and reliable healthcare services around the world is increasing. Today pharma, medical device, and consumer healthcare companies rely on partners like Jabil as their safe pair of hands to help them efficiently and reliably drive better solutions through the use of technology and digital innovation. Digital solutions enable caregivers to become more productive, more cost effective, and certainly more impactful. Embedded technologies like electronic sensors for example combined with cloud-based data analytics allow for terrific improvements for patient monitoring and patient interactions. These continued paradigm shifts play directly to Jabil's strengths. Similarly, our packaging team is busy working side-by-side with the leading consumer brands creating innovative packaging solutions; digitally driven solutions that fit perfectly with the disruption taking place in the packaging arena. Together, Jabil healthcare and packaging are advancing beautifully; all via touchpoints move closer and closer to the direct consumer and the direct patients. In closing, I believe these businesses collectively will maintain their trajectory tracking the core earnings growth of 20% or greater from fiscal year '16 to fiscal year '19. Now I'll turn to our $11 billion EMS segment. Our EMS team serves many brands that lead various end markets. End markets such as automotive, energy, industrial, retail and print, networking, telecom, cloud computing, and capital equipment; a clear and definitive illustration of the broad diversification within this EMS segment. This business has scale, proven operational excellence, and required domain expertise to maximize opportunities and continue to drive growth. We're undoubtedly more unique and more relevant with our service offerings as the world has to a great extent drifted away from build-to-print requests and moved the conversation to comprehensive build-to-function content. I'll pause there just for a second, we do have quite a thunderstorm in the background, so if you hear some thunder, that's exactly what it is. So at the same time, within our EMS business, there is intense focus on hardware performance relative to cost and size which also squarely in Jabil's sweet spot. In simple terms, Jabil's EMS 2.0 strategy is firmly afoot. In wrapping up my commentary on our EMS segment, it's important to know that the team has done a brilliant job performing to plan and increasing core operating margins, margins that we believe are sustainable for fiscal year '18. Let me now take a minute and address the company in its entirety. Our guidance suggests that we'll deliver the best fourth quarter in Jabil's history. A favorable segway into what's typically our strongest quarter of the year and in this particular case Q1 of fiscal year '18. That then leads me to ask, how might we be thinking about the business as we exit the year? First, I believe our EMS business will increase roughly 3%, fiscal '17 to fiscal '18. Secondly, the healthcare and packaging businesses continue to show great promise within our DMS segment. With that said, please keep in mind the majority of our DMS business remains highly dependent on overall product demand and market acceptance in the mobility space. So what might all this mean? I believe what it means is the following; we're remaining true to what Forbes communicated back in September during our Investor Day. We've also given reasonable consideration and judgment to our current business plans and customer forecasts. The result I believe is fiscal year '18 will sum to core earnings in the neighborhood of $2.60 a share, this on our way to $3 a share in fiscal year '19. As for how the income might layer in quarter-to-quarter, we simply don't know at this point; there is just too many moving parts and too many puts and takes. Although I do believe our DMS business will once again be front-half loaded for the fiscal year '18. While the shape of our EMS business should look quite similar to fiscal year '17. Before I hand the call over to Forbes, a few parting comments. You should know that our shareholders remain at the forefront of all of our actions; we're agile, decisive and a most cost effective operator of our business. There is clear evidence that our diversified portfolio strategy has taken hold and our productive market-facing divisional structure is working and working really well. Our leadership team remains confident in our path forward as we integrate a digital mindset across the enterprise. We're constructing a fabulous company where I believe the whole is materially is more valuable than the proverbial some of the parts. And we're making a real difference by helping make the world better, cleaner, healthier and safer. Thank you. And with that, I'll now hand the call over to Forbes.

Thank you, Mark. Good afternoon everyone. I'd like to ask you to turn to Slide 3 where I will review our third quarter fiscal year 2017 results. Net revenue for the quarter was $4.49 billion, growth of 1% on a year-over-year basis. GAAP operating income was $43 million, with a GAAP net loss of $25 million. GAAP net diluted loss per share was $0.14 for the quarter. Core operating income, excluding the amortization of intangibles, stock-based compensation, restructuring and related charges was $114 million and represented 2.5% of revenue. Core diluted earnings per share was $0.31. On Slide 4 I will discuss our third quarter segment discussion. Revenue for our diversified manufacturing services segment was $1.67 billion, an increase of 14% on a year-over-year basis and represented 37% of total company revenue. Operating income for the quarter was 0.2%. Performance in this segment exceeded our previous guidance as we continue to see strong year-over-year performance from within our mobility, healthcare and packaging sectors. Our electronics manufacturing services segment revenue was $2.82 billion for the quarter, a decrease of 1% on a year-over-year basis; and this represented 63% of total company revenue. Operating income for this segment was 3.9%, an improvement of 40 basis points on a year-over-year basis and 20 basis points sequentially. We ended our fiscal quarter with cash balances of $744 million. Net capital expenditures for the third fiscal quarter totaled $138 million, while capital expenditures on a year-to-date basis totaled $439 million. For the full fiscal year net capital expenditures were estimated to be $600 million as we positioned ourselves for growth in the fourth fiscal quarter and through fiscal 2018. Cash flows from operations in the quarter totaled $187 million with year-to-date cash flows being $533 million. Our fourth fiscal quarter is historically characterized by very strong cash flows. The upcoming quarter is expected to be no different and as such we expect to deliver at least $1 billion of cash flows from operations in the full fiscal year. As I've previously noted, our capital return framework remained a key focus as we move through this and next fiscal year. Our plan is to return 40% of cash flows from operations via dividends and share repurchases through fiscal 2018 and upto a maximum of $1 billion remains very well positioned. To-date, we have returned some $390 million in dividends and share repurchases under this framework. Of our current authorization to repurchase $400 million worth of shares, we have utilized approximately $330 million as of the end of the third quarter repurchasing some 14.8 million shares at an average price of $22.34. Now I'd just like to update you with regards to our restructuring plan. Actions that we have taken to enhance organizational efficiency and effectiveness remain very much on-track. Specifically, headcount reductions across our SG&A cost base are complete and capacity realignment activity and high cost locations has now been announced as expected to occur in the first half of fiscal 2018. As such, we accrued charges associated with this plan of approximately $31 million in the third quarter bringing year-to-date charges to approximately $110 million. Total charges for the full fiscal year were estimated to be in the range of $130 million to $155 million, of which $20 million is estimated to be cash. This will result in some $25 million of savings in our fiscal year 2017. Based upon our current estimates of the timing of the capacity realignment actions, full savings of $70 million to $90 million remain on-track to be fully realized commencing in fiscal year 2019. On Slide 5 I will review our fourth fiscal quarter outlook. The diversified manufacturing services segment is expected to increase 26% on a year-over-year basis to approximately $2.05 billion, while the electronic manufacturing services segment is expected to increase 2% on a year-over-year basis with revenues of $2.85 billion. We expect total company revenue in the fourth quarter to be in the range of $4.7 billion to $5.1 billion or an increase of almost 11% at the midpoint of the range on a year-over-year basis. Core operating income is estimated to be in the range of $165 million to $215 million with core operating margin in the range of 3.5% to 4.2%. Core earnings per share are estimated to be in the range of $0.50 to $0.74 per diluted share and GAAP earnings per share expected to be in the range of $0.30 to $0.48 per diluted share. The tax rate on core earnings in fourth fiscal quarter and full fiscal year is estimated to be approximately 27% based on our current levels of forecasted income. In closing, we are pleased with the third quarter. Our fourth quarter expectations are essentially unchanged from 90 days ago. This fiscal year will see us deliver on our goal that are outlined at the beginning of the year. Core earnings per share growth is 13%, cash flows from operations of at least $1 billion, capital expenditures of $600 million or less while we are returning some $370 million to shareholders via dividends and stock repurchases. And as Mark noted, we see this positive momentum continuing into fiscal 2018. I'd now like to hand the call back over to Adam.

Thank you, Forbes. Before we being the question-and-answer session, I'd like to remind our call participants that in customary fashion, we will not be addressing customer or product specific questions. Thank you for your cooperation. Jacob, we are now ready for Q&A.

[Operator Instructions] And your first question comes from the line of Ruplu Bhattacharya with Bank of America Merrill Lynch.

Hi, thanks for taking my questions. The first one for Mark; I think 90 days ago you had indicated that EMS margins would be strong going into the fourth quarter, and then it looks like they will be. So going into next year, can you give us some guidance; do you think the 4% level is now a sustainable 4% plus level going into next fiscal year?

I'll address that in two parts. One is, I do believe that fourth quarter -- I don't remember exactly what I said but like I said, something around the fact that fourth quarter would be EMS margins at 4.2%. I think we've got a really good chance to getting there in fourth quarter. In terms of next year, I think I would -- in my preparatory comments today I said something about EMS growing 3%; if you take the top line from this year and call that -- I don't know, $417 million, $420 million at the midpoint of our guide; take that up 3% -- keep a margin profile very similar to FY17 both in terms of by quarter and for the whole fiscal year.

Okay, that's very helpful. And maybe one for Forbes, so last couple of years you've invested a lot in the Greenpoint business, you've specified I think something $600 million for CapEx for next year; can you talk a little bit about where that spend is happening and is it mostly on the EMS side or can you give us a split of how the CapEx is being spent?

Yes Ruplu, so -- we'll spend roughly about $600 million this fiscal year. I characterized that and maintenance is a big organization, our maintenance level is probably 50% of that, so -- and that's spread broadly across the whole enterprise. The balance, you know, we are -- we did talk about earlier in the year making investments in Indonesia as we're bringing up a site there to support our aircraft machining business; so that's probably $40 million or $50 million of that $300 million. There is clearly some additional investments going into the Greenpoint business, but those are not a large dynamic in this year’s spend. So it's broadly spend, I think one of the largest areas is that new sites as I say in Southeast Asia as we support new program ramps there.

Great. And real quick, the last one for me. So based on the CapEx spend that you're doing this year, how much revenue can that totally support; like in total?

That's a tough one, it depends on where it comes from but I would say as we close out '17 -- again, there is always going to be some level of modest maintenance CapEx, but our footprint today if it's sorted out right probably can support anywhere from $19.5 billion to $22 billion depending on how it lays in.

Great. Alright, thank you so much and congrats on the quarter.

Thank you.

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

Thanks. Good afternoon, couple of questions for me. First of all, on the cash flows; if you guys do hit the cash flow from operations of $1 billion and given sort of the rough cut on next year's earnings, how should we think about cash flow from operations growth? Can it grow in-line with earnings or would we expect some working capital drag, etcetera? Can you give us a little color on that Forbes? And then I had a follow-up.

Yes, you know, there is a lot of moving parts for next year but if I take everyone back to our Analyst Day last year; and our expectations of cash flows were -- what $3.5 billion over a three-year period, '17 being the first year of that. So you should start to see some growth, I think it's reasonable to expect it to grow in-line with that earnings growth, we're not seeing any incredible dislocation in terms of our working capital metrics, so we'll see some growth like next year, got a lot to shakeout in terms of the quarterly profile, just given the dynamics around some major product ramps that we’ve got going on as we move into the first quarter, but certainly we should see some growth, give you a lot more color on that as we come into our September call.

That's helpful. And then Mark, just talking about the EMS business a little bit more in detail, so it sounds like you're making progress -- you said you're making progress on EMS 2.0. I was wondering if you can give some examples of maybe some commercialization that happened in the quarter or is going to happen this quarter. And then it seems like just around at the EMS story, given what you're talking about for the next year, there must be some drags from what you're seeing in the marketplace this quarter into next fiscal year; can you talk about maybe some of the headwinds you're facing overall with EMS? Thanks.

Yes. Sure, certainly Steve, that was a lot, let me try to remember all that. So there is drags in big chunks of the market and there is great outlooks in good chunks to the market and you shake all that up and you get the 3% growth. And when I think about the fact that EMS is going to end this year at -- you know, if we hit midpoint of guidance in 4Q, you know, you're talking about a business of little over $11 billion, so three points of growth on that is I think very good in this market and fairly significant in absolute dollars. I would say, you know, when I refer to EMS 2.0, it's -- there is a multitude of things starting with our structure. So we restructured the company about 3.5 to 4 years ago; one of the things Steve that we're just doing differently in the last 24 months and it's making a big difference is; we don't go out and talk to the market or talk to customers about building rectangular circuit boards or electronics -- we really are taking an approach where we're going out and bringing some really cool solutions to the marketplace and sometimes that has electronics in it, sometimes it doesn't, so that's one. Number two is, as I try to illustrate in my prepared remarks the EMS business today is just -- it's just massively broad, I mean it's -- that business in and itself is probably approaching -- I don't know, 180 customers, maybe more. So I think it has to do with our approach to the market, not bringing preconceived notions to what they may want around key electronics and really kind of respectfully listening and then bringing forward solutions. And I also talked in the prepared remarks around -- I would say in the last 18 months and I see this accelerating maybe parabolicly in the next two to three years; we've really got a pretty cool digital flair around the business in terms of how to help people solution things from a data analytics and supply chain perspective. So it's a little bit of contribution from a lot of parts, and I feel good about what the team has done in the last 18 months and I feel really, really good about how things look for fiscal year '18. I think as we maybe get into the September call, we've got quite a bit of cool things in the pipeline. Our pedigree and personality is not to talk about a lot of that stuff until it starts to become material. Right or wrong, so I think as we get into the September call and maybe the December call, you will start hearing some more cool things we're doing on the EMS space.

Thanks. And just any market headwinds that you're up against also?

Yes, and we'll talk about them in September and December, okay.

Alright, thanks for the color.

You're welcome.

And your next question comes from the line of Mark Delaney with Goldman Sachs.

Yes, good afternoon and thanks very much for taking the questions. Two questions for me. First question is on the DMS segment in terms of the revenue guidance for the August quarter; the implied sequential pickup in August versus May is at the higher end or above the high end of what the company has done in the past and it's coming off of a pretty healthy May quarter base [ph]. So I'm trying to understand is that pull forward or some of the seasonality that the company normally sees in the November quarter or is the stronger August guidance more function of some of the new platforms that you mentioned?

So Mark, you're talking -- just -- so I understand you're talking about DMS?

Correct.

Okay. So I think the -- on a sequential basis -- actually, if you look at on a sequential basis or a year-on-year basis, I think the guide for Q4 is quite good and I think that's a testament of; A) we've been tapping the drum a bit on healthcare and packaging; and then also we've got a lot going on in our Greenpoint business as maybe you can imagine and again, I know sometimes you guys get frustrated but we just can't -- we can't add a lot of color to that at this point.

Okay. And then for second question, it's about the company's results in totality as in terms of kind of how to make order in the August quarter for fiscal '17; it came in pretty good and pretty consistent with what you talked about on the last earnings call. A couple of your larger customers have talked about actually seeing some near-term weakness, so I was wondering given that Jabil was still able to hit numbers or even come in at little bit better, were there areas that surprised you to the upside in the second half of fiscal '17 and maybe made out for some of those other shortfalls or was there just some conservatives and that was baked into your initial view of second half of fiscal '17?

Well, the nice thing is I do think we're doing what we said we're going to do which feels pretty good. I think there is also a level of conservatism in anything we come out with on earnings calls when we're talking to you guys. So I think it's combination of that and then maybe remember that we get a pretty good advanced look at product roadmaps and what-not of our customers that might be a couple of quarters ahead or at least a quarter ahead of when stuff ends up getting communicated or hit in the street. So again I think you shake all that stuff up and we're kind of spot-on off where we thought we'd be.

Thank you very much.

You're welcome.

Your next question comes from the line of Sean Hannan with Needham & Company.

Yes, good evening. Thanks very much for taking my question here. First one, I'm going to see if I can ask this in a broad sense; can be relevant to either DMS or the EMS side. Just trying to get a sense of whether you folks have observed any issues that are out there in the supply chain in terms of either what you're assembling for customers or what might be going on in other areas of the food chain that perhaps could be restricting the timing or the degree of product launches that you're involved with, i.e., is there some upside that perhaps has been tampered governed, anything that you're seeing on that front on the supply chain? Thanks.

Well, that was a pretty opaque question. I think that we always see things in the supply chain that have been slow Sean. I'd say that on the silicon side we're seeing pockets of tightening with our scale and how long we've been in this business, we typically are pretty good at being able to solution tight pockets on the silicon side; so today the constraints are minimal and to the extent that we're feeling any near-term pockets of friction, we've considered that in our numbers. In terms of maybe technologies, new technologies or things like that in other markets -- you know, there is a lot of rumors out in the marketplace about this set [ph] and the other and I'd just prefer not to comment on all that. I could -- I believe that we're sitting in the middle of -- we serve 12 or 13 different end markets and we're kind of sitting right in the middle of the stew all the time so anything that's out there today or we have good visibility off or any of that friction points that we feel, those have been considered both in our guide for Q4 and the discussion points about '18.

Touché on the opaqueness on the other technologies.

Yes, touché.

Okay. Alright, second quarter here. So Nypro, healthcare and packaging, it's great to hear we're exhibiting double-digit growth there. Is there a way if you can give us a little bit of color in terms of the degree that this level of year-on-year growth and particularly the trajectory if that is sustainable or instead is this more of a steep function at the moment or the next few quarters? How do you feel about the ability for this to continue to move up?

I think if you go back to what I said earlier in the call today and you go back to what I said in the call in March and you go back to what I said in the call December, we've been pretty consistent with healthcare and packaging combined -- that business would go strong double-digits; I think in today's prepared remarks I talked about 20%. And I cabbie [ph] out of that saying the 20% would be kind of an annual CAGR between fiscal year '16 and fiscal year '19. So I don't see this as a steep function, is it sustainable beyond '19, I don't know, it depends; all businesses start to flat toe a little bit when they get to some scale. But as we sit today, I stand behind the 20% growth from here forward at least through fiscal year '19.

That's great. Thanks so much for addressing the questions.

Thanks Sean.

Your next question comes from the line of Steve Milanovich with UBS.

Thank you. Just to follow on that, so you're looking for 20% operating income growth as a CAGR for healthcare and consumer packaging. I'm assuming revenue is not growing at that rate, so are you seeing operating margin expansion in those areas and roughly where are those margins and where are they going?

Good question. Steve, I'd characterize it this way. I would say in the 20% CAGR and I can't comment on the backhalf of say fiscal year '16 to '19 but as we sit today certainly through fiscal year '18 and maybe into '19, I would say that -- I'd say there is a 50-50, 60-40 split between margin expansion and revenue growth, maybe 70-30; and that really has to do with maybe 70% margin expansion, 30% topline growth, 60-40 somewhere in there. Let me explain just for a minute. We did the Nypro acquisition and I think we closed that kind of around July of '13 and lot of integration, lot of moving parts, trying to figure out what we wanted to do with it, combining it with electronics, combining it with sensors, trying to make a really good holistic cool play for the healthcare space and outpace [ph] this real kind of interesting consumer packaging business; and all of a sudden, our engineers and our commercial people grab a hold of that and they are like, wow, there is something here that we can take to the market if you just give us a little time to figure out how to cross solutions around that. So there is probably an 18 to 24 month timeframe that we've been investing heavily in people, we've invested some capital, we've invested in a lot of cool solutions; so that's never done. Again, I'll go back to -- I think that there is a digital component to both our healthcare approach and our packaging approach which is upon us right now. But as we look forward, again, I -- I like what I see, hence the communication and discussion around the 20%. So I would think that we're coming out of some pretty heavy investment period in both of those areas and we'll start to hopefully [indiscernible], we'll start to see kind of the fruits to that labor.

I got you. And then Forbes, could you remind us how much stock or the commitment in dollars to buyback over the two year period and where you are in that? And if the fact the stock has moved up quite a bit since your Analyst Day event gives you any hesitation or you feel like it's still undervalued and you're going to complete what you said you're going to do?

Yes. So I'll commit what was the return upto $1 billion or 40% of cash flow from operations of fiscal '17 and '18. So the way that works out that includes the dividend as well, so if I just stripped the dividend out, let's call out what $60 million a year, so $120 million, so the balance of that $1 billion would be stock repurchase. To-date we've brought back 330 of that commitment averaging about $22.34 through the May period. So yes, we're still on-track, we're committed to returning those capitals, as you'd say, the stocks moved up nicely since we launched this program but we still think there is ways to go here where I was driving towards $3 of an earnings per share in fiscal '19, the commentary we're giving today around '18 gives us comfort that we're well interacted to do that. So yes, we're still committed to returning that $1 billion.

Great, thank you.

Your next question comes from the line of Amit Daryanani with RBC Capital Markets.

Thanks, good afternoon guys. I guess couple of questions for me. When you talk about the 260 EPS for the next year, you know, partially on the EMS side, rather nicely for us; is the implication then that the DMS business should grow high single-digit in fiscal '18 assuming margins are relatively flat in DMS? Is that the way to model this or do you see better margin expansion, less revenue growth out of DMS in '18?

Amit, I think I gave you all we're going to give you and I don't mean to be coy or evasive but I tried to throw some words down in my prepared comments; there is a lot of moving parts, I think we were really descript on EMS. So based on some questions early on in the Q&A, as well as prepared comments, you guys should be able to dial-in the EMS model right and tight. You guys can make some pretty good assumptions around the packaging and healthcare, and with the DMS -- balance of DMS; I'd rather just hold on that and really not get into any more discussion until we get to the September call other than to say, you roundout the EMS models, you make some assumptions around packaging and healthcare, and we feel pretty good about the $2.60 that we put out there. And I think the other thing I said in my prepared remarks is, I think it's -- whatever you come up with for DMS in total, I think that -- I forget the words that I used but I think the DMS business will be kind of front-half loaded and there is obvious reasons why that might be.

That's fair. And I guess just in the front-half loaded dynamic that you mentioned, historically obviously the November quarter tends to be the strong one for it, the DMS business for the mobility ramps, right. Is this 26% growth you are seeing in DMS right now sustainable or is it a little bit of maybe things that you're involved with are happening neither in August and the things you may not be involved with happen more deferred. So the November quarter year-over-year growth may not be as robust as 26% in DMS.

So you're talking on a year-over-year basis on it, Forbes?

Yes. Much is going to depend on what we see going on broadly through our fourth quarter, okay. Q1 of '17 wherein our DMS business was $2.4 billion or something in that nature; so we just have -- you know, that's a tough compare but we just have to wait and see how that plays out. Certainly I think there is opportunity to go north of that but there is a lot of pieces to shake out yet as we sit here, 90 days away from a call in September but we certainly feel that first half next year within our DMS segment, our mobility segment, our Greenpoint organization will be strong but as I say and as Mark said in prepared comments, a lot of pieces to shake out yet.

Got it. I guess Forbes, just talking to bring in [ph] a quick one, initial CapEx thoughts for fiscal '18, so that would be around the $600 million run rate or do you see an uptick next year?

Again, early. What we talked about in the Analyst Day was the goal to keep it around that $600 million level, we talked about that last September. As we sit today, I think that's reasonable, as I said today but we're in heavy planning phases as you might imagine moving into our September timeframe, we'll see where that goes. If there is opportunities that make sense to us to really go that top line then we'll look at those investments but we really have scale within our Greenpoint operations that we're very, very comfortable with. I think that can meet pretty much anything that's thrown at us. So it would be perhaps opportunities in the healthcare area, packaging area and more broadly running out some EMS capabilities but as long as we sit today, hold on to that $600 million number from an outline purposes.

Perfect, thank you.

Your next question comes from Adam Tindle with Raymond James.

Okay, thanks. And quite a thunder storm down here indeed. Mark, maybe just talk about the decision and your level of confidence to come out and guide fiscal '18; I know we've been through this before in fiscal '16 where you were expecting at least 20% EPS growth at this same time of the year and some unforeseen circumstances lead to a decline that year. Is there perhaps something different about fiscal '18 where you have more visibility that gives you comfort to come out and guide at this point?

Adam, I think that's a great question. So -- and we sat here for a couple of days and debated, do we say anything about '18 or not. I just feel like there is nobody that understands our business better than the management team and have in sell side and buy side try to kind of navigate through what things are going to look like. It's just -- it's tough go; so we decided to run a bunch of different sensitivity models and a bunch of analysis and give you a number that we believe in. So what's changed? I think our EMS business is more stable than ever, and that's a business that -- if you just run the math on it, that's now going to be approaching $11.5 billion. Our packaging and healthcare business have long sticky lifecycles to them and you heard what I said on a couple of other questions in regards to packaging and healthcare. We've got a couple of other things in the company going on that we'll see how they turn out and then the wild card really is around what we do with the mobility space in DMS. And we've made some assumptions set around that, we've stared it, forecast and business plans and everything else and we feel okay with the $2.60.

Okay, fair enough. And just a follow-up on the restructuring program, looks like you're over halfway done with $195 million. The majority based on your filings has been targeted towards DMS. I'm confused at this, just trying to understand the mix here, given it would seem as if we're getting ready to enter into a significant volume cycle on that side of the business based on your commentary, yet the cost cut seem to be concentrated here. Could you just maybe comment on that dislocation please?

Adam, it's Forbes. What I had asked you to follow is the cash number rather than the GAAP numbers. So in terms of DMS, we -- there has been some asset write-downs, some accruals made in that regard. We've also made some accruals around announcement we made to take some high cost capacity out in Western Europe, that's actually healthcare and packaging based facility. So that's driving that number in DMS that you're seeing there. So what I'd asked people to do is follow the cash. Whilst we -- I think year-to-date recorded about $110 million in restructuring charges, the cash on that is probably $15 million or so, there is another $5 million or $10 million to come in Q4. So once you see that cash come out, that's essentially unfortunately employees leaving the company or leases being concluded as such like and then you see the income being laid in. So a lot of the SG&A cuts we made earlier in the fiscal year were focused here on the corporate group and based on our call for allocation methodology, 65% to 70% of that cost falls into our EMS segment by the balance into DMS. So hence my previous comments around where the focus of this is. Overall, $25 million this year, we'll see something in the similar nature next year and probably about $80 million as we move into '19 overall coming on a cost base.

Okay. Just one last quick clarification for Mark, I think your fiscal '18 guide still implies DMS operating margins start with the three. On the last call you made a comment about potentially being able to reach the 5% to 7% target level, can you just talk about what that would take?

I'll comment on the first half and not the second half again because there is so many moving parts. I think it's fair to think that in the first half of fiscal year '18 will be in 5% to 7% range and we'll see what happens in the second half.

Okay, thanks.

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

Thank you very much and congratulations on the results. I have two questions and I'll ask them at the same time. The first one is, the new site that you're putting up, I believe the location is Southeast Asia or maybe I'm wrong with that, if you can correct me. And in that site is it focused on DMS or across all your business lines or EMS or how should we think about the focused point of that new site going up because a lot of EMS over the past few years has not been putting up a lot of sites is actually being consolidating sites. And then my second question is, I think I saw in [indiscernible] distressed customer of about a way up about $10 million; did I read that correctly and it said what segment was it -- and you're steady doing business with them or you're making them do your [indiscernible] or how should we see this as one quicker resolution or going to continue? Thank you.

So Jim the site I think you're referring to is our new site in Indonesia. And what we've took a hard look at about three years ago, three and a half years ago was -- is -- we've developed as you know, better than anybody; we've developed an amazing capability on the machining side of our business and its material science, it's intricate precision engineering and we gave it lot of thought to where else we might be able to apply that type of talent. And one thing that was quite obvious to us was aerospace and defense. So we had a lot of internal conversations and we're making what I think is a good strategic yet relatively modest bet in Indonesia and if we get it right we think it will be transformational for the aerospace business. So I think it will be state-of-the-art machining center that is incredibly cost sensitive, yet hugely capable and I think it could be disruptive. So we'll see its early days, we haven't spend a lot of time talking about it only because again the facilities drop [ph] and we're starting to launch product there but let's see what happens through fiscal year '18 as we start to get to critical mass and we're pretty excited about it. Your second question, we had -- you can imagine, you know, a company approaching $20 billion in size, we don't always get everything right and we had a largely a single customer issue in the energy space and it wouldn't be a brand that you probably would know, so it was a small customer, non-U.S. and we decided to disengage with the customer.

Thank you so much for the details, that's greatly appreciated.

Thanks, Jim.

Your next question comes from Matt Sheerin with Stifel.

Yes, thank you, good afternoon. Just another question regarding the EMS segment and your 3% growth target that really marked the first year and about four years that you're growing that business. If you look at the sub segments that you used to report out, enterprise and infrastructure, high velocity which includes consumer technology and the industrial in clean-tech; what are some of the growth drivers and assumptions for growth for each of those sub segments?

I won't get into that detail but I like the question. You know, I think your question kind of illustrates what then I was trying to say earlier in prepared remarks. We're seeing it across the board and I would say areas that we're driving, so even in end markets that might be declining a bit, we're picking up share. So I don't know how sustainable that is but it's happening, so I'll take it. In areas that I think are more sustainable in the EMS space; automotive is quite interesting to us, energy is quite interesting to us. What we're doing on some industrial areas is pretty interesting to us. We've -- we're doing a lot in kind of security in digital home. We're doing some really cool stuff in kind of what I would call hyper cloud type of things and our Telco business is strong. And then I think I also mentioned in my prepared remarks kind of capital semi-cap equipment and what's going on in the world of silicon right now and we're playing in that space. And I would also say our FY18 numbers with the growth probably include three or four other markets that we'll tend to talk about more in September or December when they become a little bit more relevant.

Okay, thank you, that's helpful. And just a follow-up; Forbes, in terms of that $2.60 EPS target for next year -- what is of -- is there a share count assumption there or the assumption on just sort of a steady progression in terms of buybacks to help you get to that number in addition to the margin expansion?

Yes. I do a steady progression on buybacks, I assume something similar to this year. I assume that cash flows will be there which I believe -- and that will fulfill close to the $1 billion.

Okay, thanks a lot.

Okay, welcome.

Your next question comes from the line of Sherry [ph] with Deutsche Bank.

Hi, thank you. Thinking about the $2.60 for fiscal '18 and Mark thanks for the detail on the 70-30 split but it seems like -- you know, depending on your revenue growth assumption, it probably suggests an operating margin somewhere in the 4% range; you guys have been able to hit 4% in the past but you haven't historically been able to stay at those levels. So how sustainable do you think that level or operating margin will be for you as we move beyond fiscal '18 and into '19 and '20?

I don't know. I mean, I -- we're efforting like crazy to get there, kind of reset the company, how sustainable it is after that. I think if we get there, it's sustainable but we've got a lot of work to do and I think your math is correct, I think that as a corporation, you know, if we hit the midpoint of our guidancing in 4Q of this year, I think our corporate margins for the year will be around 3.5%. You know, if we can pick up 20/30 basis points year-on-year, that's good; if we can pick up a full 50 basis points in margin in '18, I think that's really good. So again, when I think about cash flows, when I think about management and CapEx, when I think about our guide forward, when I think about a lot of the stuff we've talked about on the call, when I think about all the different aspects to the business -- you know, we're sitting in a pocket right now, we're -- A) we're doing what we're saying we're doing and a lot of good things are happening. So I'd like to see us get to the 4% before I think about how sustainable that is and we're working hard to get there.

Okay. And then just to follow-up on the DMS segment, I assume most of the seasonality that we're seeing in August is related to mobility but can you remind us what type of seasonality you typically see in the non-mobility segment of the business at DMS? Thanks.

Yes. I'd say there is not a lot of seasonality in the non-mobility DMS. If anything you could -- you maybe think about it, you know, for talking strictly about healthcare and packaging, just because of how that business runs; you know, I might give that a 40-60 or 45-55 split with the backhalf being a little bit stronger but there is not a ton of seasonality to that Sherry.

Thank you.

You're welcome.

And we've reached our allotted time for the question-and-answer session. I would now like to turn the call back over to Adam Berry for any closing remarks.

Thank you everyone for joining our call today. We'll certainly be here this evening for any follow-up calls you may have. And thank you again for your interest in Jabil.

Ladies and gentlemen, this does conclude today's conference call. Please disconnect your lines at this time and have a wonderful day.