What happened
Jabil (JBL -1.81%) shareholders lost ground to a falling market on Thursday. The stock had fallen by 10% by 3 p.m. compared to a 3.4% slump in the S&P 500. The decline put the electronics manufacturing specialist back below the market so far in 2022, although its 25% drop since early January is close to the S&P's 23% drop.
Thursday's slump was sparked by an earnings update that failed to excite investors.
So what
Jabil said before the market opened that revenue improved to $8.3 billion for the fiscal third quarter of 2022, which ended in late May. That boost translated into a 26% increase, which was slightly higher than most investors were expecting.
The company was also solidly profitable despite increasing supply chain challenges. Operating income improved to $321 million from $240 million.
However, management said in a conference call with Wall Street analysts that the selling environment was weakening for several important niches. Demand growth is slowing in some cases, costs are rising across the board, and some inputs have become harder to source due to factory shutdowns across China.
Yet the company highlighted its ability to grow overall sales and profitability, thanks mainly to its diversification. "Jabil is ... markedly more resilient due to our multi-year proactive efforts to diversify our business," CFO Mike Dastoor said.
Now what
Jabil's short-term outlook was strong, and now calls for sales to reach $32.8 billion this year compared to the prior forecast of $32.6 billion. The company affirmed its profitability prediction, too, meaning that the earnings outlook was upgraded. The stock fell despite all that generally good news, likely due to the bearish mood on Wall Street.
Sure, Jabil would see slowing growth and reduced profitability in an economic pullback. But there's no evidence yet of such a slump hurting sales. And the company's inventory risk is minimal as it generally waits until payment occurs before producing its products.
These factors might make Jabil an attractive stock for investors to consider. It could be some time before growth stocks are back in favor. But Jabil's solid earnings profile and diverse manufacturing platform could protect it from the big profit declines that Wall Street is fearing right now.
