Jabil joins list of contract-manufacturer warnings

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Jabil Circuit became the latest contract-electronics manufacturer to cut its forecast for the current quarter.

After market close Tuesday, Jabil said it sees earnings, excluding special charges, of 15 to 18 cents per share, on revenue of $1 billion to $1.1 billion, for the company's fiscal third quarter ending in May. Analyst consensus had been predicting a profit of 25 cents per share on revenue of $1.25 billion for Jabil's May quarter, according to earnings tracking firm First Call.

"We wish the market were better, but we have a tight ship and we believe we will weather the current storm well," CEO Tim Main said during a conference call with analysts.

Shares of Jabil were unchanged in after-hours activity on the Island ECN, following the announcement. Jabil fell $2.29 to $18.12 in Tuesday's regular trading ahead of the news.

Jabil's new outlook comes just following an earnings caution from one of its peers, Solectron (NYSE: SLR), which on Monday told analysts to cut their near-term earnings estimates possibly by more than half. "Following Solectron...people were expecting the worst, so we were primed pretty well," said David Foropoulos, analyst with SG Cowen.

Like other providers of electronics-manufacturing services, Jabil is feeling the U.S. economic downturn and inventory corrections that have pinched orders for its customers. Jabil gets more than half of its business from communications equipment manufacturers such as Cisco Systems (Nasdaq: CSCO), which is one of Jabil's biggest customers. Cisco and other manufacturers in recent months have been warning of lower demand and a need to work through a glut of product.

Communications revenue in the third quarter will fall 24 percent from the second quarter, predicted Chris Lewis, Jabil's chief financial officer. Jabil sees an 18 percent decrease in PCs, continued growth in peripherals such as DSL (digital subscriber line) products and increased production for automotive products.

Like Solectron, Jabil plans to reduce its work force although the latter did not give a specific target. Jabil expects to record one-time charges ranging between $20 million and $25 million over the next two quarters, to pay for the job cuts.

"I think Jabil is actually doing quite well" given the market conditions, Foropoulos said. "They've been pre-emptive on getting their cost structure in line. I think their balance sheet looked really good, and in the environment they're in right now, they've been very flexible."

Jabil reported second-quarter earnings of $41.3 million, or 21 cents per share, before acquisition-related charges. That was a penny ahead of First Call consensus. Second-quarter revenue increased 44 percent year-over-year to $1.2 billion.

The company's stock price won't rebound strongly until the entire market starts to turn around, the SG Cowen analyst said.

"We definitely need stabilization or visibility before the investment community changes their thinking on the space, or on hardware stocks in general," Foropoulos said.