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Jabil (JBL) is roughly flat despite lowering guidance for Q2 (Feb). In fairness, the reduction seems to be entirely related to Jabil being able to divest its Mobility business sooner than expected. The Q2 guidance provided on December 14 assumed a January 31 close date for the mobility divestiture. However, the deal has now officially closed and hence the lowered guidance. So it looks entirely to be a timing issue, not an operational or demand issue, so not a big deal.

• Circling back to the divestiture details. This was a pretty big sale. Jabil sold its Mobility business to BYD Electronic in a cash transaction valued at $2.2 bln. The deal was previously announced on September 26. Jabil says the earlier close and receipt of funds will enable it to begin initiating plans to reduce stranded costs and begin executing a series of accelerated buybacks throughout FY24.
• As a result, Jabil expects to fully utilize its current $2.5 bln dollar repurchase authorization this fiscal year. The sale also gives Jabil confidence that it will be able to offset lower income in Q2 and deliver core earnings for FY24 in excess of $9.00 per share.
• The deal also makes sense from a strategic standpoint. Its Mobility business focuses on making consumer electronics. This deal will lower Jabil's exposure to the boom-bust and highly competitive consumer electronics market. Consumer has been a weak area for Jabil with discretionary spend lower. It makes sense for them to focus on higher growth areas, like EVs, autonomous driving, AI, cloud, renewable energy and healthcare.
• Jabil's business has been decent but not great. The company had to lower FY24 guidance in late November based on a broad slowdown of demand across multiple end-markets. Customers have been adjusting demand schedules as they react to a slowdown heading into the end of the calendar year. Although Jabil feels this slowdown will be temporary, it felt a guide down was appropriate.

Jabil still expects growth in key areas like EVs and renewables, albeit at a modestly slower pace than previously anticipated. Its healthcare business remains robust. In cloud, Jabil is doing well in the AI data center space. It is important to note that this business moved into a consignment model last year, which makes revenue look unusually low relative to previous years. In reality, the business is growing volumes by roughly 20%. Connected Devices has seen softening for some time, and Jabil does not see this changing in the near-term. Within enterprise, communications and 5G, Jabil has said it continues to expect softness based on global roll-outs. Renewables have seen softness in solar and wind.

As you can see, Jabil's end market are probably best described as mixed right now. As such, selling off the struggling Mobility segment makes a lot of sense. People are not spending as much on discretionary items, like consumer electronics, given the macro headwinds. So this should improve results over the next few quarters and it will strengthen the balance sheet. And finally, we view today's downside guidance as non-event, more of a timing issue than anything else.