Jabil Circuit Inc. (JBL - Analyst Report) reported first-quarter fiscal 2015 earnings (including share-based compensation) of 46 cents per share, which convincingly beat the Zacks Consensus Estimate of 40 cents. However, earnings per share declined significantly from 54 cents reported in the year-ago quarter.

Jabil Circuit Inc, which makes phone casings for Apple Inc. (AAPL - Analyst Report), posted a 4.8% rise in revenues, helped by strong sales of iPhone 6 and iPhone 6 plus.

Shares of Jabil surged 5.58% ($1.12) following the earnings release.

Revenues

Revenues increased 4.8% from the year-ago quarter to $4.55 billion and were slightly above the higher-end of management’s guided range of $4.2 to $4.4 billion. Revenues also beat the Zacks Consensus Estimate of $4.32 billion.

Electronics Manufacturing services revenues (58% of revenues) decreased 5% year over year to $2.63 billion. Core operating income for the segment was 2.4% of revenues.

Diversified Manufacturing Services revenues (42% of revenues) increased 21% year over year to $1.92 billion. This year-over-year surge was primarily on account of robust performance of the Green Point business.
 
Operating Details

Gross margin expanded 70 basis points (bps) on a year-over-year basis to 8.4%, primarily due to a favorable product mix.

Operating expenses as a percentage of revenues increased 110 bps on a year-over-year basis to 5.2%. Selling, general and administrative expense as a percentage of revenues increased 140 bps on a year-over-year basis. However, research and development expense as a percentage of revenues declined 10 bps from the year-ago quarter.
 

As a result, operating income (including stock-based compensation but excluding all one-time items) declined to $162.6 million from $182.7 million in the year-ago quarter.

Net income (excluding stock-based compensation and all one-time items) was $90.5 million or 46 cents per share compared with net income of $111.6 million or 54 cents per share reported in the year-ago quarter.
 

Jabil Circuit, Inc - Earnings Surprise | FindTheBest

Balance Sheet & Cash Flow

Exiting the first quarter of fiscal 2015, cash and cash equivalents were $922 million, down from $1 billion at the end of the previous quarter. Total debt remained flat sequentially at $2 billion in the first quarter of fiscal 2015.

Cash flow from operations was $189 million compared with $89 million in the previous quarter. During the first quarter, Jabil repurchased approximately 2 million shares at a total cost of approximately $40 million.

Guidance

Jabil expects net revenue to be in the range of $4.15 to $4.35 billion for the second quarter of fiscal 2015 while the Zacks Consensus Estimate for the same is pegged at $4.11 billion. On a year-over-year basis, the guidance reflects a 19% increase and reflects numerous program wins within automotive, lifestyles and wearables, mobility, health care, industrial and enterprise and infrastructure customer relationships.

Jabil projects core operating income in the range of $135 million to $165 million and core operating margin in the range of 3.3% to 3.9%.

On a year-over-year basis, revenues from Diversified Manufacturing are expected to increase 53%, while Enterprise and Infrastructure revenues are expected to increase 3%.

The company expects earnings to range between 39 cents to 50 cents per share. Currently, the Zacks Consensus Estimate is pegged at 40 cents per share.

Management forecasts fiscal 2015 revenues to range between $17.5 billion and $18.5 billion while the Zacks Consensus Estimate for the same is pegged at $17.2 billion. Earnings are expected to be in the range of $1.85 to $2.15 per share, driven by improving business trends and new bookings. The Zacks Consensus Estimate for the same is pegged at $1.51 per share.

For fiscal 2015, the company expects its revenues from the Electronics Manufacturing segment to grow 4% on a year-over-year basis. Revenues from the Diversified Manufacturing segmentare expected to increase 35% year over year.

Our Take

We believe that the disengagement from BlackBerry (BBRY - Analyst Report) will negatively impact the top line and margins over the next couple of quarters. However, Jabil’s positive guidance for 2015 will drive the stock price in the near term.

Jabil’s increasing association with Apple is expected to boost its growth prospects. Additionally, estimated strong growth from the Nypro acquisition, restructuring benefits and customer wins will help Jabil to compete with the likes of Flextronics (FLEX - Snapshot Report) in 2015 and beyond. Further, we believe that the international expansion-related activities will also drive growth, going forward.

Nonetheless, we believe that Jabil will continue to face macroeconomic headwinds, which is a major roadblock for achieving the 2015 target. Moreover, the company continues to invest in the Diversified Manufacturing segment, which will increase its capital expenditure. Asset reallocation in the segment is also expected to increase near-term uncertainty.

Currently, Jabil Circuit has a Zacks Rank #3 (Hold).