Jabil (JBL +9.5%) has seen a significant rise in its stock after starting FY25 on a high note. Despite a 16.6% year-over-year revenue decline in Q1 to $6.99 billion, the results were better than analysts expected. The company also posted an EPS upside, provided in-line guidance for Q2, and raised its FY25 EPS and revenue outlook.
- In FY24, Jabil transformed significantly by selling its Mobility business for $2.2 billion. The company experienced growth in the AI datacenter sector but faced challenges in other markets. It also restructured its reporting segments, now using Regulated Industries, Intelligent Infrastructure, and Connected Living & Digital Commerce instead of DMS and EMS.
- The Regulated Industries segment, Jabil's largest, saw a 7% year-over-year revenue drop to about $3 billion due to weaknesses in Renewable Energy and EV markets. Jabil anticipates an 8% year-over-year decline in Q2 to $2.7 billion, citing continued softness in these markets. The company is working to better position itself for a solar market recovery.
- The Intelligent Infrastructure segment was the top performer, with a 5% year-over-year revenue increase to $2.5 billion, driven by strong demand in AI-related cloud data center infrastructure and capital equipment. Jabil expects this segment's revenue growth to accelerate to 8% year-over-year in Q2, supported by growth in Capital Equipment, Advanced Networking, and Cloud and Data Center Infrastructure markets.
- The Connected Living & Digital Commerce segment experienced a 46% year-over-year revenue decline to $1.5 billion, primarily due to the Mobility divestiture. Excluding this, the segment grew 12% year-over-year, driven by digital commerce and warehouse automation. Jabil expects a 20% year-over-year decline in Q2 to $1.2 billion, mainly due to the divestiture. Despite pressures, Jabil remains optimistic about its digital commerce business, driven by automation in retail and warehouse operations.
- Regarding tariffs, Jabil noted that while they may affect customer demand, tariff changes have historically been pass-through costs for the company. Most of its operations in China are local or regional, with minimal US-bound business. Jabil is also prepared for potential operational shifts from Mexico to the US, where its manufacturing footprint is at its largest.
Overall, Jabil's impressive quarter and positive outlook for its Intelligent Infrastructure segment have pleased investors. The company's comments on tariffs have also alleviated some investor concerns. The stock has been trending upward since early September and received a boost after Trump's victory last month, likely due to Jabil's favorable position compared to other EMS companies regarding China/Mexico exposure.
