Jabil (JBL) Q3 2018 Earnings Conference Call Transcript

Jabil (JBL -0.54%)
Q3 2018 Earnings Conference Call
June 14, 2018, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Tim and I will be your conference operator today. At this time, I'd like to welcome everyone to the Jabil third 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. If you would like to ask a question during this time simply press * then the number 1 on your telephone keypad. If you'd like to withdraw your question, press the # key. Thank you.

Miss Beth Walters, Senior Vice President of Investor Relations and Communications, you may begin your conference.

Beth Walters -- Senior Vice President of Communications and Investor Relations

Thank you. Welcome to our third quarter of Fiscal Year 2018 earnings call. Joining me today are CEO Mark Mondello and Chief Financial Officer Forbes Alexander. This call is being recorded and will be posted for audio playback, Jabil.com, in the investor 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 follow this presentation on the website, beginning with slide two, our forward-looking statement.

During this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business. Our currently expected fourth quarter of Fiscal 2018 net revenue and earnings results, the financial performance for the company, and our long-term outlook for the company. These statements are based on current expectations, forecast, and assumptions and 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 31st, 2017, on subsequent reports on form 8-K, and other securities filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Today's call will begin with Mark and his comments on the quarter and our outlook for the business during the remainder of Fiscal 2018. Forbes will follow with details on our fiscal quarter results and guidance for our fourth quarter of 2018. Following our prepared remarks, we will open it up to questions from call attendees.

I'll turn the call now over to Mark.

Mark Mondello -- Chief Executive Officer

Thanks, Beth. Good afternoon. As always, I appreciate everyone taking time to join our call today. I'll begin by saying thanks to our team here at Jabil. Thanks for your personal commitment to our customers and to our shareholders. Thanks for making safety your top priority.

Before I begin with my prepared remarks today, I'd like to share a few thoughts about Forbes. As you know, Forbes recently announced his retirement and he'll be transitioning his CFO chair to Mike Dastoor. So, with the proverbial mixed emotions, I put pen to paper, starting with what an honor it's been to work with Forbes for 20+ years.

Fighting the good fight every day -- it's stressful, it's fun, and at times just plain crazy. Forbes and I laugh about how working at Jabil is done so in dog years, as our business has an intensity about it that's never ending. So, by my calculation, Forbes' career here at Jabil is actually closer to 150 years in duration. Now, that's worth acknowledgement and celebration.

Forbes, you've truly made Jabil better for everyone -- for our customers, for our employees, and for our shareholders. You are leaving behind one hell of a legacy. You know, as I wrote down my thoughts, it occurred to me that it just wouldn't be complete without a sentimental touch of Scotland. So, as the famous Scotsman and creator of Peter Pan, J.M. Barrie once said, and I quote, "Those who bring sunshine to the lives of others cannot keep it from themselves."

Forbes, you and your wonderful bride, Lorna, deserve a life full of sunshine. Thank you, my friend. Thanks for all you've done over such a storied career. You'll be missed, man, but you'll never be forgotten.

With that, I'll now get on to my prepared remarks, starting with our third quarter results. Our team delivered $150 million in core operating income on revenues of $5.4 billion, resulting in core earnings per share of $0.46, a considerable increase year on year. These results represent a diversified stream of earnings, a level of diversification that's sustainable as we head into Fiscal Year 19.

During the quarter, we had two distinct challenges. First, we're unanticipated factory costs caused by broad-based material and component constraints. Second, we're lingering cost overruns within our packaging business. These two issues combined, one macro and one more micro in nature, cost us $12 million to $13 million during the quarter. The good news is both challenges are temporary and both will dissipate.

Overall, I'm pleased with the quarter and as customary, Forbes will provide more detail around our results and speak to our forward guidance during his prepared remarks.

I'll now address current business activities within our DMS segment. Our DMS team earned $29 million during the quarter on $2.2 billion in revenue, demonstrating strong performance, performance characterized by growth, new program awards, and investments, not necessarily in that order, as our third quarter is typically one of deep investments inside our Green Point business and this year is no different.

To expand on that point, we generally provide little or no income during our third quarter within our DMS segment. However, this year, we posted solid profits that were earned from a wide range of product families across half or dozen or so end markets. Moreover, our Green Point business now requires more intricate assembly and sophisticated automation, in addition to our precision mechanics expertise. Good news, for sure, as it suggests further product diversification and plays directly into Jabil's strengths.

Along this theme, I announced during our March call that we had secured two significant program wins, both wins with new customers. These relationships are on track and should become material as we move to the second half of Fiscal 19.

I'll wrap up our DMS segment with an update on healthcare and packaging businesses. The teams continue to capture share, allowing us to reaffirm our annual growth rate of 20% to 25% Fiscal Year 16 through Fiscal Year 19, which we referenced for the past 18 months or so.

Across the healthcare space, we're seeing more and more companies in the areas of diagnostics, med device, pharma, and drug delivery select partners like Jabil to serve as their primary hardware provider. We're helping them incorporate better solutions through the use of combining technologies. This enables healthcare providers to become more productive, more cost effective, and ultimately more impactful to the patients.

As for our packaging business, the outlook for Fiscal 19 is positive. We believe that demand for our services will remain firm and, in fact, increase as Jabil's one-stop solution set, made up of molding, embedded electronics, final product assembly, and material sciences is a real differentiator in the packaging marketspace.

Next, I'll spend a few minutes on our EMS segment. Our EMS team continues to deliver sound results as they push forward with their progressive transformation. The team delivered approximately $122 million during the quarter on roughly $3.2 billion in revenue. As detailed on our last call, we're seeing meaningful expansion with both existing and new customers in areas such as automotive, connected home, wireless infrastructure, semi-cap equipment, cloud, and energy.

The result being EMS revenues at $12+ billion for Fiscal Year 18 representing 10% growth year over year. Most interesting to me is the fact that half of this growth comes by way of new customer engagements. We expect the momentum to continue into Fiscal Year 19. It's evidenced that our EMS business has become well-diversified. The team is deliberate and intentional on their pursuit of select industries and select customers, a successful model and roadmap on how we intend to run this business for the next two to three years.

I'll conclude today's remarks by offering a few thoughts as I think about the company as a whole. Our forward guidance suggests another strong quarter and sets the foundation for Jabil to deliver core earnings of $2.60 a share for Fiscal 18, growth of nearly 25% year on year, and perfect alignment with our committed.

As we've highlighted, opportunities have been plentiful throughout the year and across the enterprise. This has allowed us to make mid to long-term investments across our portfolio. A key subset of our current investment thesis is share buybacks. To date, we've returned approximately $860 million to shareholders pursuant to the two-year capital return framework we announced back in June of 2016.

As we enter the final stretch of Fiscal Year 18, we'll complete the two-year framework, bringing our capital return shareholders to $1 billion, as we committed to you previously. Accordingly, given the confidence we have today and the value we see in our business, we've elected to extend to capital return framework from two years to three. As such, we've authorized an additional $350 million in share buybacks to occur during Fiscal Year 19. In closing, I'd like you to know that we're planning another analyst day where we'll provide a comprehensive deep dive into the makeup and the construct of our business. We'll do via webcast on Tuesday, September 25th, a few days after our year-end earnings call. During this session, you can expect to hear about operating margins, cashflows, and capital expenditures.

Furthermore, you'll hear how we intended to deliver the $3.00 per share in core earnings in Fiscal Year 19 and the range of revenues required to deliver these earnings. In the meantime, we have plenty of work ahead as our DMS segment is preparing for multiple program ramps, while our EMS segment is digesting the healthy revenue we've experienced this year.

At Jabil, we embrace constant change and welcome the incredible challenges put forth by our customers. Thank you. I'll now turn the call over to Forbes.

Forbes Alexander -- Chief Financial Officer

Thank you, Mark. Good afternoon, everyone. I'd ask you to turn to slide three, where I'll review our third quarter Fiscal 2018 results. Net revenue for the third quarter was $5.4 billion, growth close to $1 billion or 21% on a year over year basis.

GAAP operating income was $113 million with GAAP net income $43 million. GAAP net diluted earnings per share were $0.25 for the quarter. Core operating income was $150 million, an increase of 32% on a year over year basis and representing 2.8% of revenue. Core diluted earnings per share were $0.46.

Turning now to slide four on our third quarter segment discussion -- revenue for our diversified manufacturing services segment was $2.3 billion, an increase of 36% on a year over year basis, reflecting our continued diversification efforts with growth in healthcare, consumer goods, and mobility businesses. This represented 42% of total company revenue. Operating income for the quarter was 1.3%.

Our electronics manufacturing services segment revenue was $3.2 billion, an increase of 12% on a year over year basis and reflective growth across automotive, connected home, capital equipment, industrial energy, and wireless infrastructure customers, and represented 58% of total company revenue. Operating income for the segment was 3.8%.

I'd now like to take a moment to discuss our cashflows. Cashflows from operations in the third fiscal quarter saw usage of $103 million. As a result, the working capital expansion to support revenue growth above our previous estimates, cashflows from operations for the full fiscal year are now estimated to be $800 million versus our previous expectations of $1 billion. This is the result of temporary working capital expansion to support revenue growth above previous expectations in a challenging components market.

As I outlined in our October 2016 analyst day, we continue to expect cashflows from operations for the three-year period, Fiscal 2017 through Fiscal 2019 to be $3.5 billion. Net capital expenditures for third fiscal quarter totaled $265 million. Capital expenditures for the fiscal year to date totaled $572 million, while the full fiscal year remains on track with our previous expectations of $700 million.

Core return on invested capital for the third quarter was 13%. For the full fiscal year, core return on invested capital was estimated to be approximately 18%, a 200-basis point improvement on a year over year basis. Our total debt to EBITDA levels at the end of the fiscal quarter remain at approximately two times, while cash balances were $677 million.

Turning now to our capital returns. In the third quarter, share repurchases totaled $91 million. Since the inception of our capital return framework, we have repurchased 28.6 million shares and an average price of $25.06, totaling $716 million. At the end of the quarter, $134 million remained outstanding on our current stock repurchase authorization, which we expect to be fully utilized during the fourth quarter.

On completion of this authorization, we shall have returned approximately $1 billion in stock repurchases and dividends and their capital return framework. Please note that our board of directors has authorized the further stock repurchase program, $350 million through Fiscal 2019, continuing our commitment to shareholder returns.

Turning now to our fourth quarter Fiscal 2018 outlook, which you can see on slide five, the diversified manufacturing services segment revenue was expected to be consistent on a year over year basis, while electronics manufacturing services segment revenue is expected to increase approximately 13% on a year over year basis to $3.25 billion. We expect total company revenue in the fourth quarter to be in the range of $5.2 billion to $5.6 billion for an increase of almost 8% at the midpoint range on a year over year basis.

GAAP operating income is estimated to be in the range of $144 million to $199 million. GAAP earnings per share are estimated to be in the range of $0.38 to $0.65 per diluted share. Core operating income is estimated to be in the range of $175 million to $225 million with a core operating margin in the range of 3.4% to 4%. Core earnings per share are estimated to be in the range of $0.56 to $0.80 per diluted share. Tax rate on core earnings in the fourth quarter is estimated to be 28%.

In closing, we're pleased with the progress we've made year to date. With the guidance for the fourth quarter, overall company revenues, and core earnings per share for Fiscal 2018 expected to go 14% and 23% respectively over Fiscal 2017. Diversified growth in revenues and earnings that provide a strong foundation to support our plan to deliver a core earnings per share of $3.00 in Fiscal 2019.

Before I hand the call back to Beth, I'd like to thank Beth, Mark, and Mike and everyone for your support and trust for the last 14 years as CFO. It's been a humbling and wonderful experience. I've worked with many passionate, talented people within Jabil from all parts of the world, many of whom I'm proud to call friends. The company is in good hands with Mike Dastoor moving into the CFO role. I've worked with Mike for some 18 years and I know our transition will be seamless over the coming months.

Thank you again, everyone. It has been an absolutely privilege. I would now like to hand the call back to Beth.

Beth Walters -- Senior Vice President of Communications and Investor Relations

Thanks, Forbes. As we begin the question and answer session, I'd like to remind our call participants that per our customer agreements, we will not address any customer or product-specific questions. We appreciate your understanding and cooperation. Operator, we're ready to begin the Q&A session.

Questions and Answers:

Operator

Thank you. At this time, I'd like to remind everyone in order to ask a question, please press * then the number 1 on your telephone keypad. Your first question comes from the line of Ruplu Bhattacharya with Bank of America Merrill Lynch. Your line is open.

Ruplu Bhattacharya -- Bank of America Merrill Lynch -- Analyst

Yes. Thanks for taking my questions and congrats on the quarter. Also, Forbes, we're going to miss you and all the best for your retirement. My first question, Mark, your guidance for the EMS segment is $2.25 billion. That's significantly higher year on year from the fourth quarter of last year. How should we think about if you can give us any guidance on the margins, operating margins, that you expect in EMS in the fourth quarter?

Mark Mondello -- Chief Executive Officer

Yeah. So, year on year, it's 10%+ growth. Again, I just think it's a bit of a signal on our approach and what we're doing in that market space seems to be working. The other thing we'll take is there seems to be a little bit of wind in our sales with the overall economy. So, we're pleased with the forward-looking guide.

In terms of margins, I think if you think back to 4Q of '17, we posted margins somewhere in the neighborhood of like 4.7%, 4.8%, and I had mentioned at the time that there were some one-offs there and that natural margins for 4Q of '17 were around 4.5%. I think the fourth quarter this year will be at or about the 4.5%. So, for modeling purposes, I might model that at 4.5%, 4.6% and put the balance of the income with DMS.

Ruplu Bhattacharya -- Bank of America Merrill Lynch -- Analyst

Okay. That's helpful. Thanks for that. Then on the DMS side, the revenues were higher than what you had expected. Did the healthcare and packaging surprise you in terms of its strength?

Mark Mondello -- Chief Executive Officer

So, yeah. Maybe I can address that in two parts. One is revenue overshot our midpoint by about $500 million. So, I think our midpoint for the quarter, if I go back to our March call was about $4.9 billion and we did about $5.4 billion. The majority of that was in DMS. It was really kind of across the company where we saw the additional revenue. When we were thinking about providing the guide back in March. We were concerned about the materials market, which has been very, very tight to the electronics component market. Just getting material in general has been difficult.

So, we hedged our revenue a little bit. Plus, we had a lot of new program ramps. So, we hedged those as well and maybe we hedged them a little bit too much. So, the delta from our results to our midpoint guide of $500 million, again, was really across the board. We saw it in healthcare. We saw it in mobility. We saw it across EMS. We saw it through kind of edge products within DMS as well. So, the good news is the diversification play and the diversification story seems to be playing out.

I'd like to address one other issue maybe to avoid another question on the topic. The question is we saw $500 million upside in unanticipated revenue and we only exceeded earnings by a penny. I think it's worth noting again and I mentioned it in my prepared remarks. We had some additional costs in the factories based on the fact that it was quite difficult getting material and components this quarter.

Then we also -- I mentioned back in our March call that we had some cost overruns in packaging. We had that lingering on into 3Q. We think that will occur a bit more in the fourth quarter, but we think we've got that embedded in our guidance. I'm extremely bullish on healthcare and I'm also bullish on packaging.

So, I think the components market and the material market, although more of a macro issue will start to subside as we get into calendar '19, so maybe early to mid-calendar '19. And then in terms of our execution and the issues on the packaging side, I think they'll subside as we move into Fiscal Year 19.

Ruplu Bhattacharya -- Bank of America Merrill Lynch -- Analyst

Okay. Mark, thanks for that and all the details. Maybe last one just for Forbes -- I think the tax rate came in a little bit lower than we had expected. How should we think about that going into Fiscal 19? Any guidance that you can give now?

Forbes Alexander -- Chief Financial Officer

For '19, it's a little bit early. A lot is dependent on our sources of income, if you will, with our operations in Asia. But as we sit today, I think this year we'll end up 28%, 29%, I think it's reasonable to hold it at those levels. Mike and team will update you in September with an exact number, but for now, put that as a placeholder.

Ruplu Bhattacharya -- Bank of America Merrill Lynch -- Analyst

Thanks again, Forbes. Congrats again on the retirement and congrats on the good results.

Forbes Alexander -- Chief Financial Officer

Thanks, Ruplu.

Operator

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

Matt Sheerin -- Stifel Nicolaus -- Managing Director

Yes, thank you. I want to also say congratulations to Forbes. Just question regarding your commentary on the supply chain constraints with weight on margins last quarter. First question is isn't that something that you can pass along to your customers when costs go up. Second, what have you done to alleviate that problem so that we don't see that repeat because it looks like the supply environment continues to remain tight.

Mark Mondello -- Chief Executive Officer

Hey, Matt. I'm not so sure we've got a magic wand on how to make the issue go away. It's a pretty profound issue and it's more macro-based. I can tell you that companies like us and flex with our scale sit in the cat bird seat in terms of working strategically and hand in hand with the supply base. I feel really well-positioned in terms of being able to get materials, resins, electronic components, passives, etc. that Jabil is kind of front and center and I feel good about our ability to do that. In terms of when it's going to clear, I made mention I think it starts to dissipate probably early to mid-Fiscal Year 19.

Matt Sheerin -- Stifel Nicolaus -- Managing Director

Okay. Thank you. Just looking at your 2019 target of $3.00 in EPS, I know you talked about giving us more detailed guidance on your analyst day, but that incremental buyback program that you have, is that something that would play into that $3.00 number? In other words, do you need to do the buyback to hit that $3.00 number?

Mark Mondello -- Chief Executive Officer

So, Forbes is extremely cautious. He guards our cashflows and our balance sheet really, really well. We didn't want to come out with the additional buybacks for '19 until we were certain that cashflows supported it, which it looks like they will. We've always kind of modeled the $3.00 with about $300 million of buyback in '19. We announced $350 million, so not much difference. Yes, the $300 million or $350 million of buybacks are already anticipated in the $3.00 a share.

Matt Sheerin -- Stifel Nicolaus -- Managing Director

Okay. Great. Thanks a lot.

Operator

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

Sean Hannan -- Needham & Company -- Managing Director

Yes. Another person here to pass on congratulations, Forbes. It's been a real pleasure all these years. Question on the guidance as we look at the DMS views for next quarter. So, it's interesting to look at that we're going to have a flattish year on year scenario. Typically, we do have some growth. So, try and understand the various components, push and pull, that get us to that. Obviously, there have been some positive and negative levers there. So, I just want to see if we can get a little bit more granularity on that.

Mark Mondello -- Chief Executive Officer

Sure, Sean. I feel great about our guide for DMS in 4Q. I look at last quarter or last year of the fourth quarter. It was a pretty frothy outlook with super cycles and whatnot. So, the fact that our guide this year is largely on top of results from our fourth quarter last year makes me feel really good. I think the composition is different, though, which makes me feel even better.

Again, we've been banging the drum for the last three and a half, four years on diversification. I think our guide in the fourth quarter around DMS reflects that. So, add to that that for the last whatever it is, 18 months, maybe a little longer, we've been talking about healthcare and packaging growing at a compounded rate of 20% to 25% from '16 to '19. I think that's also reflected in our DMS guide. Overall, we feel pretty good about the guide for the quarter and how we're closing out the year.

Sean Hannan -- Needham & Company -- Managing Director

So, all in all, there can be an interpretation that we should think of this as a visual reflection of where this pivot is taking place, lesser reliance on where some of the prior Taiwan Green Point revenue make up had been and a much more visible contribution coming into play, changing that makeup, driving more sustainable profitability moving forward through Nyrpo-related revenues and other activity.

Mark Mondello -- Chief Executive Officer

Well, there was a lot there, but I think I would agree with that largely, yes.

Sean Hannan -- Needham & Company -- Managing Director

Fair enough. Thank you.

Mark Mondello -- Chief Executive Officer

Thanks, Sean.

Operator

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

Sherri Scribner -- Deutsche Bank -- Analyst

Hi, thank you. I was hoping you could maybe make some comments on your further out outlook for revenue growth. I know in the past you've talked about mid to low-single-digit growth in EMS, but you guys clearly outperformed that this year. Then when you think about the DMS segment, the sort of flat guide for 4Q, should we think about much lower growth in DMS as we move into Fiscal 19? Thanks.

Mark Mondello -- Chief Executive Officer

Thanks, Sherri. So, we haven't really talked much about revenue for '19. I can't imagine DMS and EMS continuing to grow at whatever the numbers are. Call it 20% and 10%. Again, we're doing something right. So, we'll take the growth while it's here. I think as you think about the $3.00 a share, we'll get into much more detail on this September 25th, but I think growth rates will normalize a little bit.

In terms of revenue for '19, I would pencil in something between $22.5 billion to $23 billion and give us another whatever the math is, 80-90 days and we'll take you a bit deeper on all of that. One of the things that we're looking forward to for the analyst day which is two years to the day is to really give you a good breakdown in construct of how we're going to drive to $3.00 a share, which will include subsets of revenue and how all that breaks down.

Sherri Scribner -- Deutsche Bank -- Analyst

And then Forbes, also congratulations to you on your retirement. I've enjoyed working with you. But I wanted to ask about CapEx. I think your guide was $700 million and we've been a bit above those rates. So, how should we think about CapEx this year. I assume you'll update us for Fiscal 19 at the analyst day. Thanks.

Forbes Alexander -- Chief Financial Officer

Thanks, Sherri. CapEx this year, we started the beginning of the year at $700 million. We should be hitting that number -- I think we're at about $570 million roughly as we've exited this quarter. We should be on track around the $700 million for the year.

Sherri Scribner -- Deutsche Bank -- Analyst

Great. Thank you.

Forbes Alexander -- Chief Financial Officer

You're welcome.

Operator

Your next question comes from the line of Steve Milunovich with UBS. Your line is open.

Steve Milunovich -- UBS -- Managing Director

Thank you. You've expanded a lot of capacity in Green Point the last few years. Could you give us a sense of where your plant utilization is, how much further there is to go there, and if it has positive potential impact on margins?

Mark Mondello -- Chief Executive Officer

Hey, Steve. It's Mark. We really haven't expanded much capacity at all in the last couple of years. I think we talked a lot about Fiscal 13, 14, and maybe part of 15 where we got out ahead of ourselves with expansion in Mainland China. We made great investments there. We were a bit premature by probably 18 months or so.

One of the things we said back then is we were probably a little bit early, but don't judge us and let us see if we can leverage the assets in the capacity the next coming years in terms of cashflows and largely that's exactly what we've done. I'm pretty pleased with capacity, capacity utilization and then kind of an ROIC or an ROA on those assets the last number of years.

Steve Milunovich -- UBS -- Managing Director

Okay. It seems like yesterday to me. On the EMS operating margin, I think you've said that you've thought you could sustain around 4%. Is that kind of the level we should be thinking about on an annualized basis?

Mark Mondello -- Chief Executive Officer

I don't know. I think the team is just doing a great job. Again, I bring you back to we bring you those margins 2.2%, bumping up against 4%. I think for modeling purposes, on an annual basis, modeling our EMS margins around 3.8% seems reasonable. If we can stretch it to 4% -- by the way, our internal goal is certainly to get our EMS margins to 4%, but maybe clip that by 20 basis points. But nonetheless, boy, I feel good about how that business is operating and the outlet for that business for Fiscal 19.

Steve Milunovich -- UBS -- Managing Director

Great. Thank you.

Mark Mondello -- Chief Executive Officer

You're welcome.

Operator

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

Jim Suva -- Citigroup -- Managing Director

Thanks very much. Forbes, your level of integrity and stewardship and details has been so appreciated over the decade I've known you. Thank you so much and you will be missed. My question is you up-sided on revenues. So, you're able to get all the components, but the margins you mentioned didn't come in. So, you're able to get it where you just had to pay up to get the product or it's hard to see why you wouldn't pass that through to the customer and its apparent DRAM prices, copper, steel, all those prices have gone up. Why not have the cost plus model be your protector?

Mark Mondello -- Chief Executive Officer

Hey, Jim. By the way, thanks for the kind words for Forbes. I couldn't agree more. In terms of the component market, we weren't really able to get all the components. Again, I think the revenue is a reflection -- again, I just keep banging the drum on in our world and our business, the more diversified we are, the better. The upside in revenue, one could look at it from the outside and go, "Wow, you were able to collect all the components you need," and the reality is we're really well positioned to collect components and manage the supply chain.

We've got great partners. But we largely didn't get all the material we needed, A, that drove up transformation costs in our factory, which I addressed in our prepared remarks, but we're able to go down different tangents in terms of getting our customers a different mix of products. So, again, I think it's a wonderful illustration of the diversification of the business overall.

In terms of -- I think this is the second question around did we just pass that cost off to our customer, the answer is we've got all kinds of different agreements with customers. Jabil over the years doesn't take absolute inventory liability, but we're not so egregious where we just throw our hands up and pass that off to the customers. Our customers expect us to work the issues side by side with them and in most every case, we end up sorting through an equitable rational solution on the economics.

So, again, I tried to allude to this in my prepared remarks and maybe one of the earlier questions, but in the $400 million or $500 million of additional revenue that we had, we actually made pretty good margin on that. But again, it was eaten up by some inefficiencies in the factories as well as some of the lingering issues with packaging, which will resolve themselves in relatively short order.

Jim Suva -- Citigroup -- Managing Director

Thank you so much. Again, Forbes, my applause to you for all the years you've helped. It's greatly appreciated. Thank you.

Forbes Alexander -- Chief Financial Officer

Thanks, Jim.

Operator

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

Steven Fox -- Cross Research -- Managing Director

Thanks. Good afternoon. First, Forbes, I was wondering -- first of all, congratulations, but since you're walking out the door on record earnings, I'm wondering if I can beat you up on cashflows one last time.

Forbes Alexander -- Chief Financial Officer

Why not?

Mark Mondello -- Chief Executive Officer

Come on, Steve, give him a break. Come on.

Steven Fox -- Cross Research -- Managing Director

Your cashflows are coming in a little lighter this year which is not too much of a surprise given what's going on in the environment. You seem to be confident that they bounce back pretty strongly next year even if we're in an inflationary environment. I was curious if there's anything internally going on to improve working capital or how you see that bounce back working. Then I had a follow-up.

Forbes Alexander -- Chief Financial Officer

Yeah, sure. You're right. We're a little bit light, as you say with growth. The beginning of the year, I think we expected our EMS growth maybe 3%, 4%. We're coming in double-digits. That's driving a lot of that expansion in working capital. Expansion in dollar is what you're going to get with revenue growth. Beyond that, this tight components market has really created a mismatch, if you will, of raw material right in our factories, which goes Mark's point about the inefficiencies in the plants.

So, as we move through '19, we expect -- I can't give you a specific date -- but we do expect that materials market to correct somewhat. With that, we should start to see the cashflows or those inefficiencies dissipate, if you will. Think of that around maybe, I don't know, a couple hundred million bucks, something of that type of nature, which we should see come into Fiscal 19. As I said in my prepared remarks, we still feel pretty comfortable that over the three-year fiscal period, '17 through '19, we can deliver in our commitment at $3.5 billion.

So, it's really about that market correction. We're always striving to be more efficient in terms of working capital. This is a working capital business. I think we're in good shape and we should be able to hit those targets.

Steven Fox -- Cross Research -- Managing Director

Great. Thank you for all your help over the years. Mark, I'm just curious -- as you think about the 20% to 25% growth you're getting out of like packaging and healthcare, how does the breakdown of that business change from like last year to this year to the following year. Is there anything you can highlight in terms of applications or markets that strive to growth differently as we think about it year to year?

Mark Mondello -- Chief Executive Officer

Specifically to healthcare and packaging?

Steven Fox -- Cross Research -- Managing Director

Yeah. You've got 20% to 25% growth, but I'm wondering if there's any differences in what the drivers are between this year and next year.

Mark Mondello -- Chief Executive Officer

No, I think they're consistent. It's just the fact that we're kind of playing deeper in both markets. I would say both markets are distinctly different, but where their common is in their disruption in both markets. I think -- I said a little bit of this to Steve on my prepared remarks if I can take packaging first -- our team does a wonderful job with materials science molding and you add that to our ability to final assembly, embedded electronics.

So, for a lot of the consumer product brands, having one-stop shopping to come to us and help them holistically with kind of where technology is going. If you think about apps around packaging, you think about apps around product, apps around retail, it's a pretty good solution set that we have to offer.

In terms of healthcare, there's just channel disruption going around through the healthcare space and that's leaning right into a sweet spot for us as well. So, right now, I don't think the 20% to 25% continues into perpetuity but boy, the momentum is quite good.

If I could just index off of that comment for a minute, Steve, on the cashflows -- as Forbes was answering your question, one thought popped into my head -- the overall cashflows for the business, if you look at the EBITDA for the business, it's really strong. The cashflow from ops were bringing that down a bit just because we're making a fundamentally smart decision to go grab this growth while it's there because we think this growth for the next three, four, five years is a really good foundation for us.

So, again, simply working capital expansion is absorbing the cash, but here's something pretty cool. The team has been very disciplined on the fixed asset side. Our CapEx number hasn't moved at all and we think we'll probably end this fiscal year with return on invested capital somewhere on the 17%-18% range and we think that if we can continue our disciplines, we think the ROIC next year will be in that range, if not higher.

Steven Fox -- Cross Research -- Managing Director

Great. Thanks again for all the help, Forbes. I appreciate the feedback there. Thanks.

Operator

Your next question comes from the line of Paul Coster with J.P. Morgan. Your line is open.

Paul Coster -- J.P. Morgan -- Analyst

Thank you for taking my questions. You've got two programs in start-up. Are you in a position to share with us what impact that has on margins? Are they a margin drag?

Mark Mondello -- Chief Executive Officer

Are they a margin drag? Not really, maybe. What I mean by that is with the scale the company is, Paul, are they a margin drag? I would say that they're an absorber of OpEx at the moment. So, I guess to that extent, yes. Is it material? Not so much, but we think that on the two new program wins I alluded to, that the inflection point where that goes through from OpEx absorption to plateau to generating income will be around midpoint of Fiscal Year 19.

Paul Coster -- J.P. Morgan -- Analyst

Thank you. If you don't mind, I'm going to go down the supply chain rabbit hold again. It sounds like from Forbes' answer that this is something that's not under your control. It's the industry that will resolve the issue. Yet, it spans many components and materials I would imagine. I'm just wondering what it is you see that makes you comfortable that by mid-Fiscal Year 19 the problem will have dissipated.

Mark Mondello -- Chief Executive Officer

I don't know the problem will dissipate completely by mid-calendar '19. We think we'll start to see pockets of it that will soften and get to a more normalized base. Most of that information comes from if you think about Jabil, we support 300+ of the coolest, greatest brands on the planet and we get to see what they're all doing and work with them on their product roadmaps. So, it gives us a pretty good bird's eye view of the new 12-18 months.

Number two is we just got great relationships with the suppliers and the distributors. Our material supply chain folks are out in the market every day. So, we get a pretty good read on that. Again, we don't have any type of crystal ball, but our data would suggest that things will start getting better in about a year's time frame, maybe a little less.

Paul Coster -- J.P. Morgan -- Analyst

Okay. Great. Thank you very much.

Mark Mondello -- Chief Executive Officer

Thanks, Paul.

Operator

Your next question comes from the line of Chaim Siegel with Elazar Advisors. Your line is open.

Chaim Siegel -- Elazar Advisors -- Analyst

Hi, guys. Congratulations and Forbes, good luck on your next step in life. Just a quick question on sequential growth. The guide for August I think implies slower than your normal seasonality, but looking at the momentum and your different businesses, I would assume that you'd at least have normal seasonality. I'm just wondering what's that or if it's just a little conservatism.

Mark Mondello -- Chief Executive Officer

I think that if you look at it on the surface and you look at seasonality and you look at sequential Q3/Q4 of '17, so Q3 '17 to Q4 17, and on the surface, you look at Q3 of '18 to Q4 of '18, it appears that it's a bit softer. The reality is we had a really strong Q3 of '18. I'd look at it more of a year on year basis. I think sequentially is a little distorted because we had such a strong Q3 this year on a top line. So, again, I can understand the kind of illustration where it looks like things are a little softer. In reality, I think the guide is quite strong A, based on the business and B, if you look at it year on year, Q4 of '17 to Q4 of '18.

Chaim Siegel -- Elazar Advisors -- Analyst

I agree. It's a strong guide. One thing I notice is the two-year trend, if you take this year plus last year, it's only been accelerated, which speaks to your momentum comments. So, it looks a little conservative, but we'll give you it.

Mark Mondello -- Chief Executive Officer

I'm not sure if it is, but if it is, we'll take that as well.

Chaim Siegel -- Elazar Advisors -- Analyst

Alright. Congratulations.

Mark Mondello -- Chief Executive Officer

Thank you.

Operator

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

Irvin Liu -- RBC Capital Markets -- Analyst

Hi, this is Irvin Liu dialing in for Amit. Mark, you mentioned half of your growth in EMS was driven by new customer engagements. Were there any changes to either your sales strategy or capabilities that enabled this acceleration in new customer platform wins?

Mark Mondello -- Chief Executive Officer

Just to qualify what you said, last year in EMS, we did about $11 billion. We thought that would grow at 3% or 4%. So, call it $400 million or $500 million is what we had planned for in September and October and the reality of it is, EMS is going to add about $1 billion. So, the delta, from what we had planned, call it round numbers $500 million. I think it's due to A, there's some wind in our sails a bit because the economy is OK. But the other part of it is our approach. I think our sector strategy, I think the fact that our leaders in EMS went out three or four years ago and really hired what we refer to as deep domain experts in each of the different sectors. So, we have that business broken up into very manageable chunks.

The $12 billion in EMS today is broken up in probably a dozen different business units, all of pretty sufficient scale. Then we're bringing independent solutions in terms of aggregating various technologies to each of those market segments. So far, it seems to be working quite well, so that's kind of what we're up to.

Irvin Liu -- RBC Capital Markets -- Analyst

Got it. Along the same industry tailwind on tangent, can you share with us your thoughts on the sustainability of the positive momentum of the broader technology industry?

Mark Mondello -- Chief Executive Officer

I'm not sure I'm rated to really do that. I think that again, we get around. We talk to everybody. We spend a lot of time with our customers. We spend a lot of time with private equity guys. We spend a lot of time with the banks. It's hard to argue that again, there's a little bit of wind in our sales.

I don't think the economy overall is as frothy as some think and I'm not so sure the economy is linked directly to the frothiness of the stock market, but when you're in this business a long, long time, it feels better operating today than when we got the stiff winds blowing in our face and we've been through those cycles many times as well. We'll take it while we have it. Here's the good news about a company like Jabil.

When we get a little wind on our back, it's really good and we enjoy it and we work really hard and capture the growth. The flip side of that is I wouldn't work anywhere else when the winds are blowing in our face because one thing we know how to do with a low margin business is we know how to execute and we know how to watch the pennies. We'll take the good times while we have it, but we're also very conservative and don't want to get too happy with the current situation. All in all, I'm really pleased with the outlook for '18 and we've got a pretty strong outlook for '19.

Irvin Liu -- RBC Capital Markets -- Analyst

Thanks. That's all I had. Congratulations, Forbes.

Forbes Alexander -- Chief Financial Officer

Thank you.

Operator

This concludes our question and answer session today. I'll now turn the call over to Miss Beth Walters.

Beth Walters -- Senior Vice President of Communications and Investor Relations

Great. Thank you very much. Thank you to everyone for joining us today. We will look forward to meeting and talking to you further to answer any follow-on questions you have about the quarter, about the guidance, or about the company. Thank you.

Duration: 54 minutes

Call participants:

Beth Walters -- Senior Vice President of Communications and Investor Relations 

Mark Mondello -- Chief Executive Officer

Forbes Alexander -- Chief Financial Officer

Ruplu Bhattacharya -- Bank of America Merrill Lynch -- Analyst

Matt Sheerin -- Stifel Nicolaus -- Managing Director

Sean Hannan -- Needham & Company -- Managing Director

Sherri Scribner -- Deutsche Bank -- Analyst

Steve Milunovich -- UBS -- Managing Director

Jim Suva -- Citigroup -- Managing Director

Steven Fox -- Cross Research -- Managing Director

Paul Coster -- J.P. Morgan -- Analyst

Chaim Siegel -- Elazar Advisors -- Analyst

Irvin Liu -- RBC Capital Markets -- Analyst

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