Jabil Inc. (JBL) Earnings

Management highlights

- Overall Company Performance * Q3 FY26 total revenue hit $8.8 billion, up 12% year-over-year and $250 million above the midpoint of prior guidance. * GAAP operating income was $445 million (5.1% of revenue); core operating income was $504 million (5.8% core operating margin). Core diluted EPS was $3.16, up 24% year-over-year. * Adjusted free cash flow for Q3 was $359 million, driven by strong profitability and working capital discipline. Full-year adjusted free cash flow guidance was raised to over $1.4 billion from the prior target of over $1.3 billion. * The balance sheet remains strong, with $1.4 billion in cash and a debt-to-EBITDA ratio of 1.3x, and management remains committed to maintaining an investment-grade credit profile. * $291 million in shares were repurchased in Q3 under the existing $1 billion authorization, which management expects to fully complete in Q4 FY26. - Strategic Model * Management maintains that its diversified end-market model delivers sustainable long-term financial performance, provides natural hedging across economic cycles, and enables cross-segment synergies in supply chain purchasing and engineering. - AI-Related Business Updates * Full-year FY26 AI-related revenue guidance was raised to $13.6 billion, $500 million above the prior March outlook, and up 51% year-over-year from $9 billion in FY25. * Jabil secured a new win with its third hyperscale AI customer in Q3, with an expected ramp profile matching the company's second hyperscaler: starting with a single core capability, expanding across the data center as the relationship deepens. * The AI business follows an asset-light model, with planned capital expenditures holding between 1.5% to 2% of revenue; capacity expansion is tightly aligned to visible customer demand, and the model avoids product ownership and IP risk associated with OEM-style business models. * Jabil announced a strategic alliance initiative with Adani Enterprises to build a scaled AI data center infrastructure manufacturing platform in India, targeting multi-gigawatt capacity for next-generation liquid-cooled AI racks, servers, storage, networking, and supporting infrastructure. Meaningful revenue contributions are not expected before FY28, as definitive partnership terms are still being finalized. - End Market Updates * Regulated Industries: Full-year FY26 automotive revenue guidance was raised to $4.4 billion from $4.2 billion, driven by stronger Chinese export demand, industry consolidation, and growth in powertrain-agnostic platforms, though management remains cautious on overall automotive demand volatility. Renewables demand is improving, supported by safe harbor projects, power demand tied to AI data centers, and a shift toward commercial projects. Healthcare retains a strong long-term outlook with attractive margins and untapped outsourcing opportunity, particularly in drug delivery and medical devices. * Connected Living and Digital Commerce: Full-year FY26 connected living revenue guidance was raised by $300 million to $2.7 billion, and digital commerce guidance was raised by $100 million to $2.7 billion. Digital commerce remains a higher-margin end market with strong growth opportunities in automation, robotics, and warehouse/retail technology.

Guidance

- Fourth Quarter FY26 * Regulated Industries: Expected revenue of ~$3.3 billion, up 6% year-over-year * Intelligent Infrastructure: Expected revenue of ~$4.9 billion, up 32% year-over-year, a meaningful sequential increase driven by AI program strength and customer ramp timing * Connected Living and Digital Commerce: Expected revenue of ~$1.4 billion, flat year-over-year * Enterprise-level: Total revenue expected in the range of $9.2 billion to $10 billion (16% year-over-year growth at the midpoint); core operating income expected between $589 million to $649 million (6.4% core operating margin at the midpoint); core diluted EPS expected between $3.80 to $4.20 - Full Fiscal Year 2026 * Total revenue guidance raised to ~$35 billion from the prior guidance of $34 billion, representing ~17% year-over-year growth * Core operating margin guidance raised 10 basis points to ~5.8% * Core diluted EPS guidance set at ~$12.70 * Adjusted free cash flow guidance raised to more than $1.4 billion from the prior target of more than $1.3 billion - Fiscal Year 2027 Preliminary Outlook * Management expects AI-related revenue growth in percentage terms to match the 50% year-over-year growth rate achieved in FY26, which would mean substantial absolute dollar growth off the much larger FY26 base * Management expects core operating margin will expand above 6% in FY27, driven by improving end-market mix, operating leverage from higher capacity utilization, and accretion from higher-margin acquisitions like Hanley * Full formal FY27 guidance will be provided at the annual virtual investor briefing in September 2026

Segment performance

1. Regulated Industries: Q3 FY26 revenue was $3.2 billion, up 4% year-over-year, representing 36.4% of total company revenue. Core operating margin for the segment was 5.6%, up 10 basis points year-over-year. Upside relative to guidance was driven by stronger-than-expected demand in automotive and transportation. 2. Intelligent Infrastructure: Q3 FY26 revenue was $4.2 billion, up 21% year-over-year, representing 47.7% of total company revenue. Core operating margin for the segment was 6.1%, up 80 basis points year-over-year. Growth was broad-based across capital equipment, cloud and data center infrastructure (both double-digit growth), and networking and communications (up over 50% supported by a strong ramp in India). 3. Connected Living and Digital Commerce: Q3 FY26 revenue was $1.4 billion, up 5% year-over-year, representing 15.9% of total company revenue. Core operating margin for the segment was 4.9%. Upside relative to guidance was driven by better-than-expected consumer-related demand in connected living, against more cautious prior assumptions.

Risks & headwinds

- Automotive end market continues to experience ongoing demand volatility, despite recent stronger-than-expected performance - Component and part supply constraints exist for high-demand inputs including high bandwidth memory and high-density interconnect PCBs, with extended lead times for these components - Capacity ramps for new AI facilities are phased, not instantaneous, leading to temporary ramp-related inefficiencies that pressure near-term margins before full utilization is achieved - The Adani India AI infrastructure alliance is still in early stages, with no definitive partnership or capital framework finalized, so the opportunity will not contribute meaningfully to results until at least FY28 - Inventory levels are currently above the company's targeted 55-60 day range (net of customer deposits, inventory days are 68), driven by timing of customer shipments in the Intelligent Infrastructure segment, though management expects this to normalize in Q4

Analyst Q&A

• Q: What competitive advantages allow Jabil to continue growing AI revenue at a strong pace even with a larger base, and what is the potential scale of the new Adani India alliance? /

  A: Jabil’s competitive strength comes from its end-to-end fully integrated AI system capability across compute, storage, networking, power, and advanced cooling. The company typically enters new customer relationships with one capability and expands over time, a strategy that worked for its second hyperscaler and is being repeated for the newly won third. Jabil is seeing strong broad-based growth across capital equipment test gear, cloud infrastructure, and networking, particularly in India. While no definitive deal structure is finalized for the Adani alliance, the multi-gigawatt manufacturing opportunity is very significant, with meaningful contributions not expected before FY28.

• Q: Does Jabil have enough manufacturing capacity to support projected FY27 AI growth, and what will the impact be on capital expenditures and free cash flow? /

  A: Management is confident existing and planned capacity expansion can support the projected AI growth. The company is adding 10% incremental global footprint through new locations and expansions. Capital expenditures are still expected to remain within the 1.5% to 2% of revenue range even with this expansion.

• Q: What is the initial size and starting capability for the newly won third hyperscale AI customer, and how much of the recent Q4 Intelligent Infrastructure upside comes from this win? /

  A: Of the $500 million total upside to the FY26 Intelligent Infrastructure guide, only a portion comes from the third hyperscaler, with the rest spread across broad-based demand across the segment. The third hyperscaler win is expected to contribute a couple hundred million dollars in revenue in FY27, with rapid expansion to $1 billion and beyond in FY28, matching the ramp pattern of Jabil’s prior hyperscale customer wins.

• Q: Why is the FY27 core margin target above 6% lower than the expected 6.4% Q4 FY26 margin, and what is the capital structure for the Adani alliance? /

  A: Q4 is seasonally Jabil’s highest margin quarter, a pattern that has held for several years. Early capacity ramp costs for new AI facilities will create modest near-term margin pressure, but management still expects full-year FY27 margins to land above 6% and continue improving over time. No definitive capital structure for the Adani alliance has been set, but Jabil’s existing asset-light manufacturing model keeps CapEx low, and management expects the opportunity to fit within its historical 1.5% to 2% CapEx range while avoiding IP ownership risk.

• Q: When will the North Carolina AI facility start generating revenue, and what is the outlook for additional capacity expansion at that site? /

  A: The North Carolina facility remains on track to be fully ramped by January 2027, with gradual ramps through Q1 FY27. Long-term potential run rates are expected to hit $1 billion, $2 billion, and $3 billion after one, two, and three years respectively. While Jabil holds a right of first refusal for adjacent land, it is currently prioritizing readily available existing capacity to speed up expansion rather than starting new 12-18 month construction projects, with no other changes to the original plan.