Avnet, Inc.
Jan 27, 2011

Avnet, Inc. Reports Second Quarter Fiscal Year 2011 Results

Record Revenue Drives Significant EPS Growth

PHOENIX--(BUSINESS WIRE)-- Avnet, Inc. (NYSE:AVT) today announced results for the second quarter fiscal year 2011 ended January 1, 2011.

  Three Months Ended
January 1,   January 2,   Net
2011 2010 Change
  $ in millions, except per share data
Sales $ 6,767.5 $ 4,834.5 40.0 %
GAAP Operating Income $ 227.6 $ 162.3 40.2 %

Adjusted Operating Income (1)

$ 256.7 $ 162.3 58.2 %
GAAP Net Income $ 141.0 $ 103.9 35.8 %
Adjusted Net Income (1) $ 164.8 $ 100.5 64.0 %
GAAP Diluted EPS $ 0.91 $ 0.68 33.8 %
Adjusted Diluted EPS (1) $ 1.07 $ 0.66 62.1 %
(1) A reconciliation of GAAP to non-GAAP financial measures is presented in the Non-GAAP Financial Information section in this press release.

Roy Vallee, Chairman and Chief Executive Officer, commented, "The December quarter capped an excellent calendar year as we continued to leverage the technology driven economic recovery and delivered a fourth consecutive quarter of double-digit year-over-year organic revenue growth. Reported revenue grew 40% year over year to a record $6.8 billion and adjusted operating income grew nearly 1.5 times faster than revenue. The operating leverage in our model drove adjusted operating income margin up both sequentially and year over year, with return on capital employed (ROCE) within our target range of 14% - 16% for the fifth consecutive quarter. Both operating groups delivered ROCE above 15% in the December quarter even as we continued to invest in organic growth initiatives and value-creating M&A in all three regions. With technology markets pointing towards continued growth, we are optimistic that we can continue to grow revenue and EPS and deliver increased shareholder value going forward."

Avnet Electronics Marketing Results

    Year-over-Year Growth Rates
Q2 FY11 Reported   Pro forma(2)
Revenue Revenue Revenue
(in millions)
 
Total

 

$ 3,558.6 41.4 % 23.0 %
Excluding FX (1)

 

43.9 % 25.2 %
Americas

 

$ 1,219.9 54.4 % 16.7 %
EMEA

 

$ 1,079.1 34.3 % -
Excluding FX (1)

 

43.8 % -
Asia

 

$ 1,259.6 36.4 % 20.6 %
 
Q2 FY11 Q2 FY10 Change
Operating Income

 

$ 183.4   $ 92.2   $ 91.3  
Operating Income Margin

 

  5.16 %   3.66 % 150 bps
(1) Year-over-year revenue growth rate excluding the impact of changes in foreign currency exchange rates.
(2) Pro forma revenue is defined later in this release. Pro forma growth rates are not presented for EM EMEA as revenue comparisons to prior year were not impacted by acquisitions.

Mr. Vallee added, "The technology supply chain seems to be effectively adjusting supply, backlogs and inventories as product lead times approach more normal levels. While these adjustments resulted in a sequential revenue decline for the December quarter that was slightly below normal seasonality for EM, pro forma revenue grew 25% year over year in constant dollars. This strong growth in revenue, along with gross profit margin expansion and expense productivity improvements, resulted in a 150 basis improvement in operating margin and a near doubling of operating income over the year ago quarter. ROWC was up 691 basis points year over year and is at our target of 30% through the first six months of fiscal 2011. With capacity utilization and lead times returning to more normal levels, and inventory being well managed across the supply chain, it appears that the component markets will avoid the more dramatic corrections of past cycles and continue to grow in 2011. At EM, where bookings strengthened in the month of December and the book to bill ratio was at parity for the entire quarter, we enter our seasonally stronger March quarter well positioned to grow faster than the markets we serve and accelerate the generation of economic profit dollars."

Avnet Technology Solutions Results

    Year-over-Year Growth Rates
Q2 FY11 Reported   Pro forma(2)
Revenue Revenue Revenue
(in millions)
 
Total

 

$ 3,208.9 38.5 % 4.9 %
Excluding FX (1)

 

40.9 % 6.7 %
Americas

 

$ 1,823.8 30.3 % 4.9 %
EMEA

 

$ 1,045.5 55.4 % 1.0 %
Excluding FX (1)

 

65.5 % 7.6 %
Asia

 

$ 339.6 38.6 % 18.7 %
 
Q2 FY11 Q2 FY10 Change
Operating Income

 

$ 105.2   $ 88.2   $ 17.0  
Operating Income Margin

 

  3.28 %   3.80 % -52 bps
(1) Year-over-year revenue growth rate excluding the impact of changes in foreign currency exchange rates.
(2) Pro forma revenue is defined later in this release.

Mr. Vallee further added, "Reported revenue grew 38% year over year to $3.21 billion and pro forma revenue was up 7% in constant dollars. Technology Solutions organic revenue grew year over year for the fifth consecutive quarter, although the rate of organic growth slowed in comparison to the previous four quarters of strong double-digit growth. TS sequential revenue increased 25% in line with normal seasonality with all three regions contributing. Operating income grew 19% year over year; and on a sequential basis, operating income grew almost 3.5 times faster than revenue. Operating income margin increased 107 basis points over the September quarter with all three regions delivering significant improvement. TS return on working capital improved 1,586 basis points sequentially and was above our stated enterprise ROWC target of 30% for both the quarter and first six months of fiscal 2011. As we proceed with the integrations of recent acquisitions, we expect to continue improving our financial performance as we leverage our market position in mature markets, expand our presence in new higher growth markets and fully realize the balance of expected synergy cost savings."

Cash Flow

Ray Sadowski, Chief Financial Officer, stated, "We grew working capital again this quarter to support the double-digit year-over-year organic growth at EM in fiscal 2011 as well as the seasonally strong growth in the December quarter at TS. While working capital velocity metrics are down from peak levels in the year ago quarter, they remain well above pre-recession levels as the Avnet team did a good job managing through a period of rapid growth and declining product lead times."

Outlook For Fiscal 3rd Quarter Ending on April 2, 2011

The above EPS guidance does not include any potential restructuring charges or any charges related to acquisitions and post-closing integration activities. In addition, the above guidance assumes that the average Euro to U.S. Dollar currency exchange rate for the third quarter of fiscal 2011 is $1.36 to €1.00. This compares with an average exchange rate of $1.38 to €1.00 in the third quarter of fiscal 2010 and $1.36 to €1.00 in the second quarter of fiscal 2011.

Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on management's current expectations and are subject to uncertainty and changes in facts and circumstances. The forward-looking statements herein include statements addressing future financial and operating results of Avnet and may include words such as "will," "anticipate," "expect," "believe," "forecast," and "should," and other words and terms of similar meaning in connection with any discussions of future operating or financial performance, business prospects or market conditions. Actual results may vary materially from the expectations contained in the forward-looking statements.

The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: the Company's ability to retain and grow market share and to generate additional cash flow, risks associated with any acquisition activities and the successful integration of acquired companies, any significant and unanticipated sales decline, changes in business conditions and the economy in general, changes in market demand and pricing pressures, any material changes in the allocation of product or product rebates by suppliers, other competitive and/or regulatory factors affecting the businesses of Avnet generally.

More detailed information about these and other factors is set forth in Avnet's filings with the Securities and Exchange Commission, including the Company's reports on Form 10-K, Form 10-Q and Form 8-K. Avnet is under no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the United States ("GAAP"), the Company also discloses in this press release certain non-GAAP financial information including adjusted operating income, adjusted net income and adjusted diluted earnings per share, as well as revenue adjusted for the impact of acquisitions and other items (as defined in the Pro Forma (Organic) Revenue section of this release). Management believes pro forma revenue is a useful measure for evaluating current period performance as compared with prior periods and for understanding underlying trends.

Management believes that operating income adjusted for restructuring, integration and other items is a useful measure to help investors better assess and understand the Company's operating performance, especially when comparing results with previous periods or forecasting performance for future periods, primarily because management views the excluded items to be outside of Avnet's normal operating results. Management analyzes operating income without the impact of these items as an indicator of ongoing margin performance and underlying trends in the business. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes.

Management believes net income and EPS adjusted for the impact of the items described above is useful to investors because it provides a measure of the Company's net profitability on a more comparable basis to historical periods and provides a more meaningful basis for forecasting future performance. Additionally, because of management's focus on generating shareholder value, of which net profitability is a primary driver, management believes net income and EPS excluding the impact of these items provides an important measure of the Company's net results of operations for the investing public. However, analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

Second Quarter Fiscal 2011

 

Second Quarter Ended Fiscal 2011

           

Diluted

Op Income

Pre-tax

Net Income

EPS

 

$ in thousands, except per share data

GAAP results

$

227,602

$

202,994

$

141,034

$

0.91

Restructuring, integration and other charges 29,112 29,112 20,827 0.14
Income tax adjustments - -   2,935   0.02
Total adjustments   29,112   29,112   23,762   0.16

Adjusted results

$

256,714

$

232,106

$

164,796

$

1.07

Items impacting the second quarter of fiscal 2011 consisted of the following:

Second Quarter Fiscal 2010

 

Second Quarter Ended Fiscal 2010

           

Diluted

Op Income

Pre-tax

Net Income

EPS

 

$ in thousands, except per share data

GAAP Results

$

162,287

$

151,685

$

103,851

$

0.68

Gain on sale of assets -   (5,549 )   (3,383 )   (0.02 )

Adjusted results

$

162,287

$

146,136

 

$

100,468

   

0.66

 

Items impacting the second quarter of fiscal 2010 consisted of a gain on the sale of assets of $5.5 million pre-tax as a result of certain earn-out provisions associated with the earlier sale of the Company's equity investment in Calence LLC.

Pro Forma (Organic) Revenue

Pro forma or Organic revenue is defined as reported revenue adjusted for (i) the impact of acquisitions by adjusting Avnet's prior periods to include the sales of businesses acquired as if the acquisitions had occurred at the beginning of fiscal 2010; (ii) the impact of the extra week of sales in the prior year first quarter due to the "52/53 week" fiscal year; and (iii) the impact of the transfer of the existing embedded business from TS Americas to EM Americas that occurred in the first quarter of fiscal 2011, which did not have an impact to Avnet on a consolidated basis but did impact the pro forma sales for the groups by $93 million in the second quarter of fiscal 2010. Sales taking into account the combination of these adjustments is referred to as "pro forma sales" or "organic sales."

Revenue adjusted for this impact is presented in the following table:

 

Revenue

   

Acquisition

   

Extra Week

   

Pro forma

as Reported

Revenue

in Q1 FY10

Revenue

(in thousands)

Q1 Fiscal 2011 $ 6,182,388 $ 44,564 $ - $ 6,226,952
Q2 Fiscal 2011 $ 6,767,495 $ 291 $ -   $ 6,767,786
Fiscal year 2011 $ 12,949,883 $ 44,855 $ -   $ 12,994,738
 
Q1 Fiscal 2010 $ 4,355,036 $ 980,555 $ (417,780 ) $ 4,917,811
Q2 Fiscal 2010 4,834,524 1,119,106 - 5,953,630
Q3 Fiscal 2010 4,756,786 1,038,916 - 5,795,702
Q4 Fiscal 2010   5,213,826   939,497 -     6,153,323
Fiscal year 2010 $ 19,160,172 $ 4,078,074 $ (417,780 ) $ 22,820,466
 

"Acquisition Revenue" as presented in the preceding table includes the following acquisitions:

Acquired Business     Operating Group     Acquisition Date
Vanda Group TS October 2009
Sunshine Joint Stock Company TS November 2009
PT Datamation TS April 2010
Servodata HP Division TS April 2010
Bell Micro Products Inc. TS/EM July 2010
Tallard Technologies TS July 2010
Unidux EM July 2010
Broadband EM October 2010
Eurotone EM October 2010
Center Cell EM November 2010

Teleconference Webcast and Upcoming Events

Avnet will host a Webcast of its quarterly teleconference today at 2:00 p.m. Eastern Time. The live Webcast event, as well as other financial information including Ray Sadowski's, Chief Financial Officer, CFO Review of Results and financial statement reconciliations of GAAP and non-GAAP financial measures, will be available through www.ir.avnet.com. Please log onto the site 15 minutes prior to the start of the event to register or download any necessary software. An archive copy of the presentation will also be available after the Webcast.

For a listing of Avnet's upcoming events and other information, please visit Avnet's investor relations website at www.ir.avnet.com.

About Avnet

Avnet, Inc. (NYSE:AVT), a Fortune 500 Company, is one of the largest distributors of electronic components, computer products and embedded technology serving customers in more than 70 countries worldwide. Avnet accelerates its partners' success by connecting the world's leading technology suppliers with a broad base of more than 100,000 customers by providing cost-effective, value-added services and solutions. For the fiscal year ended July 3, 2010, Avnet generated revenue of $19.16 billion. For more information, visit www.avnet.com. (AVT_IR)

AVNET, INC.
FINANCIAL HIGHLIGHTS
(MILLIONS EXCEPT PER SHARE DATA)
 
  SECOND QUARTERS ENDED
   
JANUARY 1, JANUARY 2,

2011*

2010*

 
Sales $ 6,767.5 $ 4,834.5
 
Income before income taxes 203.0 151.7
 
Net income 141.0 103.9
 
Net income per share:
Basic $ 0.93 $ 0.69
Diluted $ 0.91 $ 0.68
 
 
FIRST HALVES ENDED
 
JANUARY 1, JANUARY 2,

2011*

 

2010*

 
Sales $ 12,949.9 $ 9,189.6
 
Income before income taxes 407.8 228.3
 
Net income 279.2 154.7
 
Net income per share:
Basic $ 1.84 $ 1.02
Diluted $ 1.81 $ 1.01
 

*See Notes to Consolidated Statements of Operations.

 
AVNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS EXCEPT PER SHARE DATA)
 
  SECOND QUARTERS ENDED   FIRST HALVES ENDED
   
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,

2011*

2010*

2011*

2010*

 
Sales $ 6,767,495 $ 4,834,524 $ 12,949,883 $ 9,189,560
Cost of sales   5,994,301     4,282,633     11,453,544     8,137,932  
 
Gross profit 773,194 551,891 1,496,339 1,051,628
 

Selling, general and administrative expenses

516,480 389,604 1,017,096 782,269

 

Restructuring, integration and other charges (Note 1 *)

  29,112     -     57,179     18,072  
Operating income 227,602 162,287 422,064 251,287
 
Other income (expense), net (360 ) (835 ) 2,979 2,081
Interest expense (24,248 ) (15,316 ) (46,273 ) (30,597 )
Gain on sale of assets (Note 2 *) - 5,549 - 5,549
Gain on bargain purchase and other (Note 3 *) - - 29,023 -
       
Income before income taxes 202,994 151,685 407,793 228,320
 
Income tax provision 61,960 47,834 128,585 73,574
       
Net income $ 141,034   $ 103,851   $ 279,208   $ 154,746  
 
Net earnings per share:
Basic $ 0.93   $ 0.69   $ 1.84   $ 1.02  
Diluted $ 0.91   $ 0.68   $ 1.81   $ 1.01  
 

Shares used to compute earnings per share:

Basic   152,137     151,391     152,071     151,333  
Diluted   154,259     152,945     153,952     152,790  
 

*See Notes to Consolidated Statements of Operations.

 
AVNET, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS)
     
JANUARY 1, JULY 3,
2011 2010
 
Assets:
Current assets:
Cash and cash equivalents $ 756,931 $ 1,092,102
Receivables, net 4,816,088 3,574,541
Inventories 2,549,591 1,812,766
Prepaid and other current assets   245,301   150,759
Total current assets 8,367,911 6,630,168
Property, plant and equipment, net 367,410 302,583
Goodwill 847,954 566,309
Other assets   320,314   283,322
 
Total assets   9,903,589   7,782,382
 
Less liabilities:
Current liabilities:
Borrowings due within one year 777,235 36,549
Accounts payable 3,610,080 2,862,290
Accrued expenses and other   706,669   540,776
Total current liabilities 5,093,984 3,439,615
Long-term debt 1,247,906 1,243,681
Other long-term liabilities   119,499   89,969
 
Total liabilities   6,461,389   4,773,265
 
Shareholders' equity $ 3,442,200 $ 3,009,117
 
AVNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
 
  FIRST HALVES ENDED
JANUARY 1,     JANUARY 2,
2011 2010
Cash flows from operating activities:
 
Net income $ 279,208 $ 154,746
 
Non-cash and other reconciling items:
Depreciation and amortization 39,490 31,127
Deferred income taxes (21,696 ) 16,019
Stock-based compensation 20,769 19,799
Gain on bargain purchase and other (29,023 ) -
Gain on sale of assets - (5,549 )
Other, net 31,017 8,363
 
Changes in (net of effects from businesses acquired):
Receivables (545,192 ) (793,294 )
Inventories (341,101 ) (272,882 )
Accounts payable 295,374 753,354
Accrued expenses and other, net   79,682     (2,988 )
 
Net cash flow used for operating activities   (191,472 )   (91,305 )
 
Cash flows from financing activities:
Borrowings under accounts receivable securitization program, net 450,000 -
Repayment of notes (5,205 ) -
Proceeds from bank debt, net 62,520 39,660
Proceeds from other debt, net 13,570 8
Other, net   1,219     2,767  
 
Net cash flows provided by financing activities   522,104     42,435  
 
Cash flows from investing activities:
Purchases of property, plant, and equipment (70,205 ) (24,465 )

Cash proceeds from sales of property, plant and equipment

1,727 5,441
Acquisitions of operations, net of cash acquired (626,871 ) (5,606 )
Cash proceeds from divestitures   -     8,583  
 
Net cash flows used for investing activities   (695,349 )   (16,047 )
 
Effect of exchange rates on cash and cash equivalents   29,546     15,867  
 
Cash and cash equivalents:
-decrease (335,171 ) (49,050 )
-at beginning of period   1,092,102     943,921  
 
-at end of period $ 756,931   $ 894,871  
 
AVNET, INC.
SEGMENT INFORMATION
(MILLIONS)
 
  SECOND QUARTERS ENDED   FIRST HALVES ENDED
   
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,
SALES: 2011 2010 2011 2010
 
Electronics Marketing $ 3,558.6 $ 2,517.2 $ 7,179.2 $ 4,955.3
 
Technology Solutions 3,208.9 2,317.3 5,770.7 4,234.3
       
Consolidated $ 6,767.5   $ 4,834.5   $ 12,949.9   $ 9,189.6  
 
 
OPERATING INCOME (LOSS):
 
Electronics Marketing $ 183.4 $ 92.2 $ 375.5 $ 173.6
 
Technology Solutions 105.2 88.2 161.9 139.5
 
Corporate   (31.9 )   (18.1 )   (58.2 )   (43.7 )
 
$ 256.7 $ 162.3 $ 479.2 $ 269.4
 
Restructuring, integration and other charges   (29.1 )   -     (57.2 )   (18.1 )
 
Consolidated $ 227.6   $ 162.3   $ 422.0   $ 251.3  
 

AVNET, INC.
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
SECOND QUARTER AND FIRST HALF OF FISCAL 2011

(1) The results for the second quarter of fiscal 2011 included restructuring, integration and other charges which totaled $29,112,000 pre-tax, $20,827,000 after tax and $0.14 per share on a diluted basis and were incurred primarily in connection with the acquisitions and integrations of acquired businesses. The charges included restructuring charges consisting of severance of $10,655,000 pre-tax and facility exit related costs, fixed asset write downs and related costs of $11,488,000 pre-tax which were incurred primarily as a result of the integration activities associated with the acquisitions. Integration costs of $8,774,000 pre-tax included professional fees associated with legal and IT consulting, facility moving costs, travel, meeting, marketing and communication costs that were incrementally incurred as a result of the integration activity. Also included in integration costs are incremental salary and associated employee benefit costs, primarily of the acquired businesses' personnel who were retained by Avnet for extended periods following the close of the acquisitions solely to assist in the integration of the acquired business' IT systems and administrative and logistics operations into those of Avnet. These identified personnel have no other meaningful day-to-day operational responsibilities outside of the integration effort. Transaction costs of $1,307,000 pre-tax consisted primarily of broker fees, professional fees for legal and accounting due diligence and related costs. The Company recorded other charges of $373,000 pre-tax and a reversal of $3,485,000 pre-tax primarily related to the reversal of restructuring reserves established in prior years which were no longer needed.

Results for the first half of fiscal 2011 included restructuring, integration and other charges which totaled $57,179,000 pre-tax, $40,989,000 after tax and $0.27 per share on a diluted basis and consisted of $18,934,000 pre-tax for severance, $13,913,000 pre-tax for facilities related costs, fixed asset write downs and related costs, $16,096,000 pre-tax for integration costs, $12,068,000 pre-tax for transactions costs associated with acquisitions and $373,000 pre-tax for other charges. The Company also recorded a reversal of $4,205,000 pre-tax to adjust reserves related to prior year restructuring activity that were no longer needed.

The results for the first half of fiscal 2010 included restructuring, integration and other charges which totaled $18,072,000 pre-tax, $13,202,000 after tax and $0.09 per share on a diluted basis. Restructuring costs of $15,991,000 pre-tax related to the remaining cost reductions that began in fiscal 2009 and consisted of severance, facility exit costs and fixed asset write-downs associated with the exited facilities. The Company also recognized $2,931,000 pre-tax of integration costs associated with acquired businesses, $1,104,000 pre-tax of other charges and a reversal of $1,954,000 pre-tax related to restructuring reserves established in prior years.

(2) During the second quarter and first half of fiscal 2010, the Company recognized a gain on the sale of assets amounting to $5,549,000 pre-tax, $3,383,000 after tax and $0.02 per share as a result of certain earn-out provisions associated with the sale of the Company's prior equity investment in Calence LLC.

(3) During the first quarter of fiscal 2011, the Company acquired Unidux, Inc., a Japanese publicly traded electronics component distributor, through a tender offer. After evaluating all assets acquired and liabilities assumed, the consideration paid was below the fair value of the acquired net assets and, as a result, the Company recognized a gain on bargain purchase of $30,990,000 pre- and after tax, and $0.20 per share on a diluted basis. It is not uncommon for the trading price of certain Japanese public companies shares to be below book value, which was the primary driver of the gain on bargain purchase. In addition, the Company recognized other charges of $1,967,000 pre-tax, $1,413,000 after tax and $0.01 per share on a diluted basis primarily related to the write down of two buildings in EMEA.

Investor Relations Contact:
Avnet, Inc.
Vincent Keenan
Investor Relations
(480) 643-7053
investorrelations@avnet.com

Source: Avnet, Inc.

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