Jabil Inc. (JBL) Q4 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Jabil's Fourth Quarter Earnings Conference 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 call over to Beth Walters, Senior Vice President of Communications and Investor Relations. Please go ahead.

Thank you, operator and good afternoon everyone. Welcome to our fourth quarter and fiscal year 2017 earnings call. Joining me 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 fourth quarter and fiscal year 2017 press release, slides and corresponding webcast 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 first quarter of fiscal 2018 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 will begin with an update from Mark followed by fourth quarter results and first quarter 2018 guidance from Forbes. Following our prepared comments, we will open it up to questions and I will now turn the call over to Mark.

Thanks, Beth. Good afternoon. I appreciate everyone taking time to join our call today. As always, a special thanks to our employees here at Jabil. Each and every day, they serve our customers while keeping our people safe. And speaking of people, I’d like to express my deepest sympathies for those who faced heavy loss caused by hurricanes Harvey, Irma and Maria, as well as the numerous earthquakes in Mexico, and around the world. Our hearts and prayers go out to all including some of our very own Jabil family who so negatively impacted their lives especially our team in Puerto Rico. In the face of these tragedies, the type of tragedies that test human character, I am proud to see our people rally together, jump in and with absolutely no questions asked, help those in need across the communities where they work and live. Now, moving on to our fourth quarter results. We had an excellent quarter. Our EMS segment performed extremely well exceeding our expectations in terms of both revenue and income. As for our DMS segment, our packaging and healthcare businesses met their lofty goals while our Greenpoint team navigated technically challenged program ramps driving factory costs higher for the quarter to the tune of $16 million to $17 million. So the good news in all of this, these efforts and events collectively resulted in $0.64 of core earnings per share, which is slightly better than our expectation for the corporation as a whole. Most importantly, this quarter illustrates the strength and diversification of our income and cash flows across the Jabil enterprise. Overall, I am pleased with the quarter, a strong close to a very solid year. Forbes will speak to our forward guidance and highlight more detail around 4Q during his prepared remarks. But first, I’d like to acknowledge and recognize a set of vital accomplishments delivered by our team throughout fiscal year 2017. The year was a near perfect illustration of what we said a year ago during Jabil’s Investor Day. First, within our EMS segment, we committed to progressive transformation of our approach in solution set, while at the same time, growing income at a pace greater than the end-markets served. We made tremendous progress on both accounts resulting in our EMS core operating margin expanding 50 basis points year-on-year. Second, in our Healthcare and Packaging businesses, we committed to strong double-digit growth, while helping improve the way in which people live. As we sit today, I check the box on both. Healthcare and Packaging are on track to grow 20% compounded annual growth rate per year through fiscal 2019 becoming quite material to Jabil’s financial performance. And third, we committed to remain a preeminent precision mechanics provider for the mobility market. We’ve successfully delivered on all three of these strategic objectives while continuing to invest in key technologies that can be leveraged across the markets we serve. Furthermore, while Forbes was speaking at our Investor Day, he committed to $1 billion in cash flow from operations while establishing a goal of $2.50 per share in free cash flow for fiscal 2017. We achieved both and by a wide margin. As I wrap up my fiscal 2017 comments, I’d certainly be remiss if I didn’t express my gratitude to our entire Jabil team across all of our functional disciplines who worked so hard and were so integral in driving the company’s success throughout the year. Thank you. As we look ahead to fiscal year 2018, our first quarter guidance suggests a strong start to the year. 90 days ago, I stated that we have a plan to deliver core operating income in the neighborhood of $2.60 a share for fiscal 2018. Today, we stand by that plan as the plan remains grounded by program pipelines currently on our radar. Add to this, a plan to deliver free cash flow in excess of $2 a share for the year, while we invest in areas that we believe will yield reliable earnings and cash flows in fiscal 2019 and beyond. As we navigate the fiscal year, we intend to leverage the stability of our EMS business, while managing double-digit growth within our DMS segment. Revenue for the corporation should be in the range of $20 billion to $21 billion, growth for our EMS segment should be roughly 3%, and the shape of core income for EMS when comparing the first half of the year to the second half of the year should look very similar to fiscal 2017. And finally, our DMS business, like always, will be dependent on product sell-through. In summary, we’ve offered first quarter revenue guidance of $5.5 billion, reflecting strength in revenue and market share, again a strong start to fiscal year 2018. In closing, I’d like to offer select thoughts about where I think we are going in fiscal year 2019 and beyond. At Jabil, our shareholders are squarely at the forefront of our thoughts and actions, and to that end, we believe in what we are doing. We have a credible plan based on sound assumptions and while we typically don’t speak prematurely of our successes, we are confident in our path forward. Please consider, our plan delivered core earnings of $1.86 per share in fiscal year 2016, and $2.11 per share in fiscal year 2017. Add to this an expected $2.60 a share of core earnings in fiscal year 2018, and a goal to deliver $3 a share of core earnings for fiscal year 2019. If achieved, this implies a compounded growth rate north of 15% for Jabil’s core earnings per share over this time horizon. But what’s even more impactful is the ever-changing makeup of these earnings. When we dissect the individual components of future income streams, there is compelling evidence that our diversification will increase establishing what I believe will be even more predictable earnings and cash flows as we move forward. On top of that, we’ll continue to invest and invest heavily for our future. Examples of these investments include additive manufacturing in 3D print, automation and robotics, smart factory and digital platforms, as well as material sciences, just to name a few. Make no mistake these investments are planned and executed with a sense of purpose and as a result, our belief of success is happening by design. Jabil is an agile, decisive and most efficient operator of our business. We are working hard to construct a fantastic company that’s sustainable for years to come. A company that we believe will be the most technologically advanced manufacturing solutions company in the world. And in doing so, there will be no room for compromise when it comes to keeping our people safe, demonstrating the highest level of respect for the environment, and making real social difference around the world. Jabil’s brand is the brand behind the world’s greatest brands and we are making the world better, safer, healthier, and cleaner. Thank you, and with that I’ll now turn the call over to Forbes.

Thank you, Mark. Good afternoon everyone. I'd ask you to turn to Slide 3 and 4 where I will review our fourth quarter and full fiscal year 2017 results. Net revenue for the fourth quarter was $5 billion, growth of 13% on a year-over-year basis. GAAP operating income was $118 million, with a GAAP net income of $46 million. GAAP net diluted earnings per share were $0.25 for the quarter. Core operating income, excluding the amortization of intangibles, stock-based compensation, restructuring and other charges was $191 million and represented 3.8% of revenue. Core diluted earnings per share were $0.64. For the full fiscal year, net revenue was $19.1 billion, an increase of 4%. GAAP operating income was $410 million, while GAAP net income was $129 million. GAAP net diluted earnings per share were $0.69 for the year. Core operating income for the year excluding the amortization of intangibles, stock-based compensation, restructuring and other charges was $667 million and represented 3.9% of revenue. Core diluted earnings per share for the year was $2.11. On Slides 5 and 6, I’ll review our fourth quarter and fiscal year segments. In the fourth quarter, revenue for our Diversified Manufacturing Services segment was $2.15 billion, an increase of 32% on a year-over-year basis and represented 43% of total company revenue. Operating income for the quarter was 2.5%. Our Electronics Manufacturing Services segment revenue was $2.87 billion, an increase of 3% on a year-over-year basis; and represented 57% of total company revenue. Operating income for this segment was 4.8%. The operating income performance in the quarter is a result of program cost recoveries and strength across our EMS portfolio in areas such as automotive, capital equipment and printing. Turning to the full fiscal year, our Diversified Manufacturing Services segment revenue was approximately $8 billion, an increase of 9% on a year-over-year basis and represented 42% of total company revenue. The operating income for this segment was 2.9%. Our Electronic Manufacturing Services segment revenue is approximately $11.1 billion, relatively consistent on a year-over-year basis representing 58% of company revenue. The operating income for this segment was 3.9%, an improvement of 50 basis points over fiscal year 2016. For the full fiscal year, we had one customer with revenues in excess of 10%, that being Apple, at 24%. Net capital expenditures for the fourth fiscal quarter totaled $102 million and for the full fiscal year, net capital expenditures were $541 million. As anticipated, our fourth quarter was characterized by very strong cash flows from operations totaling some $723 million. The cash flows from operations for the full fiscal year being $1.26 billion. Free cash flow or cash flows from operations minus capital expenditures was $715 million for the full year. Core return on invested capital for the fourth quarter was 17.6% and grew by 60 basis points on a year-over-year basis to 15.4% for the full fiscal year. Core EBITDA for the year was approximately $1.4 billion and represented 7.3% of revenue. Total debt-to-EBITDA levels at fiscal year-end were approximately two times and cash balances were $1.19 billion. Now I’ll take a moment to turn to Slide 7, I’d like to discuss our capital returns framework. Our capital return framework was a key focus as we move to fiscal 2017 and remains so in fiscal 2018. The return framework allowing a return of 40% of cash flows from operation via dividends and share repurchases through fiscal 2018 to a maximum of $1 billion. During the fourth quarter, we fully utilized the June 2016 authorization to repurchase $400 million worth of shares. Over the life of this authorization, we repurchased some 17.1 million shares at an average price of $23.37. We also received Board approval during the fourth quarter to repurchase up to an additional $450 million worth of shares through the end of fiscal 2018. To-date, we have returned some $477 million in dividends and share repurchases under this capital return framework and as we look into fiscal 2018, and our operating cash flow forecast, we show return of $2 billion to shareholders at the end of fiscal year 2018. And I would like to update you on our restructuring alignment plan. Throughout fiscal 2017, we took actions to enhance organizational efficiency and effectiveness. Specifically, headcount reductions across our SG&A cost base are complete and capacity realignment activities and higher cost locations has now commenced and remains on track to occur in the first half of fiscal 2018. As such, fiscal 2017 saw charges associated with this plan of approximately $160 million, of which $14 million is cash-related. We anticipate conclusion of this plan and charges of approximately $35 million during fiscal 2018. And full savings associated with this plan of $70 million to $90 million remains on track to be fully realized commencing fiscal 2019. I’d like to now very briefly discuss a recent acquisition that we made. I am pleased to note that on the 1st of September, we acquired the assets of True-Tech, a manufacturing provider of specializing and process-critical, high precision machining, mechanical assembly and clean room assembly for a variety of semiconductor, aerospace and medical customers. This acquisition enables and complements our service offering in the capital equipment marketplace and we welcome a specialized team of some 600 people to Jabil. Now turning to fiscal 2018. Before discussing the details around our first quarter fiscal 2018 guidance, I’d like to note that our operations in Cayey, Puerto Rico servicing our healthcare customers have received significant damage as a result of Hurricane Maria. But we are still fully assessing the extent of the impact to our employees and operations, we do anticipate asset write-downs and costs associated with business interruption during the first half of fiscal 2018. We also expect that the majority of such costs shall be offset by insurance coverage. However the timing of these recoveries should very likely not align by – but all are expected to be within fiscal 2018. Given this, we intend to reflect the impacts of these write-downs and recoveries bode with our core earnings guidance. Now to the detail of our fiscal 2018 outlook and this can be found on Slide 8. The Diversified Manufacturing Services segment revenue is expected to increase approximately 13% on a year-over-year basis to $2.7 billion while the Electronic Services segment revenue is expected to increase approximately 3% on a year-over-year basis to $2.8 billion. We expect total company revenue in the first quarter of fiscal 2018 to be in the range of $5.25 billion to $5.75 billion or an increase of almost 8% at the midpoint of the range. Core operating income is estimated to be in the range of $198 million to $258 million with core operating margin in the range of 3.8% to 4.5%. As a result, core earnings per share are estimated to be in the range of $0.65 to $0.91 per diluted share. GAAP earnings per share is expected to be in range of $0.17 to $0.49 per diluted share. The tax rate on core earnings in the first quarter and full fiscal year is currently estimated to be 26% based on current levels of forecasted income. Capital expenditures for fiscal year 2018 are estimated to be in the region of $700 million, as we make investments to support diversified growth in revenues and income in Healthcare, Packaging, Automotive, Industrial, and capital equipment end-markets, all supported by cash flows from operations in excess of $1 billion. In closing, we are pleased with our fiscal 2017 performance. Core earnings per share growth of 13%, cash flows from operations in excess of $1 billion, and capital expenditures of $540 million with a returns to shareholders via dividends and share repurchases in the fiscal year of some $370 million. Positive momentum as we move into fiscal 2018. Our growth and diversification strategy continues. Growth and diversification in revenue, income and returns on invested capital, as we focus on delivering core earnings per share of $2.60 in fiscal 2018 on our path to delivering $3 in fiscal 2019. I’d now like to hand the call back to Beth.

Thank you, Forbes. Before we begin the question-and-answer session, I would 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. Operator, we are now ready for the Q&A.

[Operator Instructions] Your first question comes from the line of Paul Coster, JPMorgan.

Yes, thanks very much for taking my question. I am wondering Mark, whether you’d be kind enough to just give us a little bit of color around this ramp that you are experiencing in Greenpoint and for that matter, as you look out to the full year and the EPS guidance of $2.60, to what extent, what kind of assumptions go into that Greenpoint business please?

Hey, Paul. So, I just, as much as I’d love to, I just can’t – I can’t give you a lot of color around any of it other than to say that not much has changed from our planning in 90 days ago other than the fact that, as I said in my prepared remarks the ramp up of products was pretty challenged technically. We had some loaded cost in our factories through 4Q. Some of those cost overruns continued through the month of September. We are back on track as we sit today and the outlook going forward is well aligned with our plan.

You also separately told some 20% CAGR for your Healthcare and Packaging business, is this visibility originating in contracts or is it your view of the end-market for those businesses?

It’s both.

Okay. And then finally, you’ve talked to $2.60 in earnings this year, can you just talk to us a little bit about what leverage you’ve got in the event that the diversified manufacturing business with some stuff outside of your control, what can you do to compensate if that fall short on the revenue line a little bit?

Yes, so, I think we’ve done a good job of kind of considering puts and takes. We talked about the $2.60 for fiscal year 2018 90 days ago during the June call as we sit today, not much has really changed. If you think about our guidance for 1Q of 2018, 90 days ago, we kind of felt that would be in the $0.80 range. I think our midpoint that we just provided is about $0.78 at the midpoint. We clipped a couple pennies off for two reasons, again, we had some cost challenges in the month of September and then, with our healthcare facility down in Puerto Rico, we’ve taken a bit of a conservative approach for 1Q and 2Q in our thinking, but we believe we will recover any of that in the back half.

Very good. Thank you very much.

Your next question comes from the line of Matt Sheerin of Stifel.

Yes, thank you. Just following up on that question regarding the operating margin contribution for DMS. As you said, it looks like there is some hiccups here, is that they are going to lead to operating margin in DMS down year-over-year, but as you look through the fiscal year, maybe comment on seasonality of the specialized services of the Greenpoint business, would you expect margins on a year-over-year basis to improve in that business as you get through the fiscal year?

So, I don’t think our margins in DMS are going to go down year-on-year. I think 1Q of 2018, even with the business the way it looks today, I think there is a high probability and I think that our midpoint of guide will still be in the 5% to 7% range, probably closer to the 5% range for DMS margins in 1Q and then for the fiscal year we are not going to talk much about Q2, Q3, Q4 for DMS, but I wouldn’t think margins would go down, in fact I think they go up year-on-year for DMS in total.

Okay, great. And in terms of some of the issues you saw on the technical side, does that impact your allocation with your customer or other suppliers also going through similar issues?

Again, I won’t comment on it, but we don’t feel a whole lot different than we did 90 days ago in terms of the big picture throughout DMS.

Okay, all right. Thanks very much.

Thanks, Matt.

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

Yes, thanks, can you hear me?

We can hear you Sean.

Hi folks, thanks for taking the question here. So, the first thing I want to see if I could bring up, if there is a way perhaps, Forbes, if you can walk through in a little bit more detail the contributors to the wide EPS range, I don’t think we’ve seen it this wide in a long time. I am sure we can make some guesses around that and some of this has been alluded to I think during some of the prepared comments, but can you help us to frame and put this in a little bit more context? Thanks.

Hey, Sean, let me jump in on that. So we talked about that internally. I think our range is like $0.65 to $0.91. If you take a midpoint of $0.78 that’s probably plus or minus 15% something like that. That’s not all that unlike other quarters especially Q1 you add to it some of the dynamics going on throughout DMS as well as, again, some of the conservatism about when our Puerto Rico factory will come online. And if I could add a little color on that, we have great people down there as I said in my prepared remarks, we had about 400, 450 people impacted by Maria. But I recognize with all due respect to them, we have a business to run. It’s not so much about maybe the income that we had in our plan being overly material to the company. But it’s a little bit about the cost when the cost layer in, and then also any anticipation of disruption from some of our healthcare customers. So, all that when I shake it all up, led to the guidance range that we provided. But again, if you look back to other 1Qs, it’s not all that different.

Okay. And the reason I had asked, it looks like this is a $0.26 range and last year it was about $0.20. But I think the color you provided is understandable and makes sense.

I’d also say on a percentage basis, I think last year, we are probably a dime below where we were now. So, in absolute cents or pennies if you will the percentages aren’t all that different.

Understood. That’s fair. Okay, and then, as you folks look to the bigger picture of fiscal 2018, without getting too much into the focus around mobility, can you talk about or elaborate a little bit more on the magnitude of where business is coming from in other areas that are providing the diversification that you are speaking to Mark for where the business becomes more predictable and being able to get to that type of an earnings number, because it’s clearly a nice movement forward especially given that, we do have some more questions around on that mobility front. So just trying to understand on the other pieces of the equation, really what’s driving that? Thanks.

Okay, that was a lot. I’ll take a swing at it and see if Forbes has anything to add. So, the one thing I would agree with you on is, in this environment, taken our results of whatever, 2017 was $2.10, $2.11, extrapolate that out to the $2.60, I think that’s an uptick of 22%, 23%, we feel really, really good about that. And what I tried to allude to in my prepared remarks is, is it’s not just the uptick in core EPS year-on-year but it’s the makeup of the earnings. I think, one of the things we’ve been talking about for the last three or four years, our structure, our market facing approach, our solutions, the discipline around the business and our diversification, they are working. And kind of getting, the level down to your question, when I think about areas that are giving us confidence in the $2.60, I talk about energy, kind of automotive and transportation. We’ve got some V2V, so some vertical to virtual opportunities that are in front of us. We’ve got opportunities in semi cap that are strong and then I’ve been banging the drum and Forbes has been banging the drum with Healthcare and Packaging and again I reiterated today in my prepared remarks, we are still looking at those businesses combined from 2016 to 2019 growing at a CAGR of 20% or greater. And then the two other areas we are spending lot of time on is, is kind of around digital services which – that would kind of layer in towards the back half of the year and more in 2019 and 2020, and then the area of our business in EMS that we think about is connected consumer which is really just kind of anything that connects to the cloud is doing quite well for us.

That’s actually very, very useful. Thanks so much for all the color.

Yes, thanks, Sean.

Your next question comes from the line of Adam Tindle, Raymond James.

Okay, thanks, good afternoon. I just wanted to clarify, Mark, you said $2 per share of free cash in fiscal 2018, is that right?

That’s right. And again, if I compare that to 2017, the biggest part there, Adam is, cash flow from ops as we sit today, I think we are setting up for another strong year for cash flow for ops. The team did a wonderful job of CapEx management in fiscal year 2017. I think we started the year and through the year Forbes was kind of suggesting a CapEx range of $500 million to $600 million, I think we came in about $540 million. It had nothing to do with us doing anything other than making investments as the business dictated. But we had – probably had $20 million, $30 million of CapEx from 2017 flip over into 2018. And then the other thing I tried to allude to in my prepared remarks is, I really like spending CapEx dollars if it’s in the right area that and I forget what my words were, but something around kind of more predictable, sustainable, more robust, stable earnings and cash flow streams for 2019 and 2020. So, I think for FY 2018 our CapEx range will be in the neighborhood of about $700 million for the year and the business certainly can tolerate that based on cash flows along with our capital return framework that Forbes talked about in his prepared remarks where I think it’s highly, highly likely that investors are going to get all billion dollars which was the top end of our commitment on our two year framework in terms of capital return. So, overall the cash flows of the business as we sit today remains very strong.

Okay, I mean, the way that I was going to ask it is, just maybe comparing this CapEx cycle that we are entering into to the last one in fiscal 2015 and 2016 where CapEx was kind of in this $700 million, $800 million, $900 million range and heavily weighted towards mobility where margins are in decline now and what underpins the confidence that this one may play out differently? Is there a different ROI framework that you are using this time?

I am not sure I understand completely what you are asking, but let me try to answer at this way. The mobility business for us is still quite important. I think that Forbes and I and Beth and Adam kind of have been talking about the fact that if you go back three years, four years, we made some investments that were a bit premature. And since then, we’ve been talking about the fact that, we had strong belief we’d be able to leverage those assets for the coming years and that’s exactly what we are doing. So, if I think about our CapEx absolute dollars and I think about our CapEx profile, if I think about in fiscal years 2014, 2015 and part of 2016, and I contrast that to fiscal year 2017 and 2018, it’s distinctly different.

Okay, thanks.

You are welcome, Adam.

Your next question comes from the line of Tejas Venkatesh of UBS.

Thank you I am on for Steve Milanovich. I think you said Apple is a 24% customer in fiscal year 2017 implying your Healthcare and Packaging business grew mid-teens. It sounds like you are expecting an acceleration in fiscal year 2018. So could you talk to the dynamics there?

Yes, I haven’t quite worked the math on all of that. But, my guess is, you are probably right. So, I would guess the answer to that would be yes, so if your math is correct, by default, I think you are correct. So I would again go back to the statement of, if you think about where we are at with healthcare and packaging in FY 2015 and 2016, and where we think that will be in terms of core earnings for FY 2019, we still sit here today quite confident that that will be a CAGR of 20% plus.

Okay. And maybe just one follow-up on DMS. You mentioned the technical difficulties with your mobility customer in your prepared remarks, your DMS revenues came in a bit better than I thought. I wanted to clarify whether that reflects non-mobility surprising above your expectations or maybe a broadening of your engagements with your mobility customer?

I’d answer it this way. Strong revenue in Q4, strong revenue in Q1 is a really good sign.

Okay, thanks.

Welcome.

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

Hi, thanks. I was hoping you could provide a little detail on the strength in the EMS segment in terms of the margins this quarter and then, Mark, I think you said that we should expect margins to have a similar trajectory in fiscal 2018. Should we see EMS margins at similar levels or better and would we see the sort of step-up in 4Q next year that we saw this quarter, this year? Thanks.

Sure, Sherri. So, good question. Let me just think for three seconds here, how I would answer that. So if I could dissect Q4 which I think you are starting with, back in the June call, I don’t know if I have these numbers exactly correct, but I think in the June call, either Forbes or I said that we expected EMS to deliver about 4.2% for 4Q of 2017. We ended up delivering 4.8%. When we talked about the 4.2% number, internally we thought we deliver 4.3%, 4.4%, so we brought ourselves 10 to 20 basis point buffer we committed the 4.2%. So if you take, what we thought we do the natural part of the business being 4.3%, 4.4% we delivered 4.8% and that was simply, if you can imagine our EMS business, that Mike and Alex run, they manage 200 customers plus. So, as we wind out our fiscal year, there is a ton of puts and takes that I would call, maybe a bit unnatural which is end-of-life programs where maybe margins aren’t where we need them to be, cost recoveries and things like that, all of that’s shaken up, it was probably to the tune of about an extra 10 million, 12 million bucks for the quarter. And there is no much more to the 4.8% versus maybe the thought process of the natural business being 4.3%, 4.4% for 4Q of 2017. As I think about fiscal year 2018 and what I tried to get across in my prepared remarks is, we think that both top-line and bottom-line for EMS off of FY 2017 base will grow in the range of about 3%. And therefore, if that occurs, the margin structure for the year won’t be that different and I also tried to communicate, although we won’t be able to dial it in quarter-on-quarter-on-quarter, if you think about first half of 2017 EMS profit and EPS, and if you think about second half, the first half to second half for our EMS business will be very similar to FY 2017. So, summarizing that, I think we are giving you a lot of color around the EMS for FY 2018.

Okay, great. That’s super helpful, all that detail. And then I just wanted to clarify, when you mention the $20 billion to $21 billion in revenue, was that a fiscal 2018 number or fiscal 2019? Because I know you’ve said about $20.5 billion in the past for fiscal 2019. Just want to make sure I have the right year, thanks.

I appreciate the clarification. Now it was for fiscal year 2018.

Thanks.

Welcome.

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

Thank you very much. On the acquisition you just made, is it safer to say it’s very small or too material in revenues and earnings or should we think about some type of material impact there?

Hey, Jim, could you repeat that?

The acquisition that you just did.

Oh, the acquisition.

How does it impact to your company revenues, any materiality there?

Hi, Jim, it’s Forbes. Yes, it’s not overly material. I think the key piece that’s material for us there are the capabilities that that brings to us. So, it’s modest in terms of size, both in terms of revenue and cost to us. And that should really been our mantra over the last two or three years. It's continuing to add to the capabilities, listening to our customers, giving us with the opportunity to continue to grow there. So, we are really excited about bringing on the True-Tech folks. It really adds to our capabilities and allows us another growth platform for revenue through 2018 and into 2019 in the semi cap capital equipment space.

Great, and as a follow-up, I think your CapEx was about $540 million this year. What should we be modeling kind of longer term to the company, I’d say for next fiscal year and then also on stock comp, it looks like it’s up higher next quarter. Is that seasonal or due to change of incentives or due to your stock price being higher or is that math just wrong with this stock comp didn’t go up?

Yes, so Jim, the CapEx for next year, we are thinking in the neighborhood of about $700 million. So in fiscal 2018, as we continue to invest in terms of our diversification strategy across the company. With regards to stock comp, yes, you will see that up a little bit. As we move into fiscal Q1, just as we got some incentives coming into play there, so you are thinking about that the right way.

Great. Then my last question, I think you referenced $16 million to $17 million of higher cost associated with Greenpoint. Are those now behind you? Or is it kind of the yield learning thing or they linger on for a couple more quarters or how should we think about the work through of that $16 million to $17 million higher cost?

I’d say issues are largely worked through and they are all considered both in our 1Q of 2018 guidance and the fiscal year guidance for 2018.

Great. Thank you. I so much appreciate your details. Thank you gentlemen.

Yes, thanks, Jim.

Your next question comes from the line of Mark Delaney, Goldman Sachs.

Yes, good afternoon. Thanks very much for taking the questions. The first question is a follow-up on the DMS segment. One of the things the company has talked about in the past is having a goal of improving its diversification across different mobility products. So that it’s not still impacted by the mix of which mobile products may or may not so well in the end-market which is obviously very difficult to forecast. And I was just wondering to what extent you can give us an update on your prior comments about Jabil improving on that effort this year and to what extent we should think about Jabil being, generally agnostic to which products are selling well in the mobility market?

I think we’ve been talking about diversification across the whole enterprise for four, five years and the benefit to shareholders being that, as an example, when we have a quarter like 4Q of 2017, where there is puts and takes in part of the business, the more diversified we are the better it is for shareholders because we tend to be able to lean on different parts of the business and I think that’s good news. So, without commenting too discretely about any one portion of the business, I am a big fan for diversification, Mark and we are working hard towards that and I feel good about how things look going forward.

That’s helpful. And then for follow-up question was on the restructuring program and Forbes, I appreciate the updated thoughts that you provided. And I think you said, some of the savings will start to manifest themselves at some point later in first half of fiscal 2018. Can you just help us understand where we will see that and how we may see that in the P&L between COGS and SG&A and is there any sort of dollar step-down in SG&A we should have in mind or is it more just about absorption and just gives us good leverage as you move through the year? Thank you.

Yes, let me try and give you some color on that Mark. So, we saw a benefit roughly of, overall, about $195 million over a two fiscal year period. And my prepared remarks talked to a $70 million to $90 million benefit in fiscal 2019. So another 12 months before you see the full benefit of that. But in fiscal 2017 we saw about $25 million worth of benefit. You saw some of that coming through the SG&A line, I think were down over year-over-year overall, on a core basis, if you take out stock-based compensation. So a lot of the heavy lifting on the SG&A has been done in fiscal 2017. You will see an increment in the region of $20 million to $25 million in this fiscal 2018, again depending on the timing of some of these higher cost locations coming out of our network and the majority of that benefit, you’d see really coming through the gross margin line. In terms of asset utilization, I’d remind you that, now these revenue streams are actually transferring to other facilities in our network. So that’s really the way to think about it. $25 million last year, another $25 million this year and then, what that, that gets me to about another incremental as we move into fiscal 2019.

Thank you.

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

Thanks, good afternoon. I had a – I need a clarification, and then I had a question. I just want to be certain on one thing which is the extra cost in Greenpoint and then also the tragic events in Puerto Rico, that’s all a cost impact, or is there some kind of revenue impact that was factored in either in the last quarter or is that factored into going forward especially when you think about all your customers that are in the Puerto Rico region and I had a question. Thanks.

Yes, it’s predominantly cost side, Steve, now it’s clearly early to understand the impacts on our healthcare customers. But I think in the guidance that we’ve given certainly for Q1, and overall the guidance in the range for the year contemplates some conservatism there, but it’s clearly very early in Puerto Rico, I don’t think there will be material impact in the top-line, it’s more about cost and how quickly we can recover and get up.

Got it. And then, just in terms of the EMS margins, I understand why, you know the definition where you may be slightly overearned in the quarter, but the mix is increasing, and then by definition you are going to have some other sort of more mature products go end of life as part of that mix. So, why shouldn’t we be looking for margins that can sort of trend over time towards, say the 5% range more consistently?

Come on, Steve. We are 2.5%, like three, three and a half years ago and the EMS team is doing a great job. So, you know what, we are aligned on the goal, but one year at a time. I mean, the business is performing superbly and I hear you, but let’s think it a year at a time.

If I put it in other way, it’s mix of a trend that we should keep counting on for getting about what numbers they should, is mix going to be that favorable for you over the next couple of years?

I don’t know, I mean, again what we are trying to do is, I think our EMS business in general has a very robust platform. And the stronger we can make that foundation the better it is for our shareholders. So that’s what we are efforting towards and again if you think about our EMS segment, today earnings are spread across 200, 220 customers and again that’s a pretty good catalyst for a strong foundation.

Thanks, I’ll quit one behind.

Your next question comes from the line of Ruplu Bhattacharya, Bank of America Merrill Lynch.

Hi, thanks for taking my questions. The first one just on, maybe a clarification, on the non-Apple Greenpoint business, I know – I just want to make sure the 20% year-on-year you guided is just for the healthcare and packaging, but Mark, is the non-Apple Greenpoint business, should we also think about that segment as a double-digit kind of growth segment and are the margins were within the 5% to 7% DMS range for that part of the segment?

That’s a great question. Unfortunately we just don’t break that out. So, when it comes, again our reporting segments in the way I look at the business is, our EMS segment, our DMS segment and then where we’ve give – there is the last couple quarters including today is we kind of give you good breakdown around the entire EMS segment when it comes to the DMS segment. We kind of bifurcate if you will a little bit on healthcare packaging and JGP but that’s as far as we’ll take it.

Okay, fair enough. Maybe one for Forbes then. Forbes, just if I remember from the last Analyst Day, with respect to the tax rate, you had said that over the next two, three years, from fiscal 2016, you should see the tax rate go down 3% to 4% and fiscal 2016 was like 27% tax. I think you just guided fiscal 2018 to also 26%, so is there a change in your perspective on what the tax rate would be like in this range of fiscal 2016 to 2019?

Yes, no, I think there is still opportunity as we move through by half of 2018 into 2019, see that tax rate go down. What we are seeing is, is a little bit of a shift in terms of the geographies in which in the income is being produced. So, I think certainly from a year ago, I would say, our Indian operations are performing particularly well versus perhaps a year ago which drives a little bit more tax dollars. But, as I think about the portfolio we have in front of us here and the mix as we move forward, there is certainly opportunities, what we are in 27 or so last year 26 this year, opportunity just getting down towards that 25% range. But we’ll see as we move through the year here and into 2019. So it’s still opportunity.

Okay, great and just a last one from me. Your CapEx went up to 700 and I realize, Mark, you said the $20 million, $30 million probably pushes out from fiscal 2017 into fiscal 2018. Of the delta $70 million or so, you said it’s in more predictable kind of businesses, so should we take it that it’s not in the mobility space and any color, like is it going towards, is it new factories or new equipment, like what is a composition of that $70 million spend?

It’s – I think if we were to – that line item by line item you find that it’s really, really a nice blend across the entire corporation. Not overly, heavily in EMS, not in DMS, not any one sector. I feel really, really good about the blend and the mix of the CapEx that’s projected for 2018.

Okay, thank you for taking my questions. Appreciate the color.

Yes, you are welcome.

And your next question comes from the line of Amit Daryanani, RBC Capital Markets.

Hey guys. This is Irvin Liu calling in for Amit. My first question is just on EMS. It looks like the segment reverted to year-over-year growth this quarter with strength across auto, capital equipment and printing end-markets. Is it possible that sort of stack up your performance in this segment sort of the way we think about the split between the broader end-market strength and perhaps your share gains?

I am not sure I understand the question. To be sure I kind of give you an answer that you are looking for, maybe you could try that again.

Yes, sure, sure. Yes, we’ll I try to – maybe you can try answering first.

I can’t answer it. Because I don’t understand that.

I mean, is it possible, I mean, just based on your year-over-year growth this quarter, right, is it possible just sort of provide more color on the performance either whether it’s driven by some of your end-market strengths or your individual company share gains?

Oh, I see, I see, okay. That I understand. So, one of the things we said a year ago at the Investor Day is we felt like a significant portion of our EMS business could grow greater than the growth rate of end-markets they serve. So by nature, that would be share gain. So I think I would say, and I forget how answered this earlier, but maybe I’ll try to get it correct or the same is, in the EMS segment, we are seeing strength around auto transport and opportunities there, semi cap, energy, what we would kind of consider, kind of connected consumer. So, I would say that, add to that the kind of the virtual manufacturing opportunities we have that may end up coming to us that maybe historically have been embedded inside of the customers we serve. I’d say the vast majority of the opportunities, especially when you look at our bottom-line growth is maybe 65%, 70% market share and the balance kind of end-market growth on a blended basis.

Got it. That’s helpful. Thanks. And in terms of your $2.60 EPS target for fiscal 2018 and $3 in fiscal 2019, if I recall it correctly, last quarter you indicated that 70% of that sort of earnings net income growth performance was going to be driven by margin expansion. Is this mostly unchanged, given this sort of Q1 DMS margin hiccup dynamic or your sort of top-line contribution assumption sort of shifted given the DMS margin hiccup in Q1?

Are you asking about the $2.60?

Yes.

Okay, I don’t think that’s attached and again, I could have this wrong. So let me apologize ahead of time if I don’t get this right. But, I think in the last call, there was a question around how are we achieving maybe the growth rate in Healthcare and Packaging, was it around top-line growth or margin expansion. And I gave an answer that was something similar to what you just said, which was I said, maybe 65%, 70% was margin expansion and the balance was kind of top-line growth based on opportunities. I don’t think I’ve ever given that type of breakdown in terms of the whole corporation or the $2.60.

Okay. Got it, got it. And that’s unchanged even given this the sort of margin hiccup in Q1, right, for DMS?

I don’t think there is a margin hiccup in Q1. You mean, in terms of what?

I guess, basically incurring higher costs, right, from…

Yes, I think what I said was is, we’ve all along, we’ve kind of felt like Q1 would be an $0.80 quarter and we just gave guidance to $0.78. So, call it, two pennies on the overall corporate platform.

Okay, got it. Thanks, that was helpful.

Yes, thank you.

We have reached our allotted time for questions. At this time, I would like to turn the call back over to Beth Walters for any closing remarks.

Great. Thank you everyone for joining us today. We will be here this evening and the rest of this week for any follow-up calls with investors, analysts and the investment community. Thank you again for your interest in Jabil.

Thank you for participating in today’s conference. You may now disconnect.