Avnet, Inc. Reports Third Quarter Fiscal 2005 Results
Phoenix, Arizona -- Avnet, Inc. (NYSE:AVT) today reported results for third quarter fiscal year 2005, which ended April 2, 2005. Revenue was $2.76 billion for the quarter, representing an increase of 4% over third quarter fiscal 2004 and a decrease of 4% sequentially following the Company's traditionally strong December quarter. Net income for third quarter fiscal 2005 was $41.1 million, or $0.34 per share on a diluted basis, as compared with prior year net income of $26.7 million, or $0.22 per share on a diluted basis, which included certain charges that are further discussed in the accompanying financial statements. Excluding those charges in the prior year third quarter, net income was $40.9 million, or $0.34 per share on a diluted basis.
Operating income for third quarter fiscal 2005 was $78.5 million, an improvement of $4.6 million, or 6%, as compared with operating income of $73.9 million in the year ago quarter. Operating income as a percent of sales increased slightly from last year to 2.85% in the current year quarter. This represents the eleventh consecutive quarter of year over year improvement in operating income dollars and margin, excluding certain charges.
Roy Vallee, Chairman and Chief Executive Officer, commented, 'We are pleased with our overall performance in the March quarter. Technology Solutions (TS) exceeded expectations with year over year revenue growth of 11% and a sequential decline of 17% following its record performance in the seasonally strong December quarter. Although Electronics Marketing (EM) revenue for the quarter was flat year over year, its sales grew 8% sequentially.'
The Company generated $131 million of free cash flow (as defined later in this release) during the third quarter of fiscal 2005. During the quarter, the Company paid off $87 million of debt that matured in February 2005 and ended the quarter with $594 million of cash and cash equivalents. This continued cash flow generation brought the Company's net debt (total debt less cash and cash equivalents) to $656 million, the lowest it has been since the fourth quarter of fiscal 1999.
Ray Sadowski, Chief Financial Officer, stated: 'We had another quarter of significant positive free cash flow due to our continued focus on working capital management and operational efficiencies. At Electronics Marketing we reduced inventory during the quarter by another $100 million, thereby improving inventory turns to near record levels. This cash generation brings our free cash flow year to date to $375 million.'
Operating Groups
Electronics Marketing (EM) sales of $1.60 billion for third quarter fiscal 2005 were up 8% sequentially and flat on a year over year basis. EM sales in the Americas, EMEA and Asia increased 6%, 13% and 4%, respectively, on a sequential basis. EM operating income of $61.5 million for third quarter fiscal 2005 was 30% higher than the prior sequential quarter operating income of $47.4 million.
Technology Solutions (TS) sales of $1.16 billion were up 11% year over year and down 17% sequentially following its typically strong December quarter. TS sales in the Americas, EMEA and Asia increased 11%, 4% and 69%, respectively, on a year over year basis. TS operating income was $31.7 million, a 23% increase as compared with third quarter fiscal 2004 operating income of $25.8 million, and its operating income margin of 2.73% increased 26 basis points over the prior year third quarter.
Mr. Vallee added, 'At Technology Solutions, the year over year revenue and operating income growth were better than expected as operating income grew 23% on sales growth of 11%. The IT spend for small and medium sized businesses continues to grow over last year and Technology Solutions is executing well and profitably growing faster than the markets it serves. We are very pleased with the operating leverage demonstrated by Electronics Marketing as operating income grew 30% sequentially on an 8% increase in revenue. We are also encouraged by EM's positive book to bill ratios across all three regions for the March quarter.'
Outlook
Looking forward to Avnet's fourth quarter fiscal 2005, Mr. Vallee stated, 'We expect revenues for both Electronics Marketing and Technology Solutions to grow from 1% to 5% sequentially. Therefore, Avnet's consolidated sales should be in the range of $2.8 billion to $2.9 billion in the fourth quarter fiscal 2005, and we expect earnings to be in the range of $0.35 to $0.39 per share. This guidance does not take into account any impact from the proposed acquisition of Memec which we announced earlier this week.'
Forward Looking Statements
This press release contains certain 'forward-looking statements' within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on management's current expectations and are subject to uncertainty and changes in factual circumstances. The forward-looking statements herein include statements addressing future financial and operating results of Avnet and may include words such as 'anticipate,' 'expect,' believe,' and 'should.' 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, the Company's ability to generate additional cash flow, any significant and unanticipated sales decline, changes in business conditions and the economy in general, changes in market demand and pricing pressures, allocations of products 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 and Form 10-Q. 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 ('GAAP'), the Company also discloses certain non-GAAP financial information including adjusted operating income, adjusted net income (loss) and adjusted diluted earnings (loss) per share. The non-GAAP financial information is used to reflect the Company's results of operations excluding certain items that have arisen from restructuring activities in the periods presented.
Management believes operating income adjusted for restructuring charges is useful to investors to assess and understand 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 restructuring costs as an indicator of on-going operating margin performance and underlying trends in the business. Management also uses this non-GAAP measure to establish operational goals and, in some cases, for measuring performance for compensation purposes.
Management similarly believes net income and diluted earnings per share adjusted for the after-tax impact of restructuring and other costs 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 (loss) and diluted EPS excluding the after-tax impact of restructuring charges 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.
For the periods presented in this release, restructuring and other charges only impacted the prior fiscal year periods. Reconciliations of the Company's reported results to the results adjusted for these items are included in the following table (in thousands, except for per share data) along with comparable data for the current fiscal year periods:
The following table summarizes the Company's cash flow activity for the third quarter and nine months ended April 2, 2005 including the Company's computation of free cash flow and a reconciliation of this metric to the nearest GAAP measures of net income and net cash flow from operations. Management's computation of free cash flow consists of net cash flow from operations plus cash flows generated from or used for purchases and sales of property, plant and equipment, acquisitions of operations, effects of exchange rates on cash and cash equivalents and other financing activities. Management believes that the non-GAAP metric of free cash flow is a useful measure to help management and investors better assess and understand the Company's operating performance and sources and uses of cash. Management also believes the analysis of free cash flow assists in identifying underlying trends in the business. Computations of free cash flow may differ from company to company. Therefore, the analysis of free cash flow should be used as a complement to, and in conjunction with, the Company's consolidated statements of cash flows presented in the accompanying financial statements.
Management also analyzes cash flow from operations based upon its three primary components noted in the table below: net income, non-cash and other reconciling items and cash flow generated from working capital. Similar to free cash flow, management believes that this breakout is an important measure to help management and investors to understand the trends in the Company's cash flows, including the impact of management's focus on asset utilization and efficiency through reductions in the net balance of receivables, inventories and accounts payable.
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.
Avnet will present at the following investor conferences in May and June: The GTDC Investor Relations Conference on May 11, 2005, The 33rd Annual JPMorgan Technology Conference on May 17, 2005, CSFB's 2nd Annual Supply Chain Conference on June 1, 2005, and The Thomas Weisel Annual Growth Forum, date to be determined. For a listing of conference details and how to access each available webcast, along with additional upcoming events and other information, please visit Avnet's investor relations website at www.ir.avnet.com.
About Avnet
Avnet (NYSE:AVT) enables success from the center of the technology industry, providing cost-effective services and solutions vital to a broad base of more than 100,000 customers and 300 suppliers. The Company markets, distributes and adds value to a wide variety of electronic components, enterprise computer products and embedded subsystems. Through its premier market position, Avnet brings a breadth and depth of capabilities that help its trading partners accelerate growth and realize cost efficiencies. Avnet generated more than $10 billion in revenue in fiscal 2004 (year ended July 3, 2004) through sales in 68 countries. Visit Avnet's Investor Relations Website at www.ir.avnet.com or contact us at investorrelations@avnet.com.
Avnet, Inc. Reports Third Quarter Fiscal Year 2005 Results (Including Financial Charts)