Electronics maker Jabil drops 9% after CEO says no improvement in margins until 2021

  • "We assume that from fiscal 2019 to fiscal 2021, we'll get no expansion, no leverage of margin," said CEO Mark Mondello an a conference call.
  • The CEO notes the company expects to increase spending to boost overall growth, which will result in a lack of margin expansion.
  • Mondello's comments were enough to negate Jabil's strong quarterly results.
An employee works on a circuit board at Jabil Circuit's facility in St. Petersburg, Florida.
Jim Stem | Bloomberg | Getty Images
An employee works on a circuit board at Jabil Circuit's facility in St. Petersburg, Florida.

Shares of contract electronics maker Jabil fell sharply on Tuesday after the company's CEO said he does not see margins improving until fiscal year 2021.

"We assume that from fiscal 2019 to fiscal 2021, we'll get no expansion, no leverage of margin," said CEO Mark Mondello on a post-earnings conference call on Tuesday. He noted the company expects to increase spending to boost overall growth, which will result in a lack of margin expansion.

The comment sent the stock down 9.5 percent, on track for its worst day since March 17, 2016, when it dropped 10.6 percent.

Mondello's comments were enough to negate Jabil's strong quarterly results. The company on Tuesday reported adjusted fiscal fourth quarter earnings of 70 cents per share on revenue of $5.772 billion. Analysts polled by Reuters expected a profit of 68 cents a shares on sales of $5.427 billion.

Jabil also faces hurdles from the ongoing trade spat between China and the United States because, like most contract manufacturers, they make most of their equipment in China and sell to clients in the U.S. Mondello said the company is well-positioned if tariff issues end with some 'reasonable resolution' over time. In fiscal 2017, it earned 21 percent of its revenue from China.

Prior to Tuesday's drop, the stock was up more than 13 percent year to date; it remains up 4.2 percent in that time period.