Avnet, Inc.
Oct 25, 2012

Avnet, Inc. Reports First Quarter Fiscal Year 2013 Results

 

PHOENIX--(BUSINESS WIRE)-- Avnet, Inc. (NYSE:AVT) today announced results for the first quarter fiscal year 2013 ended September 29, 2012.

Q1 Fiscal 2013 Results

      FIRST QUARTERS ENDED
                   
      September 29,     October 1,      
      2012     2011     Change
      $ in millions, except for per share data
Sales     $ 5,870.1     $ 6,426.0     -8.7 %
                   
GAAP Operating Income       100.0       223.1     -55.2 %

Adjusted Operating Income (1)

      137.4       223.1     -38.4 %
                   
GAAP Net Income       100.3       139.0     -27.9 %

Adjusted Net Income (1)

      83.9       139.0     -39.6 %
                   
                   
GAAP Diluted EPS Basic     $ 0.70     $ 0.90     -22.2 %

Adjusted Diluted EPS (1)

    $ 0.59     $ 0.90     -34.4 %
(1)   A reconciliation of non-GAAP financial measures to GAAP financial measures is presented in the Non-GAAP Financial Information section in this press release.
     

Rick Hamada, Chief Executive Officer, commented, "Our Q1 results represent a disappointing setback in our short-term performance expectations. Key segments of our served markets slowed during the quarter beyond our initial expectations, leading to a dramatic impact on our bottom line results as our revenues in the higher-margin western regions declined double-digit percentages year over year. Our Americas region, where pro forma sales declined 14% both sequentially and year over year, came in below expectations at both operating groups. Our EMEA region experienced a fifth consecutive quarter of year-over-year revenue decline as pro forma revenues in constant dollars were down 6% and 8%, respectively, on a sequential and year-over-year basis. The negative operating leverage resulting from lower sales and the accompanying loss of gross profit dollars in the western regions had a significant impact on our bottom line as adjusted operating income declined nearly $86 million from the year ago quarter and adjusted EPS was down 34%. In response to these developments, coupled with the previously announced activities initiated in response to our fourth quarter fiscal 2012 results, we have now completed $90 million of cost reductions that will positively impact the December 2012 quarter. As is characteristic of our counter-cyclical balance sheet, where we tend to generate positive cash flow in a low or negative growth environment, we generated cash from operations for the fourth consecutive quarter bringing the total for the trailing twelve months to $814 million. While there are still many factors that could impact future demand trends, our top priority will be to restore our operating margins. To this end, we are in the process of identifying additional cost reduction actions that will impact future quarters."

Avnet Electronics Marketing Results

           

Year-over-Year Growth Rates

      Q1 FY13     Reported     Pro Forma
      Revenue     Revenue     Revenue
      (in millions)            
EM Total     $ 3,653.2         -4.3 %     -8.0 %

Excluding FX (1)

            -0.9 %     -4.8 %
Americas     $ 1,287.8         -6.9 %     -10.9 %
EMEA     $ 958.5         -14.7 %     -15.7 %

Excluding FX (1)

            -3.8 %     -4.9 %
Asia     $ 1,406.9         7.5 %     1.1 %
                   
                   
      Q1 FY13     Q1 FY12     Change
Operating Income     $ 146.3       $ 191.2       -23.5 %
Operating Income Margin       4.0 %       5.0 %     -101 bps

(1)

  Year-over-year revenue growth rate excluding the impact of changes in foreign currency exchange rates.

Mr. Hamada added, "EM sales were at the low end of normal seasonality for the third consecutive quarter as pro forma revenue declined 3% sequentially in constant dollars as compared with a typical range of up 1% to down 3%. While the Americas region came in below expectations with pro forma sales down over 10% sequentially, EMEA was down 7% in constant currency and Asia, which was a bit stronger than expected, grew 8% sequentially. The lower revenue levels in the higher-gross profit margin western regions drove operating income down 24% year over year and operating income margin down 101 basis points to 4.0%. EM's book to bill ratio declined throughout the September quarter as customers remained very cautious with placing orders given an environment of limited visibility and relatively stable lead times. With another quarter of less than seasonal growth expected in the December quarter, we will continue to adjust our resources in the parts of the portfolio most impacted by the slowing demand as the technology supply chain continues to be influenced by the macroeconomic uncertainties leading to an environment of caution in our industrial end markets."

Avnet Technology Solutions Results

           

Year-over-Year Growth Rates

      Q1 FY13     Reported     Pro Forma
      Revenue     Revenue     Revenue (2)
      (in millions)            
TS Total     $ 2,216.9         -15.1 %     -16.3 %
Excluding FX (1)             -12.6 %     -13.9 %
Americas     $ 1,164.6         -16.1 %     -18.2 %
EMEA     $ 635.5         -18.4 %     -19.0 %
Excluding FX (1)             -11.0 %     -11.7 %
Asia     $ 416.8         -5.9 %     -  
                   
                   
      Q1 FY13     Q1 FY12     Change
Operating Income     $ 34.4       $ 65.0       -47.1 %
Operating Income Margin       1.6 %       2.5 %     -94 bps

(1)

  Year-over-year revenue growth rate excluding the impact of changes in foreign currency exchange rates.

(2)

  No pro forma growth rate is presented as there were no acquisitions impacting the region.

Mr. Hamada further added, "Similar to the June quarter, TS experienced weaker than expected transaction activity towards the end of September as some customers opted to delay IT projects that were specifically targeted for closure. The revenue shortfall was most pronounced in our Americas region where organic growth declined approximately 18% both sequentially and year over year. Weakness persisted in the EMEA region as year-over-year organic growth in constant currency declined double-digits for the third consecutive quarter while Asia was down 6% from the year ago quarter. While gross profit margin held steady with the prior year quarter, the loss of gross profit dollars due to the decline in sales had a significant impact as operating income dollars and margin declined 47% and 94 basis points, respectively. While we have completed expense reductions that will positively impact the December quarter, we are in the process of identifying additional expense actions that will drive year-over-year improvements in operating income margin beyond the December quarter."

Cash Flow/Buyback

Ray Sadowski, Chief Financial Officer, stated, "The multi-quarter trend of below seasonal sales growth and our counter-cyclical balance sheet combined with solid profits resulted in significant cash flow from operations over the past year. This allowed us to take advantage of a lower stock price and acquire a significant number of shares under our stock repurchase plan without impacting our strong balance sheet and financial flexibility. We also renewed our accounts receivable securitization program with improved terms and increased credit availability. As a result, we closed the September quarter with over $1 billion of cash on our balance sheet and another $832 million of available credit from our short term borrowing facilities. With this strong liquidity position, we are well positioned to weather the current market conditions and possess the financial flexibility to invest in profitable growth opportunities when markets improve."

Outlook For 2nd Quarter of Fiscal 2013 Ending on December 29, 2012

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 second quarter of fiscal 2013 is $1.29 to €1.00. This compares with an average exchange rate of $1.35 to €1.00 in the second quarter of fiscal 2012 and $1.25 to €1.00 in the first quarter of fiscal 2013.

Forward-Looking Statements

This document 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," "estimate," "forecast," "expect," "believe," 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, declines in sales, 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, allocations of products 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. Except as required by law, 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 document 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 document). 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.

Other metrics management monitors in its assessment of business performance include return on working capital (ROWC), return on capital employed (ROCE) and working capital velocity (WC velocity).

Any 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.

First Quarter Fiscal 2013

      First Quarter Fiscal 2013
                        Diluted
      Op Income     Pre-tax     Net Income     EPS
      $ in thousands, except per share data
GAAP results     $ 99,973     $ 108,857       $ 100,305       $ 0.70  
Restructuring, integration and other charges       37,408       37,408         27,101         0.19  
Gain on bargain purchase       -       (31,291 )       (31,291 )       (0.22 )
Income tax adjustments       -       -         (12,184 )       (0.08 )
Total adjustments       37,408       6,117         (16,374 )       (0.11 )
Adjusted results     $ 137,381     $ 114,974       $ 83,931         0.59  
                                       

Items impacting the first quarter of fiscal 2013 consisted of the following:

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 2012 and (ii) the impact of the transfer of a business from TS Americas to EM Americas, which did not have an impact to Avnet on a consolidated basis but did impact the pro forma sales for the groups by $8 million in the first quarter of fiscal 2012. Sales taking into account the combination of these adjustments is referred to as "pro forma sales" or "organic sales."

      Revenue    

Acquisition

  Pro forma
      as Reported     Revenue     Revenue
      (in thousands)
Q1 Fiscal 2013  

 

$ 5,870,057     $ 52,643     $ 5,922,700
                   
Q1 Fiscal 2012  

 

$ 6,426,006     $ 249,913     $ 6,675,919
Q2 Fiscal 2012  

 

  6,693,573       212,635       6,906,208
Q3 Fiscal 2012  

 

  6,280,557       134,379       6,414,936
Q4 Fiscal 2012  

 

  6,307,386       84,854       6,392,240
Fiscal year 2012  

 

$ 25,707,522     $ 681,781     $ 26,389,303
                   

"Acquisition Revenue" as presented in the preceding table includes the acquisitions listed below.

Acquired Business     Operating Group     Acquisition Date
Altron GmbH & Co. KG     EM     July 2012
Mattelli Limited     TS     July 2012
Pepperweed Consulting     TS     August 2012
C.R.G. Electronics, Ltd.     EM     August 2012
Internix, Inc.     EM     August 2012
             

ROWC, ROCE and WC Velocity

The following table presents the calculation for ROWC, ROCE and WC velocity.

          Q1 FY 13         Q1 FY 12
                     
Sales  

 

    5,870,057           6,426,006  
Sales, annualized   (a)     23,480,229           25,704,024  
                     
Adjusted operating income (1)  

 

    137,381           223,064  
Adjusted operating income, annualized   (b)     549,523           892,254  
Adjusted effective tax rate (2)  

 

    27.00 %         29.43 %
Adjusted operating income, net after tax   ©     401,152           629,664  
                     
Average monthly working capital                    
Accounts receivable  

 

    4,353,226           4,541,536  
Inventory  

 

    2,448,301           2,727,916  
Accounts payable  

 

    (3,015,599 )         (3,243,209 )
Average working capital   (d)     3,785,928           4,026,243  
                     
Average monthly total capital   (e)     5,110,354           5,168,910  
                     
                     
ROWC = (b) / (d)  

 

    14.51 %         22.16 %
WC Velocity = (a) / (d)  

 

    6.20           6.38  
ROCE = (c ) / (e)  

 

    7.85 %         12.18 %

(1)

 

See reconciliation to GAAP amounts in the preceding tables in this Non-GAAP Financial Information Section.

(2)

 

Adjusted effective tax rate is based upon a year-to-date (full fiscal year rate for FY12) calculation excluding restructuring, integration and other charges and tax adjustments as described in the reconciliation to GAAP amounts in this Non-GAAP Financial Information Section.

     

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 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 globally. Avnet accelerates its partners' success by connecting the world's leading technology suppliers with a broad base of customers by providing cost-effective, value-added services and solutions. For the fiscal year ended June 30, 2012, Avnet generated revenue of $25.7 billion. For more information, visit www.avnet.com. (AVT_IR)

AVNET, INC.
FINANCIAL HIGHLIGHTS
(MILLIONS EXCEPT PER SHARE DATA)
         
      FIRST QUARTERS ENDED
     

SEPTEMBER 29,

        OCTOBER 1,
      2012         2011
                 
Sales     $ 5,870.1         $ 6,426.0
                 
Income before income taxes       108.9           195.8
                 
Net income       100.3           139.0
                 
Net income per share:                
Basic     $ 0.71         $ 0.91
Diluted     $ 0.70         $ 0.90

* See Notes to Consolidated Statements of Operations.

 

AVNET, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(THOUSANDS EXCEPT PER SHARE DATA)

         
      FIRST QUARTERS ENDED
           
      SEPTEMBER 29,   OCTOBER 1,
      2012   2011
           
Sales     $ 5,870,057     $ 6,426,006  
Cost of sales       5,185,680       5,672,409  
           
Gross profit       684,377       753,597  
           

Selling, general and administrative expenses

      546,996       530,533  

Restructuring, integration and other charges (Note 1*)

      37,408       -  
           
Operating income       99,973       223,064  
           
Other income (expense), net       1,483       (5,376 )
Interest expense       (23,890 )     (21,871 )
Gain on bargain purchase (Note 2*)       31,291       -  
Income before income taxes       108,857       195,817  
           
Income tax provision       8,552       56,787  
           
Net income     $ 100,305     $ 139,030  
           
Net earnings per share:          
Basic     $ 0.71     $ 0.91  
Diluted     $ 0.70     $ 0.90  

 

         

Shares used to compute earnings per share:

         
Basic       140,767       152,270  
Diluted       143,359       154,506  

* See Notes to Consolidated Statements of Operations.

AVNET, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS)
 
      SEPTEMBER 29,         JUNE 30,
      2012         2012
                 
Assets:                
Current assets:                
Cash and cash equivalents     $ 1,043,033         $ 1,006,864
Receivables, net       4,477,927           4,607,324
Inventories       2,360,500           2,388,642
Prepaid and other current assets       237,340           251,609
Total current assets       8,118,800           8,254,439
Property, plant and equipment, net       480,858           461,230
Goodwill       1,155,136           1,100,621
Other assets       348,330           351,576
                 
Total assets       10,103,124           10,167,866
                 
Less liabilities:                
Current liabilities:                
Borrowings due within one year       948,596           872,404
Accounts payable       2,920,591           3,230,765
Accrued expenses and other       676,215           695,483
Total current liabilities       4,545,402           4,798,652
Long-term debt       1,399,832           1,271,985
Other long-term liabilities       178,107           191,497
                 
Total liabilities       6,123,341           6,262,134
                 
Shareholders' equity     $ 3,979,783         $ 3,905,732
                     
AVNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
 
      FIRST QUARTERS ENDED
      SEPTEMBER 29,         OCTOBER 1,
      2012         2011
Cash flows from operating activities:                
                 
Net income     $ 100,305           $ 139,030  
                 
Non-cash and other reconciling items:                
Depreciation and amortization       28,208             22,301  
Deferred income taxes       (2,889 )           12,901  
Stock-based compensation       18,905             14,252  
Gain on bargain purchase       (31,291 )           -  
Other, net       14,988             15,188  
                 
Changes in (net of effects from businesses acquired):                
Receivables       277,687             125,422  
Inventories       102,672             (88,989 )
Accounts payable       (382,870 )           (373,793 )
Accrued expenses and other, net       (44,738 )           (70,459 )
                 
Net cash flows provided by (used for) operating activities       80,977             (204,147 )
                 
Cash flows from financing activities:                
Borrowings under accounts receivable securitization program       41,000             325,000  
Proceeds from bank debt, net       131,141             64,281  
Repayments of other debt, net       (1 )           (256 )
Repurchases of common stock       (128,707 )           (81,921 )
Other, net       1,280             588  
                 
Net cash flows provided by financing activities       44,713             307,692  
                 
Cash flows from investing activities:                
Purchases of property, plant, and equipment       (24,385 )           (39,666 )

Cash proceeds from sales of property, plant and equipment

      304             443  
Acquisitions of operations, net of cash acquired       (87,176 )           (103,232 )
Proceeds from divestiture       4,500             -  
                 
Net cash flows used for investing activities       (106,757 )           (142,455 )
                 
Effect of exchange rates on cash and cash equivalents       17,236             (13,994 )
                 
Cash and cash equivalents:                

- increase (decrease)

      36,169             (52,904 )

- at beginning of period

      1,006,864             675,334  
                 

- at end of period

    $ 1,043,033           $ 622,430  
                         
AVNET, INC.
SEGMENT INFORMATION
(MILLIONS)
 
          FIRST QUARTERS ENDED
                     
          SEPTEMBER 29,         OCTOBER 1,
SALES:         2012         2011
                     
Electronics Marketing         $ 3,653.2           $ 3,816.3  
                     
Technology Solutions           2,216.9             2,609.7  
                     
Consolidated         $ 5,870.1           $ 6,426.0  
                     
                     
OPERATING INCOME (LOSS):                    
                     
Electronics Marketing         $ 146.3           $ 191.2  
                     
Technology Solutions           34.4             65.0  
                     
Corporate           (43.3 )           (33.1 )
                     
            137.4             223.1  

 

                   

Restructuring, integration and other charges

          (37.4 )           -  
                     
Consolidated         $ 100.0           $ 223.1  
                             

AVNET, INC.

NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS

FIRST QUARTER OF FISCAL 2013

 
(1)   The results for the first quarter of fiscal 2013 included restructuring, integration and other charges which totaled $37,408,000 pre-tax, $27,102,000 after tax and $0.19 per share on a diluted basis. Restructuring charges included therein were $30,210,000 pre-tax consisting of $25,900,000 for severance, $3,967,000 for facility exit costs and fixed asset write downs, and $343,000 for other restructuring charges. Integration costs and acquisition transaction costs were $5,049,000 pre-tax and $2,780,000 pre-tax, respectively. The Company recorded a credit of $631,000 pre-tax primarily to adjust reserves related to prior year restructuring activity which were no longer required.
 
(2)   During the first quarter of fiscal 2013, the Company recognized a gain on bargain purchase of $31,291,000 pre- and after tax and $0.22 per share on a diluted basis. In August 2012, the Company acquired Internix, Inc., a company publicly traded on the Tokyo Stock Exchange, through a tender offer. After assessing the 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 the gain.

 

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

Source: Avnet, Inc.

 

 

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