Jabil Global Factory Network Back Running at 90-95% of Capacity, Says CEO
Contract manufacturer Jabil expects to incur up to $170 million in COVID-19 costs for fiscal 2020 ending Aug. 31, said Mark Mondello on a Q3 call Friday. It’s targeting $50 million in annual savings through global workforce reductions, he said.
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At the pandemic’s peak, Jabil was burning $60 million a month in COVID-19 costs, mostly for factory safety protocols and personal protective equipment for employees, said Mondello. Costs recently have “trended down a bit,” he said. “We’re becoming more optimized in our process and protocols.”
“Fair conversations” with customers about passing along the pandemic costs “are going on all the time,” said Mondello. Jabil has “400-plus” customer “relationships,” 80-90% of which are “highly strategic, long-term,” he said. “Our customers understand we have a business to run. We also want to be very, very thoughtful to our customers because they’re going through tough times as well.”
Jabil endured significant supply chain disruptions as the pandemic hit beginning in February that haven’t fully normalized, said Mondello. If the supply chain activity pre-COVID were graded a 10, “we hit our biggest divot” in March and April when the grading plunged “to a five or a six,” he said. “I’d say today we’re back to an eight or nine. I think it stays there until we get to the back side of COVID, whenever that is.”
Mondello estimated Jabil’s factory network is operating at 90-95% of capacity utilization. Jabil still expects possible “one-off pockets of disruptions” in fiscal Q4 if states and countries impose new lockdown restrictions that force factories to close temporarily, he said.
Though many tech companies withdrew financial guidance amid the pandemic’s uncertainties, Jabil has enough “visibility” to forecast roughly a 5% revenue decline for the year, said Mondello. “We’ve tried our best to handicap multiple scenarios.”
Mondello predicts “there’s still going to be quite a bit of choppiness in the business through the fourth quarter and into early FY ‘21,” he said. “To have this feeling like COVID’s behind us, the stock market’s doing great, the world’s getting back on its feet -- I don’t think that’s the case.”
The CEO concedes he personally “underestimated how broad-based this digital learning, digital schools and videoconferencing” trend would become during the pandemic, he said. “I don’t think that’s going to be so temporary.” Jabil’s "edge-device" business has flourished on consumer and enterprise demand for connectivity tools, he said. “Anything to do with people communicating differently” will thrive in the “new normal,” he said.
“Not a lot” of Jabil customers left China to escape the Section 301 tariffs, though some “hedged China” on new product launches, said Mondello. The pandemic put customers in a “lockup” mode about exploring new countries of origin, he said. He thinks companies going forward will become “a little bit more cautious in terms of having their product built at a single site,” he said. There’s no doubt that COVID-19 wiped the trade tariffs from the “headlines,” he said.