Editorials

Jabil's 10-K for the fiscal year ended August 31, 2026 was filed on October 23, 2026. The year delivered what the headline numbers suggest: revenue of $35.95 billion, up 20.6% from $29.80 billion; operating income of $1.70 billion, up 44%; and diluted EPS of $9.75 against $5.92. The more useful question for a value investor is narrower. Did the extra revenue carry extra profit, or did it just carry extra volume? On the figures in the filing, it carried profit, and the gross margin widened rather than slipped. The durability of that spread is the open question.

Revenue rose from $29,802 million to $35,954 million, a gain of about $6.15 billion. The MD&A attributes most of the increase to Intelligent Infrastructure, which it says grew 45% on AI infrastructure demand in cloud, data center and networking, and rose to 50% of revenue from 41%. Those percentages come from the filing's MD&A text. The segment revenue figures in the reported data do not reconcile to the consolidated totals or to those MD&A percentages, so this article does not rely on them for mix analysis.

Jabil is a contract manufacturer, and its economics are thin by design. Gross profit was $3,317 million against $2,646 million a year earlier, up 25%. That is a slower rate of growth than revenue, which is why the gross margin percentage is a number to watch rather than a footnote.

Using the reported line items, gross margin was about 9.23% in FY2026 against 8.88% in FY2025, a gain of roughly 35 basis points. The MD&A reports the same move, 9.2% from 8.9%, and attributes it mainly to Intelligent Infrastructure product mix.

Operating margin moved more. Operating income of $1,704 million on $35,954 million of revenue is about 4.74%, against $1,182 million on $29,802 million, or about 3.97%. That is roughly 77 basis points of expansion. Operating expenses, measured as gross profit less operating income, rose about 10% to $1,613 million, while revenue rose 21%. Opex as a share of revenue fell from about 4.9% to about 4.5%. That is the operating leverage the year produced.

The company also reports a 'core operating margin' of 5.8% against 5.4% and 'diluted core EPS' of $13.09 against $9.75 in the MD&A. These are non-GAAP measures defined by Jabil. They are not reconciled in the reported data, so this article cites them only as company-reported figures and builds its analysis on the GAAP line items.

Net income rose from $657 million to $1,042 million, up 58.6%. Diluted EPS rose 64.7%, from $5.92 to $9.75. Net income grew faster than operating income (up 44%) for two reasons that can be read straight off the statements.

First, the gap between operating income and pre-tax income barely changed. Pre-tax income was $1,408 million against operating income of $1,704 million, a gap of about $296 million. A year earlier the gap was about $290 million ($892 million pre-tax against $1,182 million of operating income). Interest and other non-operating costs were therefore roughly flat in dollars, so almost all of the $522 million operating income gain reached pre-tax income. The MD&A notes interest expense rose to $181 million on higher fixed rates from new notes, so other items must have offset that increase.

Second, the effective tax rate was steady. Income tax expense was $368 million on $1,408 million, about 26.1%, against $235 million on $892 million, about 26.3%.

The EPS gain exceeds the net income gain by about six points. Dividing net income by diluted EPS implies roughly 106.9 million diluted shares in FY2026 against roughly 111.0 million in FY2025, a reduction of about 4%. Share repurchases were $1,060 million in FY2026, against $1,000 million the year before. Buybacks contributed to per-share growth, but they cost cash that could have gone to other uses, a trade-off the reader should weigh.

The quarterly pattern matters because the full-year gross margin gain is not evenly spread. Gross margin improved year over year in Q1, Q2 and Q3 of FY2026, by roughly 27, 45 and 76 basis points respectively. In Q4 it was essentially flat, at 9.43% against 9.49%, a decline of about 6 basis points. The full-year improvement came from the first three quarters, and Q4 did not extend it.

What Q4 did do was lift operating income sharply. Q4 operating income of $602 million was up about 79% on $337 million, and operating margin rose to 5.67% from 4.08%. Q4 revenue of $10,616 million was up about 29% on $8,252 million. Derived operating expenses (gross profit less operating income) fell to about $399 million in Q4 from about $446 million. The reported data does not break that decline down. Restructuring charges fell for the full year to $97 million from $181 million, according to the MD&A, which may explain part of it, but that is an inference to check in the filing rather than a conclusion.

Net cash from operating activities was $2,002 million, up from $1,640 million, and capital expenditure was $628 million against $468 million. Operating cash flow comfortably exceeded net income in FY2026. The Buffett-style test is how it got there.

The balance sheet shows a large working-capital swing. Accounts payable rose to $14,444 million from $7,937 million. Inventory rose to $7,413 million from $4,681 million. The MD&A reports that days in accounts payable rose to 135 from 96, and that the quarterly sales cycle shortened to 2 days in Q4 from 18 days a year earlier. It also reports $18.3 billion of receivables sold under trade receivable programs and $4.5 billion under a securitization program. Those figures suggest that a meaningful part of cash generation came from timing and from financing structures, not just earnings. Whether those programs persist, and what they cost, is the question a long-term owner has to answer from the filing.

Acquisitions were a major use of cash. Payments for businesses were $852 million in FY2026 against $392 million in FY2025, and goodwill rose to $1,225 million from $841 million. The MD&A cites the Hanley and Rebound Technologies acquisitions. Total notes payable and credit facilities were $3,379 million at year-end, with $1.0 billion of senior notes issued in January 2026 and $500 million repaid in April. Cash and equivalents were about $1.7 billion. The MD&A says about $4.4 billion of unused borrowing capacity was available and that the company was in covenant compliance.

The MD&A also cites an adjusted free cash flow figure of $1,532 million. That is a company-defined non-GAAP measure. Computed from the GAAP lines above, operating cash flow less capital expenditure was about $1,374 million, against about $1,172 million a year earlier. The gap between those two figures is a reason to read the company's own adjustments carefully.

At the time of the 10-K, the computed metrics put Jabil at a trailing P/E of about 28.1x, EV/EBITDA of about 12.5x, an FCF yield of about 4.9%, and a dividend yield of about 0.12%. Revenue growth was 20.6%, net income growth 58.6% and EPS growth 64.7%. Price-to-book is about 17.5x, and tangible book value per share is negative, a consequence of the acquisition-related goodwill and intangibles and of the balance sheet's growth in payables.

The reader will need to decide how much of the FY2026 earnings level is repeatable. A business earning a 9% gross margin and 4.7% operating margin is sensitive to mix, customer concentration and the cost of the capital it borrows and the receivables it sells. The valuation numbers describe where the market price sits against this year's earnings. They do not say whether the earnings are the right base.

Other items to weigh: the MD&A says tariff refunds under IEEPA began in FY2026 but were not material. Stock-based compensation rose to $140 million. Interest expense rose to $181 million. Salary costs rose, including from the acquisitions. Each is small against operating income on its own, but together they describe a cost base that grew with the acquisitions and the higher fixed-rate debt.

• Is the gross margin gain structural? The improvement came from Q1 to Q3. Q4 was flat. A second year of gains would be stronger evidence than one.
• How much of operating cash flow depends on payables and receivable programs? The swing in payables and the scale of receivables sold are larger than the net income figure. Read the cash flow statement and the programme disclosures together.
• What did the Q4 operating expense decline consist of? Separate restructuring, incentive compensation and any one-time items from underlying cost discipline.
• What is the Hunt Valley exposure? Quantify the production and revenue at risk and the expected timeline.
• How much of the EPS gain is buybacks? Net income grew about 59% and EPS about 65%. Decide how much of the gap is worth paying for, and whether the buyback pace is sustainable from free cash flow.

All FY2026 and FY2025 figures used here come from JBL's reported fundamentals and computed key metrics. The reported segment revenue and operating income do not reconcile to consolidated totals (segment revenue sums to about $28.9 billion for FY2026 against $35.95 billion consolidated), and the segment changes they imply differ from the MD&A narrative. This article therefore uses the segment data only in the sense the MD&A text states it. Diluted EPS for Q4 of both years is not in the reported quarterly data and is shown as n/a. The share count is derived from net income divided by diluted EPS, not reported directly. The 'core' margin, 'core' EPS and adjusted free cash flow are company-defined non-GAAP measures taken from the MD&A text and are not reconciled in the reported data.