Jabil to cut jobs, plants in U.S.
New product development will follow other work overseas, a move that comes amid options inquiries and disappointing earnings.
By HELEN HUNTLEY
Published June 22, 2006
In a major shift of corporate strategy that will lead to plant closings and job cuts, Jabil Circuit Inc. said Wednesday it will move more of its product design work overseas.
The St. Petersburg-based electronics manufacturer declined to say which plants will be closed in a restructuring that will cost up to $250-million, other than that the facilities are in "certain higher cost geographies." Jabil employs about 60,000 people worldwide, including 2,000 in St. Petersburg.
The restructuring comes at a time when the company is under growing pressure from regulators and investors. Wednesday Jabil revealed that it has received a subpoena from the U.S. Attorney's Office of the Southern District of New York, which is investigating whether stock options were improperly backdated. Jabil said it is cooperating fully with the investigation, as well as similar inquiries being conducted by the U.S. Securities and Exchange Commission and its own board.
Jabil also reported Wednesday that net revenue for the fiscal third quarter rose 34 percent to $2.6-billion, while net income increased just 5 percent to $77.3-million, or 30 cents per share.
Last week the company announced that the earnings would fall short of previous estimates and the company's stock plunged more than 28 percent, erasing $1.5-billion in market value. It still hasn't recovered, closing Wednesday at $25.48 a share, and falling more than $1 a share further in after-hours trading, following the company's announcement.
In a conference call with analysts, company officials said late Wednesday that the problems that led to the third quarter's disappointing results will continue to have an impact for two more quarters. Those problems were identified as higher than anticipated costs in a relatively new electromechanical tooling operation, execution issues at another U.S. plant and higher material and labor costs in its repair services division.
Chief executive Tim Main said the restructuring is not in response to those issues, but is designed to make the company more competitive for the next five years.
"Fundamentally the business is in good shape," he said, projecting revenue growth of 35 to 37 percent next fiscal year. "We need to position the company to compete in the right way."
Jabil's strategy has been to keep much of its design work and new product development at U.S. plants while moving high-volume production of more mature product lines overseas.
"In the past this made sense," Main said. "Today we increasingly see new product design and production done in one location. The financial burden associated with maintaining some of the high-cost locations can no longer be accommodated."
Main declined to go into details about the plans for plant closings and job cuts. He said the company will be discussing the restructuring with employees and directors in coming weeks.
The restructuring is expected to result in $200-million to $250-million in charges, a significant portion of which will be recorded in the fourth quarter, which ends in August.
In addition to St. Petersburg, Jabil has U.S. facilities in Michigan, Massachusetts, Kentucky, Texas, Tennessee, California and Arizona.
Helen Huntley can be reached at email@example.com or 727 893-8230.