Avnet, Inc.
Jan 22, 2015

Avnet, Inc. Reports Second Quarter Fiscal Year 2015 Results

Continued Growth and Leverage Drive Record EPS and Strong Cash Flow

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

Q2 Fiscal 2015 Results

      SECOND QUARTERS ENDED
 

December 27,

2014

     

December 28,

2013

      Change
$ in millions, except per share data
Sales $ 7,551.9       $ 7,421.9       1.8 %
 
GAAP Operating Income 250.3 221.6 13.0 %

Adjusted Operating Income(1)

274.6 263.2 4.3 %
 
GAAP Net Income 163.7 124.9 31.1 %

Adjusted Net Income(1)

176.0 163.9 7.4 %
 
GAAP Diluted EPS $ 1.18 $ 0.89 32.6 %

Adjusted Diluted EPS(1)

$ 1.27 $ 1.17 8.5 %
(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 delivered steady progress in our financial performance as revenue and earnings exceeded expectations and earnings per share grew year over year for a sixth consecutive quarter. Despite some currency headwinds beyond our expectations, reported revenue grew 1.8% (4.6% in constant currency) led by a seventh consecutive quarter of year-over-year organic growth at Electronics Marketing (EM). At Technology Solutions, revenue grew an above seasonal 29% sequentially in constant currency driven by the EMEA and Americas regions. Adjusted operating income increased 4.3% year over year primarily led by the EMEA region, where both operating groups improved gross profit margins and realized contributions from expense management. The sequential increase in revenue and profitability, combined with a 2.8% sequential decline in working capital, drove our return on working capital up over 400 basis points and cash flow from operations over $260 million for the quarter. Although we continue to experience an environment of mixed signals regarding overall growth expectations, our team will continue to focus on key levers of profitable growth and build upon this performance."

Avnet Electronics Marketing Results

               

Year-over-Year

Growth Rates

Q2 FY15

Sales

Reported and

Organic Sales

(in millions)      
EM Total $ 4,435.2 6.8%

Excluding FX(1)

9.7%
Americas $ 1,200.9 (0.3)%
EMEA $ 1,205.3 (1.0)%

Excluding FX(1)

7.1%
Asia $ 2,029.0 17.1%
 
Q2 FY15 Q2 FY14 Change
Operating Income $ 191.4 $ 171.7

11.5

%

Operating Income Margin

4.3

%

 

4.1

%

 

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

Mr. Hamada added, "Similar to our September quarter, better than expected growth in our select high volume supply chain engagements in Asia drove revenue to the high end of expectations and above normal seasonality. EM Asia grew 17.1% year over year and became the first region at Avnet to exceed $2 billion in quarterly revenue. This strong growth, along with another quarter of high single digit growth in EMEA, drove EM's revenue up 9.7% year over year in constant currency. Operating income grew 11.5% year over year and operating income margin increased 19 basis points with all three regions contributing to this improvement. In our EMEA region, which now includes the full impact of our MSC acquisition, operating income increased 12.2% year over year and operating income margin expanded 73 basis points. Our value based management discipline was evident as working capital velocity increased both sequentially and year over year. This increase in operating income combined with the improvement in working capital velocity drove ROWC 125 basis points higher year over year led by our Asia region, which increased 270 basis points. With our book to bill ratio at parity, and seasonal growth expected in our higher margin western regions, we feel confident that EM can build on our multi-quarter trend of expanding margins and returns."

Avnet Technology Solutions Results

               

Year-over-Year

Growth Rates

Q2 FY15

Sales

Reported and

Organic Sales

(in millions)      
TS Total $ 3,116.7 (4.6)%
Excluding FX (1) (2.0)%
Americas $ 1,851.0 (0.4)%
EMEA $ 856.8 (8.5)%
Excluding FX(1) (3.0)%
Asia $ 408.9 (13.4)%
 
Q2 FY15 Q2 FY14 Change
Operating Income $ 117.6 $ 120.2

(2.2

)%

Operating Income Margin

3.8

%

3.7

%

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

Mr. Hamada further added, "TS revenue came in at the high end of our expectations as better than seasonal growth in our EMEA and Americas regions was offset by weaker growth in our Asia region. Revenue grew 29.4% sequentially in constant currency with the EMEA, Americas and Asia regions growing 34%, 29% and 14%, respectively. On a year-over-year basis, revenue declined 2.0% in constant currency driven by a 13.4% decline in our Asia region primarily due to our computing components business. TS delivered strong leverage as operating income grew over 3 times the rate of revenue sequentially while operating income margin increased 124 basis points with all three regions contributing to the improvement. On a year-over-year basis, operating income margin increased 9 basis points driven by an improvement in our EMEA region where we grew our core business, expanded gross profit margin and realized expense efficiencies. We believe these results indicate our team is doing a good job capitalizing on profitable growth opportunities while allocating resources to align with evolving technology investments trends. With the move to converged solutions, including private/hybrid cloud and greater software content, we have assembled a suite of offerings and technology expertise to support our partners and their growth initiatives. Our focus will continue to be on leveraging these competencies and accelerating progress toward our financial targets."

Cash Flow/Dividend

Kevin Moriarty, Chief Financial Officer, stated, "Our growth in profits and increase in working capital velocity combined to drive strong cash flow from operations of $265 million for the quarter and $616 million for the trailing twelve months. The team did an effective job managing our balance sheet as working capital declined $125 million sequentially even as revenue grew $712 million. During the quarter, we returned approximately $113 million of cash to shareholders through our dividend and disciplined share repurchase program. With the $250 million increase that our board approved in November, we had $357 million remaining under our current authorization at the end of the quarter. With our strong financial position, we enter the new calendar year well positioned to capitalize on growth opportunities while maintaining our disciplined approach to capital allocation."

Outlook for Third Quarter of Fiscal 2015 Ending on March 28, 2015

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 third quarter of fiscal 2015 is $1.18 to €1.00. This compares with an average exchange rate of $1.37 to €1.00 in the third quarter of fiscal 2014 and $1.25 to €1.00 in the second 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.

Second Quarter Fiscal 2015

      Second Quarter Fiscal 2015
Operating

Income

     

Income

Before

Income

Taxes

      Net Income       Diluted

EPS

$ in thousands, except per share amounts
GAAP results $ 250,287 $ 220,097 $ 163,706 $ 1.18

Restructuring, integration and other expenses

13,257 13,257 10,188 0.07
Amortization of intangible assets and other 11,052 11,052 7,675 0.06
Income tax adjustments     (5,597 ) (0.04 )
Total adjustments 24,309   24,309   12,266   0.09  
Adjusted results $ 274,596   $ 244,406   $ 175,972   $ 1.27  
 

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

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:

Second Quarter Fiscal 2014

      Second Quarter Fiscal 2014
Operating

Income

     

Income

Before

Income

Taxes

      Net Income       Diluted

EPS

$ in thousands, except per share amounts
GAAP results $ 221,572 $ 188,552 $ 124,864 $ 0.89

Restructuring, integration and other expenses

28,442 28,442 21,746 0.15
Amortization of intangible assets and other 13,194 13,194 9,125 0.07
Income tax adjustments     8,158   0.06
Total adjustments 41,636   41,636   39,029   0.28
Adjusted results $ 263,208   $ 230,188   $ 163,893   $ 1.17
 

Items impacting the second 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 six months of fiscal 2014. For quarterly periods subsequent to the first quarter of fiscal 2014, reported sales are equivalent to organic sales.

     
Six Months Ended

As Reported

and Organic -

Fiscal 2014

     

Acquisitions/

Divestitures

     

Organic Sales -

Fiscal 2014

(in thousands)
Avnet, Inc. $ 13,767,329 $ 119,950 $ 13,887,279
EM 8,092,907 119,950 8,212,857
EMEA 2,314,828 119,950 2,434,778
 

"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.

                   
Q2 FY15 Q2 FY14 Q1 FY15
Sales $ 7,551,880 $ 7,421,854 $ 6,839,587
Sales, annualized (a) $ 30,207,520 $ 29,687,416 $ 27,358,348

Adjusted operating income(1)

$ 274,596 $ 263,208 $ 223,725

Adjusted annualized operating income

(b) $ 1,098,384 $ 1,052,832 $ 894,900

Adjusted effective tax rate(2)

27.8 % 27.9 % 27.5 %
Adjusted annualized operating income, after tax (c) $ 793,253 $ 759,302 $ 648,803
Average monthly working capital
Accounts receivable $ 5,318,083 $ 5,036,079 $ 4,993,653
Inventories $ 2,700,424 $ 2,632,361 $ 2,729,194
Accounts payable $ (3,437,897 ) $ (3,289,709 ) $ (3,231,037 )
Average working capital (d) $ 4,580,610   $ 4,378,731   $ 4,491,810  
Average monthly capital employed (e) $ 6,161,858   $ 5,912,624   $ 6,101,274  
ROWC = (b) / (d) 24.0 % 24.0 % 19.9 %
WC Velocity = (a) / (d) 6.6 6.8 6.1
ROCE = (c) / (e) 12.9 % 12.8 % 10.6 %
(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)

 
Second Quarters Ended Six Months Ended
December 27,
2014
      December 28,
2013
December 27,
2014
      December 28,
2013
(Thousands, except per share data)
Sales $ 7,551,880 $ 7,421,854 $ 14,391,466 $ 13,767,329
Cost of sales 6,714,374   6,573,221   12,758,497   12,183,526  
Gross profit 837,506 848,633 1,632,969 1,583,803
Selling, general and administrative expenses 573,962 598,619 1,157,908 1,142,703
Restructuring, integration and other expenses 13,257   28,442   31,577   40,541  
Operating income 250,287 221,572 443,484 400,559
Other income (expense), net (5,524 ) (4,794 ) (7,017 ) (3,999 )
Interest expense (24,666 ) (28,226 ) (48,066 ) (55,203 )
Gain on legal settlement       19,137  
Income before income taxes 220,097 188,552 388,401 360,494
Income tax expense 56,391   63,688   96,749   115,006  
Net income $ 163,706   $ 124,864   $ 291,652   $ 245,488  
Earnings per share:
Basic $ 1.20   $ 0.91   $ 2.12   $ 1.78  
Diluted $ 1.18   $ 0.89   $ 2.08   $ 1.75  
Shares used to compute earnings per share:
Basic 136,541   137,702   137,425   137,558  
Diluted 138,972   140,144   139,911   139,934  
Cash dividends paid per common share $ 0.16   $ 0.15   $ 0.32   $ 0.30  
 
 
                     

AVNET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
December 27,
2014
June 28,
2014
(Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 903,331 $ 928,971
Receivables, net 5,696,642 5,220,528
Inventories 2,493,576 2,613,363
Prepaid and other current assets 196,111   191,337
Total current assets 9,289,660 8,954,199
Property, plant and equipment, net 541,904 534,999
Goodwill 1,298,805 1,348,468
Intangible assets, net 152,265 184,308
Other assets 208,460   233,543
Total assets $ 11,491,094   $ 11,255,517
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 409,184 $ 865,088
Accounts payable 3,850,295 3,402,369
Accrued expenses and other 672,576   711,369
Total current liabilities 4,932,055 4,978,826
Long-term debt 1,692,307 1,213,814
Other liabilities 161,802   172,684
Total liabilities 6,786,164 6,365,324
Shareholders' equity 4,704,930   4,890,193
Total liabilities and shareholders' equity $ 11,491,094   $ 11,255,517
 
 
     

AVNET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
Six Months Ended
December 27,
2014
                December 28,
2013
(Thousands)
Cash flows from operating activities:
Net income $ 291,652 $ 245,488
Non-cash and other reconciling items:
Depreciation 46,972 44,731
Amortization 21,990 20,903
Deferred income taxes 15,275 11,925
Stock-based compensation 36,130 28,940
Other, net 34,523 51,616
Changes in (net of effects from businesses acquired):
Receivables (711,060 ) (771,728 )
Inventories (5,957 ) (158,470 )
Accounts payable 583,337 348,521
Accrued expenses and other, net (88,438 ) 23,875  
Net cash flows provided (used) for operating activities 224,424   (154,199 )
 
Cash flows from financing activities:
Borrowings under accounts receivable securitization program, net 77,000 60,000
(Repayments) borrowings of bank and other debt, net (37,414 ) 55,436
Repurchases of common stock (109,129 )
Dividends paid on common stock (43,875 ) (41,263 )
Other, net (5,439 ) 4,293  
Net cash flows (used) provided by financing activities (118,857 ) 78,466  
 
Cash flows from investing activities:
Purchases of property, plant and equipment (83,642 ) (47,024 )
Acquisitions of businesses, net of cash acquired (116,882 )
Other, net (8,795 ) 1,800  
Net cash flows used for investing activities (92,437 ) (162,106 )
 
Effect of exchange rate changes on cash and cash equivalents (38,770 ) 7,827  
 
Cash and cash equivalents:
— (decrease) (25,640 ) (230,012 )
— at beginning of period 928,971   1,009,343  
— at end of period $ 903,331   $ 779,331  
 
 
           

AVNET, INC.

SEGMENT INFORMATION

(UNAUDITED)

 
Second Quarters Ended* Six Months Ended*

December 27,

2014

     

December 28,

2013

December 27,

2014

     

December 28,

2013

(Millions)
Sales:
Electronics Marketing $ 4,435.2 $ 4,154.8 $ 8,809.3 $ 8,092.9
Technology Solutions 3,116.7   3,267.1   5,582.2   5,674.4  
Consolidated Sales $ 7,551.9   $ 7,421.9   $ 14,391.5   $ 13,767.3  
Operating Income:
Electronics Marketing $ 191.4 $ 171.7 $ 394.2 $ 347.5
Technology Solutions 117.6 120.2 180.0 182.8
Corporate (34.4 ) (28.7 ) (75.8 ) (67.6 )
274.6 263.2 498.4 462.7
Restructuring, integration and other expenses (13.3 ) (28.4 ) (31.6 ) (40.5 )
Amortization of intangible assets and other (11.1 ) (13.2 ) (23.3 ) (21.6 )
Operating Income $ 250.3   $ 221.6   $ 443.5   $ 400.6  

*Sub-totals and totals may not foot due to rounding

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

Source: Avnet, Inc.

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