捷普科技 (JBL) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Jabil's third quarter fiscal year 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session.

(Operator Instructions)

Thank you, I would now like to turn today's conference over to Beth Walters, Senior Vice President of Communications and Investor Relations. Please go ahead.

Thank you, Susan. Welcome to our third quarter of 2013 earnings call. Joining me today are CEO, Mark Mondello, and Chief Financial Officer, Forbes Alexander. This call is being recorded and will be posted for audio playback on the Jabil website at Jabil.com in the Investor Relations section. Our third quarter press release, slides and Webcast link are also available on the website. In these materials you will find the financial information that we cover during this call. We ask that you follow our presentation with the slides on the website and beginning with Slide 2, our forward-looking statement.

During this conference call we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected fourth quarter of fiscal 2013 net revenue and earnings results, our long term out lock for our Company, improvements in our operational efficiencies and financial performance and our pending completion of the Nypro acquisition. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list to these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2012. On subsequent reports on Form 10-Q, Form 8-K, and our other securities filings, Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Today's call will begin with our second fiscal quarter results. Excuse me, our third fiscal quarter results and highlights and comments from Forbes Alexander, as well as guidance on our fourth fiscal quarter of 2013. Mark Mondello will follow with our macro environment comments and some Jabil specific comments about our performance. We'll then open it up for questions and calls from call attendees. I'll now turn the call over to Forbes.

Thank you, Beth. Good afternoon, everyone. I'd ask you to please refer to Slide 3. Net revenue for the third quarter was approximately $4.5 billion, an increase of 5% on a year-over-year basis. GAAP operating income was $103.7 million, or 2.3% of revenue. This compares to $156.6 million of GAAP operating income and revenues of $4.3 billion, or 3.7% for the same period in the prior year. GAAP diluted earnings per share for the quarter were $0.24. Please note that our GAAP operating results were negatively impacted during the quarter by $28 million of restructuring activities aimed at improving our structural costs and a $25 million non-cash impairment charge associated with a note receivable and the commercial interest made in 2007. Core operating income, excluding the amortization of intangibles, stock based compensation, restructuring and impairment charges was $176.9 million, representing 4% of revenue. This compares to $190.3 million, or 4.5% for the same period in the prior year. Core diluted earnings per share for the quarter was $0.56.

If you'd now turn to Slide 4 I'll discuss our segment performance. In the third quarter, our diversified manufacturing services segment declined by 4% on a year-over-year basis, driven by lower volumes in our instrumentation and clean tech sectors. These declines were partially offset by a 10% growth in specialized services. Revenue for the segment is approximately $1.8 billion, representing 40% of total company revenue. Core operating income for the segment improved on a sequential basis by 20 points and was 5.6% of revenue.

The enterprise and infrastructure segment increased 4% on a year-over-year basis. Revenue for this segment was approximately $1.4 billion, representing 31% of total company revenue. Core operating income margin was 2.3% in the quarter. We believe that this segment shall achieve 3% operating margin in our fourth fiscal quarter.

Finally, the high velocity segment increased 23% on a year-over-year basis. Revenue was $1.3 billion, representing approximately 29% of total company revenue. Core operating income for the segment was 3.4% of revenue. In summary, total revenue grew by 5% on a year-over-year basis, while core operating income was 4%.

If you'll now turn to Slide 5. We ended the quarter with cash balances of approximately $1.35 billion. At the same time reducing total debt levels by approximately $60 million. Our sales cycle improved by eight days and our core EBITDA from the nine months ended was approximately $825 million, representing 6.1% of revenue. Our year-to-date core return on invested capital was 23%. We're extremely pleased with our operating cash flow generation during the quarter of $504 million. With this performance, cash flows from operations for the nine months ended were $810 million. We are extremely well positioned to achieve $1 billion of cash flows from operations for the full fiscal year.

I'll ask you to turn to Slide 6 where I'll review our capital expenditures and update on our Nypro acquisition. Net capital expenditures in the third quarter were $80 million. Year-to-date, capital expenditures are approximately $440 million. Our outlook remains consistent with our previous guidance for fiscal 2013 with expenditures expected at $700 million. Now turn to Nypro. We are pleased to advise that we have today received all regulatory and anti-trust clearances associated with the acquisition of Nypro. Consequently, we anticipate completing the acquisition on the first of July of 2013. We look forward to welcoming Nypro's employees to Jabil.

And now I'll ask you to turn to Slide 7. On our last earnings call, we discussed the level of structural costs within the Company that is not optimal. As a result, we intend to realign our manufacturing capacity and cost base to appropriately size our manufacturing footprint with current market conditions and our customers geographic needs. We have begun consultation with employees during the third fiscal quarter and out of respect for those employees, we shall not be providing details as to specific sites or locations under consideration at this time. We do have or currently estimate that the realignment shall result in approximately $188 million of charges, including the $28 million recorded in the third fiscal quarter.

It is currently estimated approximately $60 million to $70 million will be recorded in our fourth fiscal quarter of 2013. The balances of charges shall be incurred during fiscal 2014 and 2015. Cash associated with such actions is currently estimated to be approximately $140 million. The majority of cash outflow is expected during the course of fiscal 2014. Such realignment of our manufacturing capacity is estimated to provide a range of savings of $30 million to $40 million in fiscal 2014 and an estimated $65 million in fiscal 2015. This is based upon our current estimates of timing of such actions.

I'll now ask you to turn to Slide 9 and 10 where I'll discuss our fourth quarter guidance. In the fourth quarter, we expect revenue on a year-over-year basis to increase by approximately 5% to be in the range of $4.45 billion to $4.65 billion. Core operating income is estimated to be in the range of $165 million to $185 million and core operating margin in the range of 3.7% to 4%. Our GAAP diluted earnings per share are estimated to be in the range of $0.04 to $0.12 and core diluted earnings per share estimated to be in the range of $0.50 to $0.58. This is based upon our diluted share count of approximately 209 million shares and the expected tax rate in the upcoming quarter of 21%. This range of guidance includes two months of ownership of Nypro and an assumption that Nypro shall provide a modest to neutral contribution to earnings on an operating basis in the fourth fiscal quarter. We do expect to incur transaction costs and purchase accounting adjustments of approximately $10 million associated with this transaction during the fourth fiscal quarter. This sum is excluded from our core operating guidance.

And finally, turning to guidance by our segments, the diversified manufacturing services segment is expected to be consistent on a year-over-year basis. This guidance is inclusive of all Nypro revenue estimates. The enterprise and infrastructure segment is also expected to be consistent and our high velocity segment is expected to increase by 15% on a year-over-year basis. And I'd like to hand the call over to Mark Mondello.

Thanks, Forbes. Good afternoon. I appreciate everyone taking time to join us on our call today. Before I get into the business, I'd like to offer thanks to all our people here at Jabil. Thanks for their commitment to the Company and thanks for their commitment in taking great care of our customers.

As for the business at hand, if you please reference Slide 12 in the presentation. Forbes mentioned we're planning to close our acquisition of Nypro on July 1. This closing is a combination of a lot of hard work put forth by many dedicated people. Thank you to everyone who has been involved. As I said during our Q2 call 90 days ago, the employees at Nypro are fabulous and we see great cultural alignment with Jabil. I'm truly excited that on July 1 we'll have the Nypro flag flying firmly on the bow of the Jabil ship. As we discussed previously, the possibilities brought forth by Nypro are significant.

The Nypro healthcare team offers tremendous capabilities that focus on disposables and consumables within the healthcare arena. This is a wonderful complement to Jabil's business. Our combined healthcare business is pacing at $1 billion plus and will be headquartered in Clinton, Massachusetts. The Nypro packaging team offers creative solutions across a broad range of consumer goods. This business delivers $250 million to $300 million in revenue and serves outstanding brands. We're excited to combine our capabilities and work hard to gain share within the multi-billion dollar packaging market. Our packaging business will also be headquartered in Clinton, Massachusetts. The third commercial silo within Nypro is the consumer business. This business will be consolidated under the Jabil brand and work in concert with Jabil's DMS and high velocity businesses. The combined teams will work diligently to provide innovative solutions to a range of customers in end markets such as mobility, printing, point of sale, industrial, and white goods.

Last but certainly not least, I want to recognize the tremendous capabilities within NyproMold and Radius. NyproMold is a technical leader in the design and manufacturing of complex tools and molds. In addition, their high quality, high precision machining capability is quite impressive. Radius is a world class team that specializes in creativity, product innovation, development, and design. Both of these organizations have tremendous value and we'll be able to leverage all of these across the Jabil landscape. As a side note, Beth and I discussed hosting our next Analyst meeting in Boston some time this Fall. It will be informative and fun to have you visit our Nypro headquarters as part of this agenda. I'll wrap up my comments specific to Nypro with an early welcome to our Nypro team.

I now ask that you please turn to Slide 13. During his prepared comments, Forbes provided a summary of our restructuring. To put this in perspective, we are constantly evolving our resources, our assets, and our capacity as our business grows and needs change. It's been seven years since we have formally reset our structural cost. Slide 13 shows the magnitude of change within Jabil from fiscal year 2006 until today. A tribute to the hard work and character of our team. We've added $8 billion in revenue, 100,000 employees, and 10 million square feet of manufacturing capacity. Over the next 12 to 18 months, we will optimize our foundation in anticipation of the business ahead. This is a prudent decision, tactically, strategically and financially.

Please turn to Slide 14. Please note the blue bar to the far left of the waterfall chart. This bar illustrates the $2.24 of core EPS we anticipate to deliver for fiscal year '13 based on the mid point of our Q4 guidance. Our team works tirelessly to serve our customers and take great care of their respective brands. I believe we do this well. With that said, fiscal year '13 has been a difficult year from an earnings perspective. As we exit the year, management believes that we will deliver solid earnings growth in fiscal year '14. Earnings that are consistent with comments I made during our Q2 call. In an effort to add some color and clarification I'll walk you through the waterfall chart.

During the Q2 call I talked about growing our core EPS from $2.40 in FY '12 to $2.77 in FY '14, which is in line with our before mentioned 5% to 10% EPS growth rate when compounded over a two year period. The illustration on Slide 14 assumes that $2.24 is delivered in FY '13. If we work from this FY '13 base, we believe that we'll see $0.16 to $0.22 of core earnings from our Nypro acquisition. Add to that another $0.11 to $0.15 as a result of our restructuring activities outlined by Forbes. Finally, we believe our core businesses will improve based on market share gains, new business wins, successful program launches, and reasonable improvements to end market demand. This would result in $0.11 to $0.31 of additional earnings for the fiscal year. The resultant outcome would be core earnings in the neighborhood of $2.77 which I alluded to 90 days ago during our call.

We're cautious in offering this illustration based on variables outside of our control but there's a good reason for optimism. Our optimism is based on a combination of our clear line of sight, our customers, our focus on ROIC, our diversification, and our obsession in caring for our people and giving them the freedom to innovate and serve our customers. In addition, I'm blessed with an outstanding leadership team, a team with tons of experience, a team that cares. Real effort to do what we say, run our business effectively and efficiently, and be very thoughtful on how we deploy our capital. With that, I'll turn it back over to Beth for some questions.

Susan, we're ready to begin the question and answer session.

Steven Fox, Cross Research.

Thanks. Good afternoon. Just on the restructuring activities, I understand that you're limited in what you want to talk about but is there any way we could dive a little bit deeper into sort of some of the strategic rationale either by market or region? And then could you put, Mark, could you put a little bit in context relative to some of the expansion you're doing, whether it's related to backtracking on any recent expansion or any shifts in some of the other strategic initiatives we heard about in the last six months? That would be appreciated, thanks.

Sure. Yes, I don't think it's backtracking anything recently. As I mentioned in the prepared comments, the last time we've, again, really taken a hard formal look at our structural cost in our foundation was six or seven years ago, and since then, we've evolved the Company, added a lot of manufacturing square footage. I feel good about the footprint we have, the foundation we have. I just think it's really prudent. I don't want to be having one off charges and doing this every two years, every three years, but every so often having the appropriate hygiene to go in and optimize our structural cost and make a lot of sense. So as I said strategically, I think this is a good thing for us to be doing. We've got good line of sight of '14 and early parts of FY '15 and again, none of this has to do with anything that we've done in the last two or three years as far as expanding footprint.

Okay and then just secondly, just looking at the waterfall chart you provided with regards to Nypro, is there any more color you can add when we think about Nypro on a full year basis in terms of what kind of growth you're factoring into the $0.16 to $0.22 and margins, et cetera, to get there and any synergies you're expecting in the first year?

Well I think that is a full year outlook. The illustration is for FY '14, so I think if you make some assumptions around what you think the packaging and healthcare revenues are going to be and you look at the center point of our guidance there, or illustration it's around $0.19 and I think that's a fair range. I'd focus you on the $0.16 to $0.22 and when you think about we haven't even closed the deal yet. We've got all approvals. We're excited about getting the deal closed July 1 and then upon close, we'll immediately start doing some of the things that need to be done and prepping it for growth synergies but we've got a lot of work to do with the team and positioning the companies for '14, '15 and beyond.

So just to clarify is the $0.16 to $0.22 sort of a base case number based on how the business is operating today or have you factored in some of the synergies into that number or is that still could come later down the road?

I think it's as we sit today, it's our best estimate of where we think the business is going to be and how it's going to perform for fiscal year '14 so answering that more directly, I'd suggest it's not just how the business is sitting today. If you remember, we're taking all of our healthcare business, combining it with Nypro's healthcare business and then having the packaging business so it's our best estimate today of giving an illustration on how we think that business will perform.

Fair enough, thank you very much.

Amitabh Passi, UBS.

Hi, thank you. Forbes I was just trying to understand the guidance for operating margin. What's putting the downward pressure sequentially going into the fourth fiscal quarter because I thought you said E&I would improve presuming HVS flat and I'm wondering if there's downward pressure on the DMS margins?

If my prepared remarks we've included Nypro revenues in that DMS segment and my remarks I noted that it would be very minimal contribution from that given two months in the quarter, so if you make assumptions and rundown micro revenue, back that out, margins should be relatively consistent. We're going to see expansion in enterprise and infrastructure and if we look at high velocity, that margin there fluctuates within our typical range of 2.5 to 3.5 points and it was towards the high end this past quarter. My sense is as we move into the fourth fiscal quarter, it's probably going to be near that mid point and that's really based on the mix of business that we have in there. We're serving multiple industries in there from point of sale to printing, handset, set top boxes, so I'd expect that to come back a little bit more towards the center point, expansion in E&I and relatively consistent margins in the diversified manufacturing services, ex the Nypro piece.

Just as a follow-up, the $0.16 to $0.22 and the $0.11 to $0.15 of EPS benefit you expect from Nypro and restructuring benefits, how should we expect that to flow through fiscal '14? Would it be fairly linear, roughly $0.05, $0.06 a quarter, any help you can give in terms of how we should be thinking about the Nypro contribution and the restructuring benefits?

The Nypro one is a little bit tougher at this juncture. We'll have better clarity for you certainly on our September call, it will be a little bit more granular but I would wait a little bit more towards the back half of the year obviously, once we've got an opportunity to combine, as Mark said, our healthcare business and the Nypro business. But with regards to the restructuring, I think that's more likely based on our current estimates of timing of discussions again towards Q3 and Q4 and there's a bit of heavy lifting to be done there. We're well positioned to do that and we expect the majority of the cash flow associated with that to occur late Q2 I'd say. So I'd say probably Q3, Q4 before we see the full benefit of that restructuring activity.

Okay, thank you.

This is Mark. Just one thing to add to Forbes' comment. I was a little bit disappointed in the 2.3% margin for E&I in Q3. I thought it would have been closer to being flat quarter on quarter Q2 to Q3 but our leadership team there has been pretty aggressive because they understand that we want that business at 3 points of margin as we exit the fiscal year and that's what we've been talking about for the last couple quarters. And so lots of moving pieces, moving people around, moving teams around and we're off by a few million dollars there but I'd just endorse that we still feel that exiting the fiscal year we will be at 3 points and going into FY '14 for E&I.

Mark, so just on that can you shed some light how you get to the 3 points from the 2.3?

Well, we do a lot more of what we did in Q2 and not so much of what we did in Q3. It's a big business. It's a $5.5 billion, $6 billion business and I'm not going to get into all of those details because it wouldn't be appropriate, but we feel pretty comfortable about getting that towards 3 points, if not at 3 points as we exit the fiscal year.

Okay, thanks.

Matt Sheerin, Stifel.

Yes, thanks. Just to get back to the question on the E&I segment, revenue was a bit better than your guide for the May quarter, yet the guidance on flat year-over-year growth implies it's going to be down 5% or 6% sequentially which looks weaker than normal so could you talk about the drivers there, why that looks like it's seasonally weaker than normal?

I think we guided flat, didn't we?

You were flat year-over-year right and so that implies it's going to be down sequentially a little bit more than seasonal, so I'm trying to figure out what you're seeing from your customers there.

It's essentially sequentially flat, maybe $20 million or $30 million and again in our range of business it's about $1.3 billion to $1.4 billion a quarter. That's not something that we overly obsess about. Our relationships there are strong. We've seen great growth in fiscal '13 over '12 as a result of some really nice wins mid year of fiscal '12 in terms of the wireless area and networking and storage relationships. So overall it's relatively consistent as we move through the Summer months here which is pretty typical of what we see from our customer base.

So you've characterized that as a more stable environment which you talked about last quarter?

Absolutely.

And then on the Nypro, could you give us an idea of the revenue contribution in the quarter, two months of the quarter, I don't know if it's seasonally back end loaded so it's actually less than it would typically be.

Yes, current estimates are somewhere between a 150, 175 type number, somewhere in there.

And just lastly on specialized services, which looked like that was in line with your guidance, obviously there's a big customer that's driving that and ramps seem to change quarter on quarter. What's your outlook on the mobile part of that business in specialized services for the August quarter and what are you looking at starting into FY '14?

The only comment we would have there is we talked last call about I think we had 12 plus different program ramps and program transitions across the Company and as you guys remind us constantly, we spent or are going to spend $600 million, $700 million in CapEx and we believe we'll utilize that as we move into '14. So I just can't get into any comments around any specific sectors or customers on that.

Okay fair enough, thanks.

Amit Daryanani, RBC Capital Markets.

Good afternoon guys. Couple of questions. One on the DMS side. If I exclude the Nypro numbers Forbes just gave the implication is business will be flat to down a little bit sequentially. Could you maybe talk about why do you see that segment tracking almost down a little bit sequentially again despite a couple of big program ramps in that segment and if any one of those sub three segments is where you see the down tick?

It's pretty much the same story that we've seen really since late '12, Amit, and that's centered around areas of instrumentation and clean tech. As we came into this calendar year, we saw push outs in terms of metering there which is pretty significant and that's really been the impact on a year-over-year basis. Overall, our specialized service business is in good shape and we're seeing some continued healthy growth there on a year-over-year basis.

The other area for us too which continues to show some softening is in defense and aerospace as well.

Fair enough. And then the second part if I'm looking at $0.14 of restructuring benefits in fiscal '14, that would imply about $40 million of operating income savings roughly. Could you maybe talk about $188 million restructuring plan, why you're only seeing $40 million in savings and shouldn't that number be much bigger and is there potential the benefits continue in fiscal '15?

I'll take that. Absolutely. You're right. The timing -- in my prepared remarks I talked about $65 million in 2015 and that's ultimately where we see that type of return, a two to three year return on this restructuring plan. In fiscal '14, that range we've provided, mid point of that range is $35 million as you stated and it's really to do with the timing of when we can essentially start closing sites or releasing employees and transferring business. So our best estimates at this stage is that, that would occur most likely some time late in our second fiscal quarter which is obviously February 15, just given the consultation periods we have in front of us and discussions that have commands. So if by any way we can pull that forward, then we would expect savings to increase in fiscal '14 but certainly based where we are, I would suggest the $35 million being appropriate, certainly 65 and 15 and obviously we'll update you on a quarterly basis as we move through this process.

Got it, that's helpful and finally if I look at organic growth number on the fiscal '14 road map, it's fair to assume at the mid point of your organic growth number you are looking at about a 5% revenue growth for the mat business?

Well we really haven't commented at all on revenue but I think if you take the mid point, you're looking at 21 over 2.24, right?

Yes. Fair enough.

Brian Alexander, Raymond James.

Okay, thanks. Forbes, I just want to follow-up on the Q4 guidance. If I assume 3% operating margin for enterprise and high velocity, it implies DMS margins are going to be 5% and I think you said ex-Nypro, DMS margins would actually be consistent sequentially at 5.6%. So is Nypro really going to be a 60 basis point drag to the fourth quarter DMS margins that's only $75 million in revenue because I think you're excluding all the charges from that. I'm just confused, it would almost imply that Nypro would be losing money on a core basis or maybe I'm doing my math wrong but if you could comment on that, thanks.

Absolutely. So you're correct. Model enterprise infrastructure at 3 percentage points, high velocity I think that might be the part you're missing, Brian. I talked to that being more to the mid point of our overall range of guidance there, so right about 3 percentage points based on the mix of business that we anticipate in the fourth fiscal quarter. And then based on that mid point of guidance at 175, you would see the DMS margins ex-Nypro to be relatively consistent with what we've just printed.

Okay, well maybe I'll follow-up offline, because I have 5% for DMS all-in and that would imply for Nypro, but we can follow-up offline. When do you think DMS margins can get back to 6%? It would seem like the issue you had with major customers is behind you, it's not clear to me what environment would be ideal for generating margins and that's within your long term target range or what's the long term range is still suitable (Inaudible) a change in the local profile of DMS in a particular specialized services and if so what's causing it?

Okay, Brian, I don't know if it's you're phone or our receiver but you broke up really bad. I think what you were asking is if we get DMS margins back to 6%; is that correct?

Yes, what would drive that, what type of environment would allow that to happen?

Yes, I think the best guidance at this point is we feel comfortable with DMS margins being in the range that we've outlined 5.5% to 7% for fiscal year '14. And again, we do need to have a little bit of recovery on instrumentation has been bad for us. Industrial in the early part of this year was very soft. We've seen pockets of industrial start to stabilize. The housing markets helped there. Clean tech has been very difficult for us, especially in the metering side. Our visibility is that the subsidizations and what not around metering may start to come back for mid to late fiscal year '14 so it's a little bit of a wild card and we've got a lot of interesting activities going on in our defense and aerospace business. And then you have our specialized services group and again, as we've talked about, a portion of our CapEx for this year has went towards specialized services and we should see some returns from those assets in '14 as well.

Okay, just last one if you could hear me, Forbes, any early indication for what CapEx might look like in fiscal '14 including Nypro?

Not at this juncture. We'll certainly update everyone on our next call.

Okay, thanks.

Jim Suva, Citi.

Thank you and congratulations for you and your team here of getting Nypro on the way of integration. Looking forward to that. Am I correct that based upon prior press releases and news and stuff that Nypro should contribute about $1.2 billion in revenues or is there some parts of it that maybe you aren't folding into Jabil? And if so, if we back in then to your EPS waterfall, which by the way that's a great slide, then it looks like that the Nypro operating margins based upon a tax rate of about 20% just ballpark, that the Nypro operating margins are actually closer to the relative range of something like 5% or slightly under 5%. Is that math right or am I missing a few pieces to the equations?

So Jim, I think the 1.2 for fiscal year '14 might be a little bit aggressive. If you think about the business and the slide we showed, the Nypro slide, about 50% of that business is healthcare, 25% is consumer and 25% is packaging. We're going to roll the consumer business, as I talked about in my prepared remarks, into and fly that under the Jabil flag and that team will work hand in hand with our DMS group, as well as some of our high velocity leadership. So when I think about Nypro for '14, we're really talking about packaging and healthcare and that's probably a $750 million to $800 million business or something like that and we're pretty excited about that platform and where we can take that in fiscal year '15 and beyond.

Okay, great. That adds a lot of color and then when we think about your customer mix, do you have one customer over 10%, two customers over 10% and then how will that look post integration of Nypro?

In terms of 10% customers, we'll give full color at the end of the year but certainly we've had one 10% customer throughout the year. We expect that to be the case as we exit the year. I don't envision that changing with the consolidation of Nypro into Jabil. We'll see how that plays out in future years but certainly not for fiscal year '14.

And my final question, with Nypro you doing plastics on stuff, some of those customers also do electronics inside the box or inside the item. Is there an opportunity for Jabil to seize and come in and sell more there or are those just type of discussions that are pretty unique to themselves, trying to figure out how those discussions and how Jabil looks at that strategically?

Well we certainly hope so. I think that there's nice synergies on the growth side for combining what Nypro does and what Jabil historically has done and what we are doing, and time will tell but we feel good about being able to get after some of that market share, Jim.

Great. Thank you very much and congratulations on the Nypro folding it in.

Sherri Scribner, Deutsche Bank.

Hi, thanks. I just had a couple of clarification questions. First on the guidance, the press release said $4.55 billion to $4.65 billion but the slides said $4.45 billion to $4.65 billion. Can you just let us know which one it is?

The guidance is $4.45 billion to $4.65 billion.

Okay because the press release didn't say that. And then for the Nypro revenue is that primarily going into the DMS segment for next quarter and for fiscal '14? I know you said there's a portion of it that will go into HVS from the consumer piece but should we assume that the rest of the revenue goes into DMS?

Yes, you should assume that it's all within the DMS segment, yes.

Okay, great thanks.

Shawn Harrison, Longbow Research.

Hi, good afternoon. Just two clarifications if I missed this on the restructuring savings, the split between COGS and SG&A, and then the second question just getting back to something Jim was asking in terms of the Nypro EBIT margin. It does look at least right now for the full year it's something like a 4% to 5% implied EBIT margin. My guess is you'd like to have it higher than that exiting the year given some prior commentary but where would you expect EBIT margin for Nypro to exit '14 at?

Hi, it's Forbes. Let me address the COGS versus SG&A and restructuring. At this juncture, I would suggest the majority would be within the cost of goods sold line. Based on current estimates maybe somewhere between $15 million to $25 million in SG&A, but on the longer term the majority is in the cost of goods sold line. With regards to the Nypro EBIT margins, at this stage we will not provide any more color on that but certainly, this is a very attractive transaction for us and certainly view it as long term accretive to our earnings.

Okay, thanks.

I think it would be fair to -- as we get to '14, it would be fair to model the Nypro up margins in the range of DMS, so the 5.5 to 7.

So no change to that target, Mark?

Correct.

Okay, thank you.

Wamsi Mohan, Banc of America Merrill Lynch.

Yes, thank you. Mark, DMS ex-Nypro is going to be down again here in August on a quarter on quarter, even a year on year basis and organic growth seems to be the loser here of the segment. When can we see year on year growth in DMS? Is it reasonable to assume we would see that starting in the November quarter?

I think that might be reasonable.

Okay, would you say that your expectations from that growth would primarily be coming from the specialized services area given your prior commentary on the other two sub segments?

Well, I think time will tell. We certainly are keeping our fingers crossed that in the macro conditions that we're seeing that's putting pressure on a bunch of other broad parts of our business that we start to see some relief there. So my hope is it's some contributions across-the-board.

Okay, great and on E&I margins, Mark, seems from your comments it was more of an execution issue as opposed to pricing changes or mix. If you look at some of the filings from Cisco it indicates increased pressure from OEMs on all of the suppliers, including EMS partners, can you confirm that it was primarily execution and that's why you're fairly confident it could be worse fairly quickly in the fiscal fourth quarter? Thanks.

Yes, I don't think it was execution nor do I think it was pricing. That part of our business has been under intense pricing for 15 years and certainly it goes in cycles but the pricing pressure is never off. I don't think it was an execution issue so if I communicated that, that's my mistake. What I was trying to communicate is our leadership team are making some very aggressive structural changes, changes to the teams, moving businesses around to different sites and again, if you think about this being a $5.5 billion, $6 billion business, I think they over shot their budget by $4 million or $5 million in the quarter and I expected Q3 to be close to being flat to Q2. So I think we're down about 40 basis points Q2 to Q3 but it wasn't as if we had an unintentional execution issue. I think what they did was intentional but over shot their budget and they did that in continuing to drive that business to an appropriate foundation to generate the margins we need to going forward.

Okay, thanks a lot.

We have reached our allotted time for questions. I'd now like to turn the conference back over to management for any closing remarks.

Well, Operator, we don't have any closing remarks so I'll just thank everyone for joining us on the call today and as usual, we will be available for any follow-up phone calls or questions that you may have. Thank you very much.

Thank you for participating in today's conference. You may now disconnect.