Jabil Circuit Sinking On Weak Outlook

As I noted last night, Jabil Circuit (JBL) reported revenue for its fiscal first quarter ended November 30 that were in line, but provided disappointing guidance for the fiscal second quarter. As it turns out, the contract electronics manufacturer had a lot more to say on its post-report conference call with analysts, and most of it the Street found discouraging.

Here are some of the key points from the conference call:

• Demand from the consumer products customers was “somewhat lower than expectations as end-market demand was somewhat softer than initial expectations.”
• Demand was also lighter than expected in its instrumentation and medical segment, in particular for “certain transaction processing and tax automation product categories.”
• Telecommunications sector demand was off 23% sequentially, but in line with expectations, as “short-term demand reduction for an existing customer rebounded earlier than we’d expected.”
• The company expects a 10%-14% sequential drop in revenue in the fiscal second quarter due to “seasonally lower sales in our consumer sector along with a more muted view of overall end market growth.”
• Consumer in particular is expected to be off 33%, “reflecting normal seasonal patterns and higher than desired inventory levels for certain products.”
• CEO Tim Main, asked about the current holiday selling season, said that “recent results in Circuit City and others are indicating that this Chirstmas season is going to be relatively soft the previous few years.”

The analysts were not pleased.

Michael Walker, with Credit Suisse, dropped his rating to Neutral from Outperform, and suggested that the company “managed to report one of its ugliest quarters in memory.” He cited inventory reductions and weaker demand in consumer, computing and telecom, and the cancellation of an unspecified product developed for a customer which the company canceled. Margins, he added, are running “well below previous expectations.” Says Walker: “It seems clear that the options investigation is distracting management, and we suspect some of JBL’s challenges have become structural.” He cut his price target on the stock to $24 from $33.

Brian White, of Jefferies & Co., cut his rating to Hold from Buy. “Although we believe Jabil will be a long-term winner in the EMS industry, the combination of slowing end markets, a plethora of execution issues and a major acquisition [Taiwan Green Point] could make for near-term challenges in our view,” he wrote in a research note. He cut his price target to $24.50 from $36.

Elsewhere:

• Andrew Huang, of Amercan Technology Research, repeated a Neutral rating on the stock, citing “lingering execution issues, compounded by new ones,” inventory problems, weakening end market demand, the pending acquisition and expected downward earnings revisions.
• Reik Read, of Robert W. Baird, repeated his Neutral rating and trimmed estimates.
• Amit Daryanani, of RBC Capital, repeated his Sector Perform rating, and dropped his target to $27 from $30.
• Bernie Mahon, of Morgan Stanley, kept his Overweight rating, but dropped his target to $35 from $38.
• Jim Suva, Citigroup, repeated a Hold rating and kept a $31 price target; he says there are no catalysts for the stock near-term.
• Richard Kugele, Needham, kept his Buy rating, but dropped his price target to $28 from $33; he still finds Jabil to be “well-positioned.”
• Louis Miscioscia, Cowen, kept his Outperform rating on the stock, but trimmed his EPS estimates; he sees the company as a turnaround story.

Jabil shares today are down $2.32 at $24.24.