Jabil plunges on 1Q report, downgrades

Jabil Circuit (NYSE: JBL) fell 26 percent Wednesday as analysts downgrade the company following its disappointing first quarter report and outlook for the second quarter.

Shares were down 7.19 to 20.63.

The company reported sluggish first quarter earnings, and said results were negatively affected by component supply constraints slowing in its PC related business, as well as expected start up expenses related to expansions.

The company also said a third of its customers are reducing second quarter orders in an attempt to work down inventory levels. It warned that earnings for the upcoming quarter will be 20 cents a share, down from the 28 cents a share previously expected, on 3 percent sequential revenue growth. Jabil also said it expects to earn $1.02 for 2001, which implies an average of 29 cents a share per quarter in the second half.

Montgomery Securities analyst Paul G. Fox maintained his "strong buy," but cut his estimates to reflect a slightly less optimistic forecast for the second half. He also trimmed his price target to $40 from $75.

Fox reduced expectations for the second quarter and 2001, in line with management's guidance; fiscal 2001 earnings are now expected to be 92 cents a share, down from $1.15 a share, and fiscal 2002 earnings are expected to be $1.25a share, down from $1.52 a share. His revenue estimates for 2001 and 2002 went from $5.3 billion to $4.8 billion and $7.2 billion to $6.3 billion, respectively. "Although management's FY 2001 guidance is higher, we are conservatively assuming a slower (second half) recovery," he said.

"We believe the company made the mistakes of chasing too much personal computer, consumer and automotive growth in seeking a repeat of 1999 and 2000 above trend line growth as well as not being acquisitive enough... during an industry land grab," the analyst said in a research note.

SG Cowen Securities analyst David Foropoulos downgraded the stock to "hold" from "buy" and lowered second quarter expectations to reflect inventory adjustment.

The analyst also noted that customer concentration makes the company's outlook risky; Jabil's top 4 customers accounted for 60 percent of fiscal 2000 sales.

"We believe this lack of customer diversification provided the backdrop for the company's downward earnings revision last night, as (Jabil) indicated that inventory adjustment initiatives (in the sales channel) at some of its OEM customers would negatively impact F01 operating results," Foropoulos stated in a research note.

The analyst added that he believes this is only a "short-term hiccup, and operating results should rebound once end market demand stabilizes and the inventory bubble is depleted."

Goldman Sachs also downgraded the stock to "market outperformer" Wednesday and Raymond James Financial Inc downgraded it to ``buy'' from ``strong buy.''