Press Release

PHOENIX--(BUSINESS WIRE)--Oct. 26, 2017-- Avnet, Inc. (NYSE:AVT) today announced results for the first quarter ended September 30, 2017.

First Quarter Results

• Sales of $4.7 billion exceeded expectations and increased 13.2% year over year
  • Organic sales increased 3.5% in constant currency from the year ago quarter
• Diluted earnings per share (EPS) from continuing operations of $0.47
  • Adjusted diluted EPS from continuing operations of $0.76
• Returned $94 million of cash to shareholders via our share repurchase and dividend programs

“Revenue exceeded expectations this quarter driven by strength in our EMEA and Asia regions where market share gains more than offset the negative impact of supplier channel changes. Our EMEA region delivered a fourth consecutive quarter of double digit year-over-year organic growth as revenue increased 14.3% in constant currency while Asia grew nearly 10% organically. Premier Farnell also delivered higher than expected results during the quarter,” said Bill Amelio, CEO of Avnet. “Organic revenue in our Americas region declined 14.5% year over year driven in part by supplier channel changes. The remainder of the decline is primarily due to the cumulative impact of the ERP implementation that negatively impacted our gross profit and operating income margins. We are, however, encouraged that the Americas team is regaining momentum as many metrics for our customer service levels have begun to improve to pre-ERP implementation levels. Given our performance in the Americas this quarter, we are accelerating previously announced cost reduction initiatives to ensure we meet our fiscal 2018 commitments. With our international regions performing well and our digital ecosystem delivering higher margin growth, we believe we are positioned to drive improved financial performance exiting this important transition year.”

Operating Group Results

• Electronic Components sales exceeded expectations driven by strength in the EMEA and Asia regions
  • Sales increased 3.3% from the year ago quarter in constant currency
• Premier Farnell organic sales increased 6.2% year over year in constant currency
• Electronic Components EMEA organic sales increased 14.9% year over year in constant currency, the 17^th consecutive quarter of year-over-year growth
• Electronic Components Asia organic sales increased 9.3% year over year and 9.8% sequentially in constant currency

Cash Flow and Returns to Shareholders

• Cash used for operating activities was $128.0 million in the September quarter
• Cash and cash equivalents at the end of the quarter was $539.7 million; net debt (total debt less cash and cash equivalents) was $1.15 billion
• Repurchased $72.1 million or 1.9 million shares in the quarter. Entering the second quarter, the Company had $327.0 million remaining under the current share repurchase authorization
• Avnet paid a dividend of $0.18 per share, or $22.0 million, during the quarter

“In the September quarter we utilized cash to build inventory levels as a result of our strong book-to-bill ratio and lengthening lead times across all three regions,” said Ken Jacobson, interim CFO of Avnet. “We used the proceeds from the sale of our Tech Data shares, which we acquired with the sale of the Technology Solutions business, to return cash to shareholders via our share repurchase program. With our strong balance sheet and liquidity of approximately $2.0 billion, we are well positioned to invest in future growth while continuing to execute on our strategy and transformation initiatives that will make Avnet a leaner and more agile enterprise serving the global technology supply chain with innovative solutions.”

Outlook for Second Quarter of Fiscal 2018 Ending on December 30, 2017

• Sales are expected to be in the range of $4.25 billion to $4.55 billion
• Adjusted diluted earnings per share is expected to be in the range of $0.67 to $0.77 per share
• The guidance assumes 123 million average diluted shares outstanding and an adjusted tax rate of 21% to 25%

Outlook for Fiscal 2018 Ending on June 30, 2018

• Sales are expected to be in the range of $18.1 billion to $18.5 billion
• Adjusted diluted earnings per share is expected to be in the range of $3.10 to $3.60 per share
• The guidance assumes 123 million average diluted shares outstanding and an adjusted tax rate of 21% to 25%

The above guidance excludes any additional acquisitions, any results of discontinued operations, amortization of intangibles, accelerated depreciation, any potential restructuring, integration, and other expenses and certain income tax adjustments. In addition, the above guidance assumes that the average U.S. Dollar to Euro currency exchange rate for the second quarter of fiscal 2018 is $1.18 to €1.00. This compares with an average exchange rate of $1.08 to the Euro in the second quarter of fiscal 2017.

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,” “intend,” “estimate,” “forecast,” “expect,” “feel,” “believe,” “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: Avnet’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, implementing and maintaining ERP systems and transitioning to a global ERP system, supplier losses and changes to supplier programs, an industry down-cycle in semiconductors, 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 price discounts 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 Avnet’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.

Teleconference and Upcoming Events

Avnet will host a quarterly teleconference today at 11:00 a.m. Eastern Time. Financial information including financial statement reconciliations of non-GAAP to 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

From idea to design and from prototype to production, Avnet supports customers at each stage of a product’s lifecycle. A comprehensive portfolio of design and supply chain services makes Avnet the go-to guide for innovators who set the pace for technological change. For nearly a century, Avnet has helped its customers and suppliers around the world realize the transformative possibilities of technology. Learn more about Avnet at www.avnet.com.

Visit the Avnet Investor Relations website at www.ir.avnet.com or contact us at investorrelations@avnet.com. (AVT_IR)

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 certain non-GAAP financial information including (i) adjusted operating income, (ii) adjusted operating expenses, (iii) adjusted other income (expense), (iv) adjusted income tax expense, (v) adjusted income from continuing operations, (vi) adjusted diluted earnings per share, and (vii) sales adjusted for the impact of acquisitions and other items (as defined in the Organic Sales section of this document).

There are also references to the impact of foreign currency in the discussion of the Company’s results of operations. When the U.S. Dollar strengthens and the stronger exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens and the weaker exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is an increase in U.S. Dollars of reported results. In the discussion of the Company’s results of operations, results excluding this impact are referred to as “excluding the impact of changes in foreign currency exchange rates” or “constant currency.” Management believes organic sales and sales in constant currency are useful measures for evaluating current period performance as compared with prior periods and for understanding underlying trends. In order to determine the translation impact of changes in foreign currency exchange rates on sales, income or expense items for subsidiaries reporting in currencies other than the U.S. Dollar, the Company adjusts the average exchange rates used in current periods to be consistent with the average exchange rates in effect during the comparative period.

Management believes that operating income and operating expenses adjusted for restructuring, integration and other expenses and amortization of acquired intangible assets and other, are useful measures to help investors better assess and understand the Company’s operating performance. This is especially the case 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 and operating expenses without the impact of these items as well as other income (expense) excluding certain non-recurring amounts 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 many cases, for measuring performance for compensation purposes.

Additional non-GAAP metrics management uses are adjusted operating income margin, which is defined as adjusted operating income (as defined above) divided by sales and adjusted operating expense to gross profit ratio, which is defined as adjusted operating expenses (as defined above) divided by gross profit.

Management also believes income tax expense, income from continuing operations and diluted earnings per share from continuing operations adjusted for the impact of the items described above and certain items impacting income tax expense are useful to investors because they provide a measure of the Company’s net profitability on a more comparable basis to historical periods and provide 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 income from continuing operations and diluted earnings per share from continuing operations excluding the impact of these items provides an important measure of the Company’s net profitability 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).

• ROWC is defined as annualized adjusted operating income (as defined above) divided by the sum of the monthly average balances of receivables and inventories less accounts payable from both continuing and discontinued operations.
• ROCE is defined as annualized, tax effected adjusted operating income (as defined above) divided by the monthly average balances of interest-bearing debt and equity (including the impact of adjustments to operating income discussed above) less cash and cash equivalents from both continuing and discontinued operations.
• WC velocity is defined as annualized adjusted sales divided by the sum of the monthly average balances of receivables and inventories less accounts payable from both continuing and discontinued operations.

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.

Organic Sales

Organic sales is defined as sales adjusted for the impact of significant acquisitions, divestitures and other items by adjusting Avnet’s prior and current (if necessary) 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. Organic sales is measured on a sales from continuing operations basis. Organic sales in constant currency is defined as organic sales (as defined above) excluding the impact of changes in foreign currency exchange rates.

The following tables present the reconciliation of reported sales to organic sales for the first quarters of fiscal 2017 and fiscal 2018.

Sales from suppliers lost as a result of supplier channel changes were $87.5 million, $105.8 million and $103.3 million in the first quarter of fiscal 2017 for the Americas, EMEA and Asia regions, respectively compared to sales of $26.5 million, $43.2 million and $37.0 million in the first quarter of fiscal 2018 for the Americas, EMEA and Asia regions, respectively.

Historical Segment Financial Information

Guidance Reconciliation

The following table presents the reconciliation of non-GAAP adjusted diluted earnings per share guidance to the expected GAAP diluted earnings per share guidance for the second quarter of fiscal 2018.

The following table presents the reconciliation of non-GAAP adjusted diluted earnings per share guidance to the expected GAAP diluted earnings per share guidance for fiscal 2018.

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Source: Avnet, Inc.

Avnet, Inc.
Investor Relations Contact
Vincent Keenan
Investor Relations
(480) 643-7053
investorrelations@avnet.com
or
Media Relations Contact
Maureen O’Leary
Corporate Communications
480-643-7499
maureen.oleary@avnet.com