Avnet, Inc.
Oct 23, 2014

Avnet, Inc. Reports First Quarter Fiscal Year 2015 Results

Top-Line Growth and Operating Leverage Drives Improved Profitability

PHOENIX--(BUSINESS WIRE)-- Avnet, Inc. (NYSE:AVT) today announced results for the first quarter fiscal year 2015 ended September 27, 2014.

Q1 Fiscal 2015 Results

     
FIRST QUARTERS ENDED
       

September 27,
2014

   

September 28,
2013

    Change
$ in millions, except per share data
Sales $6,839.6     $6,345.5     7.8 %
 
GAAP Operating Income 193.2 179.0 7.9 %
Adjusted Operating Income (1) 223.7 199.5 12.2 %
 
GAAP Net Income 127.9 120.6 6.1 %
Adjusted Net Income (1) 144.2 126.0 14.4 %
 
GAAP Diluted EPS $0.91 $0.86 5.8 %
Adjusted Diluted EPS (1) $1.02 $0.90 13.3 %

(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 team carried the momentum of fiscal 2014 into our new fiscal year as they leveraged continued revenue growth into another year-over-year increase in EPS. At an enterprise level, year-over-year organic revenue grew 5.6% in constant dollars led by a sixth consecutive quarter of year-over-year organic growth at Electronics Marketing (EM), along with a return to positive growth at Technology Solutions (TS). This top-line growth, combined with an increase in gross profit margin at EM and continued expense efficiencies across the enterprise, resulted in operating income growing 1.6 times faster than revenue and operating income margin increasing 13 basis points year over year to 3.3%. Even given an environment of heightened sensitivity to current market conditions, we remain focused on profitable growth opportunities and will continue to align our investments toward maintaining our momentum. With our strong team and financial position, we have the resources to respond as needed while continuing to return cash to shareholders via both our dividend and disciplined share repurchase program."

Avnet Electronics Marketing Results

         
Year-over-Year Growth Rates

Q1 FY15
Sales

Reported
Sales

   

Organic
Sales

(in millions)
EM Total $ 4,374.1 11.1 % 7.8 %
Excluding FX (1) 11.1 % 7.8 %
Americas $ 1,214.0 1.2 % 1.2 %
EMEA $ 1,302.5 18.6 % 7.0 %
Excluding FX (1) 18.0 % 6.4 %
Asia $ 1,857.6 13.2 % 13.2 %
 
Q1 FY15 Q1 FY14 Change
Operating Income $ 202.7 $ 175.8 15.3 %
Operating Income Margin 4.6 % 4.5 % 17 bps

(1) Year-over-year sales growth rate excluding the impact of changes in foreign currency exchange rates.

Mr. Hamada added, "EM delivered another quarter of top-line growth that was at the high end of expectations and normal seasonality while expanding margins and returns year over year. In the September quarter, revenue increased 2.3% sequentially in constant currency, primarily due to a 10.8% increase in Asia partially offset by seasonal declines in the western regions. On a year-over-year basis, EM's organic revenue grew 7.8% led by the Asia region, which increased over 13.2%. Operating income grew 15.3% year over year with all three regions delivering double digit growth and operating income margin increased 17 basis points to 4.6%. Although September is typically a seasonally weak quarter for EM, our team delivered another quarter of improved financial performance across all regions. In Asia, where select high volume supply chain engagements are driving much of the current top-line growth, the team continues to increase returns and grow economic profit dollars. In EMEA, our team delivered a sixth consecutive quarter of year-over-year organic growth, and with the integration of MSC now essentially complete, our team is back to posting year-over-year increases in both margins and returns. In our Americas region, the team returned to modest year-over-year revenue growth, which drove an increase in both margins and returns. While our book to bill ratio was slightly above parity at the end of the quarter, we are diligently monitoring our dashboards and we remain committed to driving further improvement in our financial performance as we continue to focus on our goals for the full fiscal year."

Avnet Technology Solutions Results

         
Year-over-Year Growth Rates

Q1 FY15
Sales

Reported
Sales

   

Organic
Sales

(in millions)
TS Total $ 2,465.5 2.4 % 2.4 %
Excluding FX (1) 2.0 % 2.0 %
Americas $ 1,433.1 11.2 % 11.2 %
EMEA $ 672.9 (3.1 )% (3.1 )%
Excluding FX(1) (5.8 )% (5.8 )%
Asia $ 359.5 (15.2 )% (15.2 )%
 
Q1 FY15 Q1 FY14 Change
Operating Income $ 62.4 $ 62.6 (0.3 )%
Operating Income Margin 2.5 % 2.6 % (7) bps

(1) Year-over-year sales growth rate excluding the impact of changes in foreign currency exchange rates.

Mr. Hamada further added, "During our September quarter, TS delivered top-line growth of 2.4% year over year driven by strength in our Americas region, which experienced double digit organic growth for the first time in three years. In our EMEA region, which declined 5.8% in constant currency, mid-single digit growth in our core enterprise distribution business was offset by a decline in our computing components business. TS Asia was below our expectations this quarter as revenue declined 14.6% sequentially with this weakness reflected broadly across the region. In our TS EMEA region, our team has been driving efficiencies as operating income margin improved both sequentially and year over year. Going forward, we will continue to utilize our disciplined portfolio management to ensure we are focusing our resources on high growth opportunities in the enterprise IT ecosystem."

Cash Flow/Dividend

Kevin Moriarty, Chief Financial Officer, stated, "We used roughly $41 million in cash flow to fund operations for the quarter as the working capital grew to support our organic sales growth. Despite the use of cash during the quarter, the trailing twelve months cash flow generated from operations improved by 36% to $323 million, and we exited the quarter with roughly $814 million of cash on our balance sheet. Our disciplined approach to our capital allocation priorities has positioned us well for the recent equity market environment and, during the quarter, we returned approximately $40 million to shareholders. In the September quarter, we raised our quarterly dividend by 7% to an annualized $0.64 a year, or $22 million per quarter, while also repurchasing approximately $18 million of shares through our share repurchase program. We began our fiscal second quarter with approximately $198 million remaining under our currently authorized share repurchase program, and through the first three weeks of our second fiscal quarter have repurchased approximately $55 million of shares. As of the end of September, we have over $2.0 billion of liquidity to support continued organic growth initiatives, invest in value creating M&A and shareholder returns."

Outlook for Second Quarter of Fiscal 2015 Ending on December 27, 2014

The above guidance excludes the amortization of intangibles and any potential restructuring, integration and other expenses. In addition, the above guidance assumes that the average U.S. Dollar to Euro currency exchange rate for the second quarter of fiscal 2015 is $1.27 to €1.00. This compares with an average exchange rate of $1.36 to €1.00 in the second quarter of fiscal 2014 and $1.33 to €1.00 in the first quarter of fiscal 2015.

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," "feel," "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 differ 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, and 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 sales adjusted for the impact of acquisitions and other items (as defined in the Organic Sales section of this document). Management believes organic sales 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 (i) restructuring, integration and other expenses and (ii) amortization of acquired intangible assets and other, 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 or non-cash in nature. 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 diluted EPS adjusted for (i) the impact of the items described above, (ii) certain items impacting income tax expense and (iii) the gain on legal settlement, 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 diluted EPS excluding the impact of these items provides an important measure of the Company's net results 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, results presented in accordance with GAAP.

First Quarter Fiscal 2015

     
First Quarter Fiscal 2015

Operating
Income

   

Income
Before
Income
Taxes

    Net Income    

Diluted
EPS*

$ in thousands, except per share amounts
GAAP results $ 193,197 $ 168,304 $ 127,946 $ 0.91

Restructuring, integration and other expenses

18,320 18,320 13,160 0.09
Amortization of intangible assets and other 12,208 12,208 8,973 0.07
Income tax adjustments     (5,926 ) (0.04 )
Total adjustments 30,528   30,528   16,207   0.12  
Adjusted results $ 223,725   $ 198,832   $ 144,153   $ 1.02  

* Does not foot due to rounding

Items impacting the first quarter of fiscal 2015 consisted of the following:

Fourth Quarter Fiscal 2014

     
Fourth Quarter Fiscal 2014

Operating
Income

   

Income
Before
Income
Taxes

    Net Income    

Diluted
EPS

$ in thousands, except per share amounts
GAAP results $ 204,538 $ 175,640 $ 186,264 $ 1.33

Restructuring, integration and other expenses

27,999 27,999 20,901 0.15
Foreign currency loss 3,315 2,022 0.01
Amortization of intangible assets and other 12,328 12,328 9,076 0.06
Income tax adjustments     (58,187 ) (0.41 )
Total adjustments 40,327   43,642   (26,188 ) (0.19 )
Adjusted results $ 244,865   $ 219,282   $ 160,076   $ 1.14  

Items impacting the fourth quarter of fiscal 2014 consisted of the following:

First Quarter Fiscal 2014

     
First Quarter Fiscal 2014

Operating
Income

   

Income
Before
Income
Taxes

    Net Income    

Diluted
EPS

$ in thousands, except per share amounts
GAAP results $ 178,987 $ 171,942 $ 120,624 $ 0.86

Restructuring, integration and other expenses

12,099 12,099 8,851 0.06
Gain on legal settlement (19,137 ) (11,686 ) (0.08 )
Amortization of intangible assets and other 8,394 8,394 5,702 0.04
Income tax adjustments     2,496   0.02  
Total adjustments 20,493   1,356   5,363   0.04  
Adjusted results $ 199,480   $ 173,298   $ 125,987   $ 0.90  

Items impacting the first quarter of fiscal 2014 consisted of the following:

Organic Sales

Organic sales is defined as reported sales adjusted for the impact of acquisitions and divestitures by adjusting Avnet's prior periods to include the sales of acquired businesses and exclude the sales of divested businesses as if the acquisitions and divestitures had occurred at the beginning of the earliest period presented.

The following table presents the reconciliation of reported sales to organic sales for the first quarter of fiscal 2014. For quarterly periods after the first quarter of fiscal 2014, reported sales are equivalent to organic sales.

Q1 Fiscal 2014      

Sales As Reported
Fiscal 2014

   

Acquisitions/
Divestitures

   

Organic Sales -
Fiscal 2014

(in thousands)
Avnet, Inc. $ 6,345,475 $ 119,950 $ 6,465,425
EM 3,938,124 119,950 4,058,074
TS 2,407,351 2,407,351
EM
Americas $ 1,199,745 $ $ 1,199,745
EMEA 1,097,842 119,950 1,217,792
Asia 1,640,537 1,640,537
TS
Americas $ 1,288,923 $ $ 1,288,923
EMEA 694,247 694,247
Asia 424,181 424,181

"Acquisition/Divestiture" as presented in the preceding table includes the acquisition of MSC Investoren GmbH ("MSC"), in October 2013 in the EM EMEA region, which impacted the year-over-year sales comparisons.

ROWC, ROCE and WC Velocity

The following table (in thousands) presents the calculation for ROWC, ROCE and WC velocity.

        Q1 FY15     Q1 FY14     Q4 FY14
Sales $ 6,839,587 $ 6,345,475 $ 7,048,708
Sales, annualized (a) $ 27,358,348 $ 25,381,900 $ 28,194,832
Adjusted operating income (1) $ 223,725 $ 199,480 $ 244,865
Adjusted annualized operating income (b) $ 894,900 $ 797,920 $ 979,460
Adjusted effective tax rate (2) 27.5 % 27.9 % 27.9 %
Adjusted annualized operating income, after tax (c) $ 648,803 $ 575,460 $ 706,387
Average monthly working capital
Accounts receivable $ 4,993,653 $ 4,680,691 $ 5,020,472
Inventories $ 2,729,194 $ 2,465,802 $ 2,632,177
Accounts payable $ (3,231,037 ) $ (3,125,452 ) $ (3,208,300 )
Average working capital (d) $ 4,491,810   $ 4,021,041   $ 4,444,349  
Average monthly total capital (e) $ 6,101,274   $ 5,532,305   $ 6,009,390  
ROWC = (b) / (d) 19.9 % 19.8 % 22.0 %
WC Velocity = (a) / (d) 6.1 6.3 6.3
ROCE = (c) / (e) 10.6 % 10.4 % 11.8 %
                     

(1)

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

(2)

Adjusted effective tax rate for each quarterly period in a fiscal year is based upon the currently anticipated annual effective tax rate, excluding the tax effect of the items described above in the reconciliation to GAAP amounts in this Non-GAAP Financial Information section.

Teleconference and Upcoming Events

Avnet will host a quarterly teleconference today at 2:00 p.m. Eastern Time. Financial information including financial statement reconciliations of GAAP to 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 teleconference will also be available after the call.

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 28, 2014, Avnet generated sales of $27.5 billion. For more information, visit www.avnet.com. (AVT_IR)

AVNET, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

     
First Quarters Ended

September 27,
2014

   

September 28,
2013

(Thousands, except per share data)
Sales $ 6,839,587 $ 6,345,475
Cost of sales 6,044,124   5,610,305  
Gross profit 795,463 735,170
Selling, general and administrative expenses 583,946 544,084
Restructuring, integration and other expenses 18,320   12,099  
Operating income 193,197 178,987
Other income (expense), net (1,493 ) 795
Interest expense (23,400 ) (26,977 )
Gain on legal settlement   19,137  
Income before income taxes 168,304 171,942
Income tax expense 40,358   51,318  
Net income $ 127,946   $ 120,624  
Earnings per share:
Basic $ 0.93   $ 0.88  
Diluted $ 0.91   $ 0.86  
Shares used to compute earnings per share:
Basic 138,309   137,414  
Diluted 140,850   139,724  
Cash dividends paid per common share $ 0.16   $ 0.15  
 
 
         

AVNET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

September 27,
2014

June 28,
2014

(Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 814,371 $ 928,971
Receivables, net 5,060,519 5,220,528
Inventories 2,705,400 2,613,363
Prepaid and other current assets 181,768   191,337
Total current assets 8,762,058 8,954,199
Property, plant and equipment, net 529,294 534,999
Goodwill 1,321,037 1,348,468
Intangible assets, net 167,264 184,308
Other assets 207,593   233,543
Total assets $ 10,987,246   $ 11,255,517
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 463,251 $ 865,088
Accounts payable 3,301,493 3,402,369
Accrued expenses and other 638,462   711,369
Total current liabilities 4,403,206 4,978,826
Long-term debt 1,625,759 1,213,814
Other liabilities 164,122   172,684
Total liabilities 6,193,087 6,365,324
Shareholders' equity 4,794,159   4,890,193
Total liabilities and shareholders' equity $ 10,987,246   $ 11,255,517
 
 
     

AVNET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
Three Months Ended
September 27,
2014
    September 28,
2013
(Thousands)
Cash flows from operating activities:
Net income $ 127,946 $ 120,624
Non-cash and other reconciling items:
Depreciation 23,134 20,897
Amortization 11,557 8,394
Deferred income taxes 10,290 9,544
Stock-based compensation 21,698 18,730
Other, net 17,715 23,842
Changes in (net of effects from businesses acquired):
Receivables 41,525 89,718
Inventories (165,851 ) (220,165 )
Accounts payable (28,836 ) (128,045 )
Accrued expenses and other, net (99,833 ) (69,730 )
Net cash flows used for operating activities (40,655 ) (126,191 )
 
Cash flows from financing activities:
Borrowings (repayments) under accounts receivable securitization program, net 60,000 (32,000 )
(Repayments) borrowings of bank and other debt, net (41,955 ) 67,773
Repurchases of common stock (12,264 )
Dividends paid on common stock (22,116 ) (20,620 )
Other, net (2,053 ) 3,871  
Net cash flows (used) provided by financing activities (18,388 ) 19,024  
 
Cash flows from investing activities:
Purchases of property, plant and equipment (36,580 ) (27,384 )
Acquisitions of businesses, net of cash acquired (20,950 )
Other, net 2,157   1,664  
Net cash flows used for investing activities (34,423 ) (46,670 )
 
Effect of exchange rate changes on cash and cash equivalents (21,134 ) 10,107  
 
Cash and cash equivalents:
— (decrease) (114,600 ) (143,730 )
— at beginning of period 928,971   1,009,343  
— at end of period $ 814,371   $ 865,613  
 
 
     

AVNET, INC.

SEGMENT INFORMATION

(UNAUDITED)

 
First Quarters Ended

September 27,
2014

   

September 28,
2013

(Millions)
Sales:
Electronics Marketing $ 4,374.1 $ 3,938.1
Technology Solutions 2,465.5   2,407.4  
Consolidated Sales $ 6,839.6   $ 6,345.5  
Operating Income:
Electronics Marketing $ 202.7 $ 175.8
Technology Solutions 62.4 62.6
Corporate (41.4 ) (38.9 )
223.7 199.5

Restructuring, integration and other expenses

(18.3 ) (12.1 )
Amortization of intangible assets and other (12.2 ) (8.4 )
Operating Income $ 193.2   $ 179.0  

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

Source: Avnet, Inc.

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