UPDATE 1-Jabil sees no improvement in margins until 2021

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Sept 25 – Contract electronics manufacturer Jabil Inc said on Tuesday it does not expect any improvement in margins until 2021 as it spends more to fuel growth, sending its shares down nearly 10 percent.

“We assume that from FY19 to FY21, we’ll get no expansion, no leverage of margin,” Chief Executive Officer Mark Mondello said on a post-earnings conference call.

Shares of the Apple Inc supplier fell 9.5 percent to $27.23 in early trading, reversing from a near 5 percent gain premarket following a better-than-expected revenue and profit for the fourth quarter.

Contract manufacturers such as Jabil make most of their equipment in China and sell to clients in the United States, making them vulnerable to the ongoing tariff war between the world’s two largest economies. The company earned about 21 percent of its total revenue from China in fiscal year 2017.

“You wake up one day and there’s a tweet. You wake up 48 hours late, something else is going on,” Mondello said on the trade war, adding the company is well-positioned if tariff issues end with some ‘reasonable resolution’ over time.

Jabil on Tuesday said gains in fourth-quarter revenue were largely due to growth in its higher-margin diversified manufacturing services business that caters to the consumer products industry.

Revenue from the business, which includes supplies to Apple, rose 23 percent in fiscal 2018.

The company reported a loss of $57.3 million, or 34 cents per share, in the quarter ended Aug. 31, compared with a profit of $45.7 million, or 25 cents per share, a year earlier.

Revenue rose 15 percent to $5.77 billion, beating estimates of $5.43 billion. (Reporting by Akanksha Rana and Munsif Vengattil in Bengaluru; Editing by Sriraj Kalluvila and Arun Koyyur)

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