Jabil's Q1 2026: Contradictions Emerge on Data Center Capacity, Healthcare Timelines, Operating Margins, and Revenue Guidance

Date of Call: December 17, 2025

Financials Results

• Revenue: $8.3B net revenue for Q1, at the high end of guidance
• EPS: Core diluted EPS $2.85 (upper end of guidance); GAAP diluted EPS $1.35
• Gross Margin: 8.9% for Q1, up 10 bps year-over-year
• Operating Margin: Core operating margin 5.5% in Q1; FY'26 core operating margin guide ~5.7% (up ~10 bps vs prior outlook)

Guidance:

• Q2 FY26 revenue $7.5B–$8.0B; Regulated $2.78B (+2% YOY), Intelligent Infrastructure $3.76B (+42% YOY), CLDC $1.21B (−10% YOY).
• Q2 core operating income $375M–$435M; GAAP operating income $312M–$382M; Q2 core diluted EPS $2.27–$2.67; GAAP diluted EPS $1.70–$2.19.
• FY26 revenue ~ $32.4B (up $1.1B vs prior); FY core operating margin ~5.7% (up ~10 bps vs prior); FY core diluted EPS $11.55 (up $0.55).
• Adjusted free cash flow > $1.3B; CapEx ~1.5%–2% of revenue; core tax rate 21%.
• Q2 net interest ~$69M; FY interest ~$270M; Hanley acquisition expected to close in January (~$200M FY26 revenue contribution).

Business Commentary:

• Revenue and Segment Performance:
• Jabil, Inc. reported net revenue of $8.3 billion for Q1, at the high end of guidance, marking a strong start to fiscal 2026.

• The growth was driven by impressive results across all three segments, notably Intelligent Infrastructure, Regulated Industries, and Connected Living & Digital Commerce.

• Intelligent Infrastructure Growth:

• Intelligent Infrastructure revenue was $3.9 billion, ahead of expectations, with a significant contribution from cloud and data center infrastructure.

• Growth was primarily driven by strength in cloud and data center infrastructure, along with demand for next-generation liquid-cooled platforms.

• Regulated Industries and Healthcare:

• Regulated Industries generated $3.1 billion in revenue, aligned with expectations, showing a 4% year-over-year increase.

• Healthcare, in particular, maintained steady performance, supported by ongoing demand across drug delivery platforms and diagnostics.

• Outlook and Guidance Increase:

• Jabil raised its full-year guidance for revenue to approximately $32.4 billion, an increase of $1.1 billion from the previous outlook.
• The increase reflects strong performance across segments, particularly in Intelligent Infrastructure and Healthcare, driven by new program wins and a healthy pipeline.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described the quarter as "better than expected" and "a strong start to fiscal 2026," raised FY revenue and EPS outlooks (revenue +$1.1B, core EPS +$0.55) and said momentum should continue, highlighting Intelligent Infrastructure strength and continued margin expansion.

Q&A:

• Question from Ruplu Bhattacharya (BofA Securities): Can you give more color on the Intelligent Infrastructure wins, retrofit plans, Hanley acquisition impact and whether the FY guidance is conservative?
  Response: Intelligent Infrastructure is outperforming — the $900M uplift breaks into ~$600M Cloud & DCI (including ~$200M from Hanley) and ~$300M networking; Hanley closes in January and is modestly accretive in '26; management views the guidance as appropriately conservative.

• Question from Ruplu Bhattacharya (BofA Securities): Is >6% operating margin achievable in FY27 and how high can margins go longer term (7%+)?
  Response: Management is confident about reaching ~6% (driven by better mix, utilization moving toward ~80% and SG&A leverage) and views 6% as a stepping stone toward higher margins over time, with 7% possible further out.

• Question from Ruplu Bhattacharya (BofA Securities): How will Healthcare & Packaging evolve — can growth accelerate beyond low single digits?
  Response: Croatia ramp should drive higher-margin contributions starting in 2H FY27; the team is pursuing capability-driven M&A and B2B deals to accelerate vertical expansion in Healthcare; pipeline and program visibility are healthy.

• Question from Manmohanpreet Singh (JPMorgan): Is the second hyperscaler's upside due to execution or customer preponing deployments, and how should we think about scale versus the prior $750M target?
  Response: Upside is concentrated in AI storage for the second hyperscaler and reflects both execution and sustained demand — management now sees the second hyperscaler opportunity closer to ~$1B versus prior ~$750M and is engaged with additional hyperscalers.

• Question from Manmohanpreet Singh (JPMorgan): Why were gross margins lower quarter-over-quarter despite higher revenue from 4Q?
  Response: Q1 gross margin was 8.9% (up 10 bps YOY); the quarter-over-quarter pressure was driven primarily by mix; FY gross margin guidance remains 9.0%–9.5%.

• Question from Steven Fox (Fox Advisors): Given Healthcare's margins, will Jabil invest more aggressively or pursue M&A to accelerate growth?
  Response: Healthcare is a strategic, higher-margin, steady cash-flow area; management is actively evaluating M&A and B2B opportunities but will pursue deals conservatively and with capability-driven focus.

• Question from Steven Fox (Fox Advisors): How is Jabil planning capacity for cloud demand and new customers beyond this year?
  Response: Capacity plans leverage surplus in Mexico and India, East Coast retrofits (ahead of schedule), North Carolina prefitting and potential Memphis expansion; CapEx guidance remains 1.5%–2% of revenue.

• Question from Ruben Roy (Stifel): How does Hanley fit long term — does it increase content per rack or design ownership for power distribution?
  Response: Hanley is a services-enabled power/energy management business that adds deploy/install/maintain capabilities, complements Mikros liquid-cooling engineering, and helps expand content and recurring revenue in data-center power distribution.

• Question from Melissa Dailey Fairbanks (Raymond James): Any change in automotive mix or geographic trends and are you seeing consignment affecting reported revenue for data-center programs?
  Response: Automotive guidance remains conservative; management sees the bottom and expects upside in '27-'28 as powertrain-agnostic programs ramp; consignment is mainly used with the largest hyperscaler, while other customers are on gross revenue terms.

• Question from Mark Delaney (Goldman Sachs): Have data-center power constraints been factored into guidance, and any update on a potential third hyperscaler?
  Response: Power constraints are known but Jabil's integrated solutions (liquid cooling, power distribution) mitigate them; management is in discussions with additional hyperscalers (third/fourth) but has not modeled a third hyperscaler into current guidance.

• Question from Timothy Long (Barclays): What trends are you seeing at your larger hyperscale customer and how will Jabil participate in custom ASICs/XPUs?
  Response: Demand from major hyperscalers remains strong despite product transitions; Jabil is chip-agnostic and supports custom ASICs/XPUs as complementary opportunities across server, rack and systems engineering.

• Question from David Vogt (UBS): With the stronger AI growth, how should investors think about the back half growth profile and any impacts to free cash flow?
  Response: Second-half comps are lumpier due to prior-year step-up; management sees no revenue-recognition issues, expects modestly higher CapEx and working capital with growth but is maintaining adjusted FCF guidance >$1.3B.

Contradiction Point 1

Capacity Management and Expansion in Data Center Products

It involves changes in the company's strategy and capabilities related to capacity management and expansion in data center products, which are crucial for meeting demand and supporting growth.

How is Jabil managing capacity to support cloud business growth? - Steven Fox (Fox Advisors LLC)

2026Q1: Retrofitting efforts for liquid cooling are ongoing. We have upsides in Mexico and India. Expansion plans in North Carolina and Memphis are being considered. - Michael Meheryar Dastoor(CEO)

How are you managing data center product capacity to meet demand, and what does this mean for growth? - Mark Delaney (Goldman Sachs Group, Inc., Research Division)

2025Q4: We're operating sites 24/7 and utilizing underutilized U.S. capacity. We're retrofitting sites for liquid cooling to support customer transitions. This positions us well for future growth. - Matt Crowley(Executive Vice President of Global Business Units)

Contradiction Point 2

Healthcare Growth and Facility Timelines

It involves differing statements about the timeline and expected impact of the Croatia facility on healthcare growth and margins, which could affect investor expectations and strategic planning.

Can recent wins and deals drive growth acceleration in Healthcare & Packaging? - Ruplu Bhattacharya (BofA Securities)

2026Q1: Croatia project is progressing well, expected to deliver returns by the second half of 2027. The team is actively exploring deals to add capabilities and capacity. - Michael Meheryar Dastoor(CEO)

Where do you see growth in healthcare products, and what is the Croatia facility's impact on margins in fiscal 2026? - Ruplu Bhattacharya (BofA Securities, Research Division)

2025Q4: The Croatia facility is on track with no delays, but it's planned for FY '27. - Michael Meheryar Dastoor(CEO)

Contradiction Point 3

Operating Margin Expansion Targets

It involves differing expectations for achieving operating margin expansion targets, which are crucial for assessing the company's financial health and profitability.

Can Jabil's operating margin exceed 6% in fiscal '27? What are the trade-offs? - Ruplu Bhattacharya (BofA Securities)

2026Q1: For FY '27, we anticipate margin expansion driven by better mix, capacity utilization, and SG&A leverage. The strong pipeline supports confidence in achieving 6% operating margin. - Michael Meheryar Dastoor(CEO & Director)

What revenue levels and other factors are needed to achieve operating margins over 6%? - Ruplu Bhattacharya (Bank of America)

2025Q3: Achieving 6% margins will involve better capacity utilization, SG&A leverage, and growth in higher-margin businesses. Aiming for 20 bps from each area over the next few years. - Michael Meheryar Dastoor (CEO)

Contradiction Point 4

Data Center Revenue Growth Expectations

It involves differing expectations for data center revenue growth, which is a key revenue driver for the company.

What new Intelligent Infrastructure wins drove the $1B+ full-year revenue guidance increase? Are there opportunities from projects like OpenAI/AMD or Anthropic/AWS? Is the guidance still conservative? - Ruplu Bhattacharya (BofA Securities)

2026Q1: Intelligent Infrastructure is outperforming, with growth driven by holistic views on data centers and AI. Revenue increased by $900 million, with Cloud & DCI up by $600 million and networking by $300 million. - Michael Meheryar Dastoor(CEO & Director)

What growth should be expected in the Intelligent Infrastructure segment for fiscal 2026 and beyond, and how should revenue growth and margins be viewed across its sub-segments like capital equipment, cloud, data center, and networking comms? - Ruplu Bhattacharya (Bank of America)

2025Q3: Expect growth for '26, though specifics are to be discussed in September. Capital equipment should be accretive, with wafer fab equipment slightly higher margin than automated testing. - Michael Meheryar Dastoor (CEO)

Contradiction Point 5

Guidance and Revenue Expectations

It involves changes in revenue growth expectations, which are crucial for investor projections and strategic planning.

Can you provide details on new wins in Intelligent Infrastructure following the $1 billion increase in full-year revenue guidance? - Ruplu Bhattacharya (BofA Securities)

2026Q1: Full year revenue guidance is $53 billion, which is up $1 billion from our expectations last quarter - Michael Meheryar Dastoor(CEO & Director)

What drove the increase in confidence in Intelligent Infrastructure this quarter? - Samik Chatterjee (JPMorgan)

2025Q2: We now expect revenue to grow by 13% to 14% for the third quarter and for the fiscal year revenue to be in the range of $52 billion. - Mike Dastoor (CEO)