Jabil Inc. (NASDQ: JBL) reported second-quarter financial results before the market open on Wednesday. The transcript from the company’s second-quarter earnings call has been provided below.
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Operator
Greetings. Welcome to Jabil’s second quarter fiscal 2026 earning conference call. At this time, all participants will be in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star zero from your telephone keypad. Please note this conference is being recorded. I’ll now turn the conference over to Adam Berry, Senior Vice President, Investor Relations and Corporate Affairs. Thank you Adam. You may now begin.
Adam Berry (Senior Vice President, Investor Relations and Corporate Affairs)
Hello and welcome to Jabil’s second quarter fiscal 2026 earnings conference call. Joining me on today’s call are Chief Executive Officer Mike Dasher and Chief Financial Officer Greg Herbert. Please note that today’s presentation is being live streamed and during our prepared remarks we will be referencing slides. To view these slides, please visit the Investor relations section of Jabil.com after today’s presentation concludes, a complete recording will be available on our website for playback. In addition, we will be making forward looking statements during this presentation, including, among other things, those regarding the anticipated outlook for our business, such as Our currently expected third quarter and full fiscal year 2026 net revenue and earnings. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties is identified in our annual report on Form 10K for the fiscal year ended August 31, 2025 and other filings with the SEC. Jabil disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. With that, I’d now like to hand the call over to Greg.
Greg Hebard (Chief Financial Officer)
Thank you Adam Good morning everyone and thank you for joining our call today. Our second quarter exceeded expectations on both revenue and core operating margin, driving another step up in core EPS. And while intelligent infrastructure continues to be the primary driver of growth, we were encouraged to see solid performance across other areas of the portfolio as well. In regulated industries, revenue came in about 200 million above our Q2 guide, driven mainly by automotive, with renewables also performing better than expected. In intelligent infrastructure, we were up nearly $300 million above our Q2 guide, driven mainly by cloud and data center infrastructure and networking and communications, and in connected living and digital commerce. Performance was largely in line with expectations. Overall, Q2 was a strong quarter and it provides us with greater confidence in our outlook for the back half of our fiscal year. With that, let’s walk through the numbers for the quarter. Net revenue for Q2 was $8.3 billion, exceeding our outlook for the period, favorable revenue mix and ongoing cost discipline enabled us to achieve core operating income of $436 million and a core operating margin of 5.3% on a Generally Accepted Accounting Principles (GAAP) basis. Operating income was $374 million and Generally Accepted Accounting Principles (GAAP) diluted earnings per share was $2.08. Core diluted earnings per share for Q2 was $2.69, reflecting results that were above our expectations for the quarter. Now turning to performance by segment. In the quarter, regulated industries generated $3 billion in revenue, up 10% year over year and well above our outlook in December. The higher year over year revenue was driven by all three end markets. Core operating margin for the segment was 4.8%. Intelligent Infrastructure revenue was $4 billion, up 52% year over year and also ahead of expectations. Growth was broad based across capital equipment, cloud and DCI, and networking and communications. Core operating margin for the segment was 5.7%, up 40 basis points year over year, supported by favorable mix and disciplined execution. Connected Living and Digital Commerce revenue was $1.2 billion, down 8% as expected, reflecting planned program attrition and customer pruning. This was partially offset by continued growth in robotics, advanced warehouse and retail automation. Operating margin for the segment was 4.9%, up 40 basis points year over year. Turning now to cash flow and balance sheet metrics, inventory days for the quarter were 75 net of inventory deposits from customers. Inventory days were 60, consistent with our targeted range of 55 to 60 days. Cash flow from operations in Q2 was $411 million and net capital expenditures were $51 million, resulting in adjusted free cash flow of $360 million for the quarter. This keEPS us well positioned to deliver over $1.3 billion in adjusted free cash flow for the full fiscal year. Our balance sheet remains in excellent shape. We ended Q2 with $1.8 billion in cash and remain fully committed to maintaining our investment grade credit profile. During Q2 we repurchased $300 million of shares under our existing share repurchase authorization. With that, I’ll walk through our guidance for Q3 FY26. Beginning with revenue by segment, we anticipate Regulated industries revenue of $3.1 billion, reflecting some growth in renewables, steady healthcare demand and stabilizing trends in automotive and transport. For Intelligent Infrastructure we expect revenue of $4.2 billion, up 22% year over year, so supported by ongoing demand across cloud and data center infrastructure, advanced networking and communications and capital equipment, and for Connected Living and Digital Commerce we expect revenue of $1.2 billion, down 10% year over year, reflecting continued program transitions and portfolio optimization, partially offset by growth in automation, robotics and advanced retail and warehouse programs. At the enterprise level, total company revenue for Q3 is expected to be in the range of 8.1 billion to $8.9 billion. Core operating income is expected to be in the range of 452 million to $512 million. Generally Accepted Accounting Principles (GAAP) operating income is expected to be in the range of 398 million to $458 million. Core diluted earnings per share is expected to be in the range of $2.83 to $3.23. Generally Accepted Accounting Principles (GAAP) diluted earnings per share is expected to be in the range of $2.36 to $2.76. We expect third quarter net interest expense to be approximately $73 million and full year interest expense to be approximately $280 million. Our core tax rate for Q3 and the full year remained at 21%. Let me close by saying Q2 delivered strong results and we are entering Q3 with solid momentum. Our performance this quarter demonstrates the strength of our diversified portfolio and disciplined execution. As we move through the year, our priorities remain consistent. We remain focused on margin expansion, capital efficiency and sustained cash generation. With that, I will turn the call over to Mike, who will share more on fiscal 2026 in our updated guidance.
Mike Dastoor (Chief Executive Officer)
Thanks Greg and good morning everyone. Before I get in the quarter, I want to recognize and thank our teams around the world for the focus and execution they continue to show. Jabil’s strong performance in the first half has required a great deal of coordination across customers sites and the supply chain, and I’m sincerely grateful for what the Jabil team continues to do every day. As Greg outlined, the second quarter came in stronger than we had anticipated in December with revenue approximately $500 million above the midpoint of our guidance, which also drove better than expected performances in both core operating margin and core EPS. For me, what was great to see the revenue upside in the quarter was broad based as cloud and data center infrastructure, networking and communications, automotive and renewables all performed ahead of expectations when taking a closer look at the outperformance. Clearly, our Intelligent Infrastructure segment driven by the AI data center build out, continues to be our growth driver in the near term, while the outperformance in areas where we’ve recently seen headwinds such as automotive and transportation and renewables and energy infrastructure suggests to me that those markets have bottomed and are now slowly recovering. And just as importantly, our teams across the organization did an outstanding job by delivering for our customers and converting the stronger demand into higher than expected margins and strong core EPS growth and high free cash flow generation. In summary, Q2 was a strong quarter and is yet another example of our strategy in action. The diversifying model continues to matter and the momentum we’re seeing gives us confidence as we move through the balance of the year. Let me now walk through our updated outlook for fiscal 2026 by segment starting with Intelligent Infrastructure. We now believe our intelligent Infrastructure segment will be approximately $16.5 billion, an increase of $1.1 billion over our previous expectations and 34% growth over fiscal 2025, driven by incremental growth in all three of our end markets. In that segment, we now believe our cloud and DSN infrastructure end market will be $10.4 billion, up approximately $600 million for the year relative to our forecast from 90 days ago, driven primarily by 2 factors. As a reminder, in September we we discuss our intention to retrofit our US based facility on the east coast to support liquid cooled racks, which gives us the flexibility to support both liquid and air cooled configurations. I’m proud to say that those modifications are largely behind us, which means we now have incremental capacity available a bit ahead of schedule and all of this comes at a good time for us as demand continues to outstrip supply for the integration of highly complex racks and servers. And secondly, also within cloud and DCI we’re seeing strong execution regarding the ramp with our second hyperscale customer in Mexico, which is also contributing meaningfully to the stronger outlook along with continued strength in data center power in Memphis. Also, our Hanley acquisition integration is going very well and according to plan. Next, in networking and communications, we now anticipate revenue will be approximately $400 million higher for the year, coming in at $3.1 billion, reflecting stronger demand and exceptional execution across our advanced AI networking programs in India. This momentum is fueled by customers investing in greater high speed interconnect capacity to keep pace with rapidly expanding AI workloads. It’s also worth noting that our outlook for 5G spending is showing signs of recovery in capital equipment. We’re seeing positive momentum in this segment as well, with their outlook for the year now expected to be $100 million higher for the year, coming in at $3 billion. This reflects a combination of strong demand and execution in automated test equipment and more encouraging signs in wafer fab equipment where the demand environment is improving beyond our earlier assumptions. Building on the strong results and positive momentum across the segment, we are further increasing our fiscal 2026 AI related revenue outlook by approximately $1 billion compared to December, bringing the total to roughly $13.1 billion. This now represents a strong increase of 4.46% year over year. I’m really proud of our Intelligent Infrastructure team and their ability to stay ahead of the curve and diversify across data center stack with multiple products, customers and capabilities, which I believe is a key factor in our strong results and outlook for fiscal 2026. Simply put, our approach is delivering real value and is a key differentiator for Jabil. Our holistic strategy here centers and capabilities our customers need versus a product focus. We now have the capability to design and deliver integrated systems at the system level, combining compute, networking, power distribution and advanced cooling all aligned to our customer specific requirements. The theme of integration of capabilities accelerates deployment times and reduces total costs for our customers while leveraging our position as a US Domicile manufacturer, which is exactly what customers want. As demand for AI capacity continues to expand and global uncertainty continues to grow. Moving to regulated industries, we’re seeing some momentum behind the bounce off the bottom for the end markets we play in. For fiscal 2026 we are increasing our regulated outlook by approximately $500 million versus that December view to $12.5 billion in automotive and transport. Our strategy to focus on powertrain agnostic capabilities is working as we continue to win programs on ICE platforms. On a positive note and as I mentioned previously, we’re also beginning to see momentum for EVs mainly outside the US. We are encouraged by what we are seeing, but we are going to stay extremely disciplined in both our outlook and investments regarding EVs in healthcare and packaging. Our business remains both solid and aligned with our expectations for growth as we move in the back half of the fiscal year supported by continued strength in drug delivery platforms including GLP1 and continuous glucose monitors, as well as ongoing demand across diagnostics and minimally invaded technologies. In terms of pipeline for healthcare, our outlook remains solid for this end market with good visibility into program ramps across drug delivery, chronic disease management and other regulated devices. In fiscal 2026 and beyond. We are also seeing improving conditions in renewables recently relative to what we assumed earlier in the year. Again, we’ll stay measured here, but it’s worth highlighting that the mix of solar business has shifted to accommodate both residential and commercial installations, which we believe will create a more sustainable level moving ahead and finally in connected living and digital commerce. Our full year outlook here is largely in line with what we laid out in December, but the story within the segment continues to move in the right direction. While connected living remains more stable. Digital commerce continues to grow driven by broad based trend in automation, robotics and advanced retail and warehouse programs. I believe robotics and physical Artificial Intelligence (AI) represent meaningful long term growth opportunities for Jabil and should become increasingly important contributors to the segment’s performance over the next several years. Given the strength of Q2 and the strong outlook for the back half of the year, we’re increasing a full year outlook for Revenue and Core EPS. For fiscal 2026, we now expect revenues of approximately $34 billion, an increase of approximately $1.6 billion from a prior outlook of $32.4 billion. We’re also raising our full year diluted earnings per share outlook to $12.25, up from $11.55 for the full year. We continue to expect core operating margins of approximately 5.7% and importantly, we still expect adjusted free cash flow of more than $1.3 billion. Even with the higher revenue outlook and the working capital that naturally comes with that growth, we expect to maintain strong cash generation and stay disciplined on capital efficiency as we move ahead. The focus from here does not change for us profitable growth, disciplined mix, margin expansion and strong cash generation. That focus continues to create momentum across the business and allows us to navigate changing market conditions while steadily building long term earnings power. Additionally, as part of our ongoing commitment delivering value to shareholders, we remain focused on on returning capital through share repurchases and other prudent capital allocation strategies. This approach not only reinforces the high level of confidence in our business, but also demonstrates our dedication to enhancing shareholder returns over the long term. Before closing, I want to again thank our teams, customers and suppliers for their commitment and partnership. The consistency …