What happened
Shares of contract electronics manufacturer Jabil (JBL 0.41%) popped in morning trading Tuesday, rising 3.2% through 10:55 a.m. ET after the company beat earnings in its fiscal Q4 and full-year 2022 earnings report.
Heading into earnings, analysts had forecast Jabil would earn only $2.14 per share in "core" earnings for the quarter on sales of less than $8.4 billion. Jabil beat those numbers with a stick, however, reporting a $2.34-per-share core profit on sales of more than $9 billion.
So what
Sales grew 22% year over year for the quarter at Jabil, with the greatest growth seen in contract electronics manufacturing (32% growth) versus "diversified" manufacturing, which grew revenues only 13%. Profits according to generally accepted accounting principles (GAAP) were a bit below "core" profits, but at $2.25 for the quarter, they were still nearly double what the company earned a year ago.
For the full year, Jabil posted 14% sales growth (to $33.5 billion) and 51% growth in per-share profits (to $6.90). Helping to boost per-share profits was a 5% reduction in Jabil's share count, which concentrated the company's total profits among fewer shares outstanding -- a very shareholder-friendly development. These were great numbers, and the fact that Q4's numbers were even better suggests that Jabil's business is only getting better as time goes on.
On the minus side, while sales and GAAP profits surged at Jabil, the company's free cash flow actually contracted a bit year over year. Jabil ended up generating positive FCF of $266 million -- down 3% year over year.
Now what
Speaking of time's march, Jabil expects to keep on growing sales in fiscal Q1 2023, currently underway. Management forecasts sales of between $9 billion and $9.6 billion in fiscal Q1 -- so at least as good as fiscal Q4 2022, and potentially as much as 7% better. However, as foreshadowed by the weaker-than-earnings FCF performance last year, Jabil's GAAP earnings appear to be starting to lag.
For Q1, management sees core earnings ranging from $2 to $2.40 per share -- which at the midpoint suggests as much as a 6% sequential decline from Q4, despite continued sales growth. The sequential decline in GAAP earnings could be even more severe. Jabil sees GAAP profits ranging from $1.65 to $2.05. Taken at the midpoint ($1.85 per share), that implies a steep 18% sequential decline in profits.
Granted, at a P/E ratio of less than 10, investors may have already priced this expectation into the shares. Anyone who was expecting Jabil's profits to keep growing as fast as its sales, however, could be in for a rude surprise.
