Story Stocks^®

Electronic manufacturing services giant Jabil (JBL +4%) charges to its best levels since selling off to start the month of March after delivering a solid beat-and-raise in Q2 (Feb), mirroring the results of last quarter. JBL has been steadily recovering since tumbling by roughly 24% from January highs to March lows, which was prompted by fears surrounding tariffs and worsening consumer sentiment.

While investors remain on their toes regarding the potential consequences of tariffs and subsequent trade wars, JBL provided some alleviating commentary. Management reiterated that most of its business in China is local or regional, with only a minor fraction of its revenue generation in China being U.S.-bound. At the same time, JBL has limited exposure to Canada, while in Mexico, around 80-90% of its business is USMCA compliant -- tariffs are currently paused for USMCA-compliant goods. As a result, JBL raised its FY25 guidance again, reflecting confidence in circumventing material damage from tariffs. The company expects EPS of $8.95, up from $8.75, and revs of $27.9 bln, up from $27.3 bln.

• Starting last quarter, JBL changed how it broke out its lines of business, no longer splitting them into DMS and EMS. Now, JBL breaks down the performance of its three new segments: Regulated Industries (~40% of revs), Intelligent Infrastructure (~39%), and Connected Living & Digital Commerce (~19%). Only its Intelligent Infrastructure unit reported yr/yr growth, climbing by 18%, fueled by strong demand in AI-related cloud and data center infrastructure markets. Regulated Industries and Connected Living & Digital Commerce fell by 8% and 13%, respectively.
• The drop in Regulated Industries was led by ongoing weakness in renewable energy and EV markets. Others in the industry have noticed similar trends. For instance, Flex (FLEX) noted in late January that it continued to endure softer near-term trends in automotive. Sanmina (SANM) was not as explicit but registered relatively flat growth across its automotive business in DecQ. JBL mentioned that it remains cautious with its EV outlook for the year and is not witnessing much recovery in the renewable energy space outside of storage.
• In Connected Living, the drop was due to JBL's Mobility divestiture. When excluding this impact, revenue ticked 4% higher yr/yr, underpinned by healthy growth across its digital commerce and warehouse automation markets. On the flip side, consumer-driven connected living products experienced less demand.
• The end result was nearly flat yr/yr revenue growth, with JBL registering $6.73 bln, surpassing the high end of its $6.10-6.70 bln forecast. Core operating margins inched 60 bps lower yr/yr to 5.0%, primarily due to the Mobility divestiture. Adjusted EPS expanded by 15% yr/yr to $1.94, clocking in toward the high end of JBL's $1.60-2.00 prediction.

Uncertainty still abounds for JBL due to the inability to fully measure the degree of tariffs. Furthermore, the EV and renewable energy industries remain suppressed. However, the spending on AI remains elevated while warehouse automation is demonstrating sustained demand. Meanwhile, JBL reiterated its confidence in steering through tariff-related headwinds. As such, JBL looks attractive at current levels, especially stacked against its peers due to its relatively limited exposure to China, Canada, and Mexico.