Avnet Reports Fourth Quarter and Fiscal Year 2016 Results

August 10, 2016

Avnet Reports Fourth Quarter and Fiscal Year 2016 Results 51.4 KB

PHOENIX--(BUSINESS WIRE)-- Avnet, Inc. (NYSE:AVT) today announced results for the fourth quarter and fiscal year 2016 ended July 2, 2016.

Q4 Fiscal 2016 Results

Sales of $6.2 billion, down 8% year over year and consistent with outlook
Adjusted diluted earnings per share of $0.86; diluted earnings per share of $0.75
Repurchased $46.8 million in stock, paid $21.6 million in dividends
Announced cash offer to acquire Premier Farnell plc

"In the June quarter, our Technology Solutions (TS) group delivered seasonal sequential growth while Electronics Marketing (EM) sequential growth was below our normal seasonal range. Even with the year-over-year decline in revenue, our gross profit margin increased and our Avnet Advantage program resulted in $70 million of annual expense reduction exiting fiscal 2016," said Bill Amelio, interim CEO of Avnet. "Moving forward, we are defining a clear strategy that leverages our strengths, and we are focusing on accelerating growth, taking cost out of the business and delivering services that will add value for our partners."

Amelio further added, "We have also increased the pace of some of our strategic investments as we focus on building and enhancing our global capabilities. Our recent offer to acquire Premier Farnell is one example of how we aim to strengthen our digital footprint worldwide. With disciplined execution against our priorities, we can drive sustained growth over time."


	Fourth Quarters Ended
	July 2, 2016		June 27, 2015		Change
	$ in millions, except per share data
Sales	$	6,226.8	$	6,796.3	(8.4)	%
Constant Currency ⁽¹⁾					(8.3)	%
Operating Income		173.0		180.5	(4.2)	%
Adjusted Operating Income ⁽¹⁾		194.7		243.8	(20.1)	%
Net Income		96.8		158.7	(39.0)	%
Adjusted Net Income ⁽¹⁾		112.3		159.5	(29.6)	%
Diluted EPS	$	0.75	$	1.15	(34.8)	%
Adjusted Diluted EPS ⁽¹⁾	$	0.86	$	1.16	(25.9)	%

(1)

Year-over-year sales growth rate excludes the impact of changes in foreign currency exchange rates. A discussion on the impact of foreign currency on the Company's results of operations, the definition of organic sales and a reconciliation of non-GAAP financial information is attached as exhibit 99.2 ("Exhibit 99.2") to the Form 8-K filed with the Securities Exchange Commission on August 10, 2016.

The year-over-year decline in adjusted operating income was driven by the decline in revenue and increased expenses related to the ERP implementation in the Americas region at Electronics Marketing

Cash Flow and Returns to Shareholders

Cash used for operations was $72.8 million in the June quarter
Cash and cash equivalents at the end of the quarter was $1.03 billion; net debt (total debt less cash and cash equivalents) was $1.46 billion
During the June quarter, the Company repurchased 1.2 million shares at a cost of $46.8 million, and entering fiscal 2017 the Company had $174.9 million remaining under the current repurchase authorization
The Company paid a dividend of $0.17 per share or $21.6 million during the quarter

"We used cash this quarter as EM built inventory in support of the ERP implementation in the Americas and our accounts payable declined as our fiscal calendar ended after the calendar quarter," said Kevin Moriarty, CFO of Avnet. "Our balance sheet remains strong as we have over $1 billion of cash on hand and approximately $1.2 billion of available liquidity under our credit facility and accounts receivable securitization program."

Moriarty added, "With dedicated financing already committed for the Premier Farnell offer, we are well positioned to complete the acquisition and make investments that will transform our business to satisfy the needs of our customers and suppliers around the world."

Avnet Electronics Marketing Results


			Year-over-Year Growth Rates
	Q4 FY16		Reported		Organic
	Sales		Sales		Sales
		(in millions)
EM Total	$	3,939.2	(8.7)	%	(8.7)	%
Constant Currency ⁽¹⁾			(9.4)	%	(9.4)	%
Americas	$	1,082.2	(14.8)	%	(14.8)	%
EMEA	$	1,293.0	3.9	%	3.9	%
Constant Currency ⁽¹⁾			2.2	%	2.2	%
Asia	$	1,564.0	(13.2)	%	(13.2)	%
Constant Currency ⁽¹⁾			(13.8)	%	(13.8)	%


	Q4 FY16			Q4 FY15			Change
Operating Income	$	155.6		$	205.9		(24.4)	%
Operating Income Margin		4.0	%		4.8	%	(82)	bps

(1)		Refer to Exhibit 99.2.

Working capital (defined as receivables plus inventories less accounts payables) increased 17.1% from the year ago quarter driven by an increase in inventory to support the ERP implementation in the Americas region at EM and a decrease in accounts payable driven by our fiscal calendar, which ended after the calendar quarter in fiscal 2016 as opposed to before the calendar quarter in fiscal 2015

Avnet Technology Solutions Results


			Year-over-Year Growth Rates
	Q4 FY16		Reported		Organic
	Sales		Sales		Sales
	(in millions)
TS Total	$	2,287.6	(7.8)	%	(8.9)	%
Constant Currency ⁽¹⁾			(6.4)	%	(7.6)	%
Americas	$	1,382.9	(7.6)	%	(8.0)	%
EMEA	$	620.8	(0.7)	%	(4.5)	%
Constant Currency ⁽¹⁾			0.8	%	(3.0)	%
Asia	$	283.9	(20.8)	%	(20.8)	%
Constant Currency ⁽¹⁾			(17.8)	%	(17.8)	%


	Q4 FY16			Q4 FY15			Change
Operating Income	$	70.8		$	77.6		(8.8)	%
Operating Income Margin		3.1	%		3.1	%	(3)	bps

(1)		Refer to Exhibit 99.2.

At a product level, year-over-year growth in services, software and networking was offset by declines in servers and storage

Fiscal 2016 Avnet Results

Sales of $26.2 billion, down 6.1% year over year (3.2% in constant currency)
Gross profit margin increased 16 basis points year over year to 11.6%
Operating income margin increased 4 basis points year over year to 3.0%
Adjusted operating income margin decreased 6 basis points year over year to 3.4%
- EM declined 22 basis points to 4.4% primarily due to the Americas region
- TS increased 21 basis points to 3.3% driven by the Americas and EMEA regions
Generated $224 million cash from operations in fiscal 2016
- Repurchased $377 million in stock, paid $89 million in dividends


	FISCAL YEARS ENDED
	July 2, 2016		June 27, 2015		Change

	$ in millions, except per share data
Sales	$	26,219.3	$	27,924.7	(6.1)	%
Constant Currency ⁽¹⁾					(3.2)	%
Operating Income		787.7		827.7	(4.8)	%
Adjusted Operating Income ⁽¹⁾		895.6		972.5	(7.9)	%
Net Income		506.5		571.9	(11.4)	%
Adjusted Net Income ⁽¹⁾		562.1		623.1	(9.8)	%
Diluted EPS	$	3.80	$	4.12	(7.8)	%
Adjusted Diluted EPS ⁽¹⁾	$	4.22	$	4.49	(6.0)	%

(1)		Refer to Exhibit 99.2.

Outlook for First Quarter of Fiscal 2017 Ending on October 1, 2016

Avnet sales are expected to be in the range of $5.8 billion to $6.4 billion
EM sales are expected to be in the range of $3.9 billion to $4.2 billion and TS sales are expected to be in the range of $1.9 billion to $2.2 billion.
Adjusted diluted earnings per share is expected to be in the range of $0.84 to $0.94 per share
The guidance assumes 130 million average diluted shares outstanding and an adjusted tax rate of 26% to 30%

The above guidance excludes any acquisitions, the amortization of intangibles, 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 first quarter of fiscal 2017 is $1.11 to €1.00. This compares with an average exchange rate of $1.11 to €1.00 in the first quarter of fiscal 2016 and $1.13 to €1.00 in the fourth quarter of fiscal 2016.

In alignment with Avnet's goal to build a global embedded solutions business, Avnet transferred a portion of its embedded computing solutions business to EM Americas from TS Americas at the beginning of fiscal 2017. As a result of this transfer, approximately $450 million of annual revenue that had been previously reported in TS will be included within EM beginning in fiscal 2017. Therefore, the above guidance for the first quarter of fiscal 2017 takes into account the transfer from TS to EM of approximately $100 million. When adjusted for this transfer and the impact of foreign currency, the midpoint of guidance for EM and TS would represent sequential growth rates of +1% and -5%, respectively, as compared with a normal seasonal range of -2% to +2% for EM and -10% to -5% for TS.

Refer to Exhibit 99.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 10, 2016, for a reconciliation of non-GAAP guidance.

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: 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, an industry down-cycle in semiconductors, IT hardware or software products, 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.

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 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

From components to cloud and design to disposal, Avnet (NYSE: AVT) accelerates the success of customers who build, sell and use technology globally by providing them with a comprehensive portfolio of innovative products, services and solutions. Avnet is a Fortune 500 company with revenues of $26.2 billion for the fiscal year 2016. For more information, visit www.avnet.com. (AVT_IR)


AVNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Fourth Quarters Ended				Years Ended
	July 2,		June 27,		July 2,		June 27,
	2016		2015		2016		2015
	(Thousands, except per share data)
Sales	$	6,226,812	$	6,796,331	$	26,219,279	$	27,924,657
Cost of sales		5,495,773		6,010,535		23,181,768		24,731,537
Gross profit		731,039		785,796		3,037,511		3,193,120
Selling, general and administrative expenses		542,100		561,585		2,170,524		2,274,642
Restructuring, integration and other expenses		15,966		43,734		79,318		90,805
Operating income		172,973		180,477		787,669		827,673
Other expense, net		(7,964)		(3,080)		(18,105)		(19,043)
Interest expense		(29,750)		(23,729)		(99,055)		(95,665)
Income before income taxes		135,259		153,668		670,509		712,965
Income tax expense (benefit)		38,453		(5,065)		163,978		141,052
Net income	$	96,806	$	158,733	$	506,531	$	571,913
Earnings per share:
Basic	$	0.76	$	1.16	$	3.87	$	4.18
Diluted	$	0.75	$	1.15	$	3.80	$	4.12
Shares used to compute earnings per share:
Basic		127,930		135,855		130,858		136,688
Diluted		129,799		137,622		133,173		138,791
Cash dividends paid per common share	$	0.17	$	0.16	$	0.68	$	0.64


AVNET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	July 2,		June 27,
	2016		2015
	(Thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,031,478	$	932,553
Receivables, net		4,975,120		5,054,307
Inventories		2,856,231		2,482,183
Prepaid and other current assets		141,144		115,858
Total current assets		9,003,973		8,584,901
Property, plant and equipment, net		612,658		568,779
Goodwill		1,281,220		1,278,756
Intangible assets, net		78,397		99,731
Other assets		263,557		267,786
Total assets	$	11,239,805	$	10,799,953
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt	$	1,152,599	$	331,115
Accounts payable		3,233,781		3,338,052
Accrued expenses and other		556,113		603,129
Total current liabilities		4,942,493		4,272,296
Long-term debt		1,339,204		1,646,501
Other liabilities		266,822		196,135
Total liabilities		6,548,519		6,114,932
Shareholders' equity		4,691,286		4,685,021
Total liabilities and shareholders' equity	$	11,239,805	$	10,799,953


AVNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Years Ended
	July 2,		June 27,
	2016		2015
	(Thousands)
Cash flows from operating activities:
Net income	$	506,531	$	571,913
Non-cash and other reconciling items:
Depreciation		98,403		95,645
Amortization		28,076		51,674
Deferred income taxes		122,734		18,436
Stock-based compensation		56,908		62,006
Other, net		48,333		87,649
Changes in (net of effects from businesses acquired):
Receivables		25,642		(204,114)
Inventories		(367,684)		(73,226)
Accounts payable		(114,335)		156,565
Accrued expenses and other, net		(180,293)		(182,665)
Net cash flows provided by operating activities		224,315		583,883

Cash flows from financing activities:
Issuance of notes, net of issuance costs		541,500		—
Repayment of notes		(250,000)		—
Borrowings (repayments) under accounts receivable securitization, net		80,000		35,000
Borrowings (repayments) of bank and revolving debt, net		142,840		(115,173)
Repurchases of common stock		(380,943)		(159,984)
Dividends paid on common stock		(88,594)		(87,330)
Other, net		(11,448)		(13,501)
Net cash flows provided (used) for financing activities		33,355		(340,988)

Cash flows from investing activities:
Purchases of property, plant and equipment		(147,548)		(174,374)
Acquisitions of businesses, net of cash acquired		(19,675)		—
Other, net		14,710		(11,969)
Net cash flows used for investing activities		(152,513)		(186,343)

Effect of currency exchange rate changes on cash and cash equivalents		(6,232)		(52,970)

Cash and cash equivalents:
— increase (decrease)		98,925		3,582
— at beginning of period		932,553		928,971
— at end of period	$	1,031,478	$	932,553


AVNET, INC.
SEGMENT INFORMATION
(UNAUDITED)

	Fourth Quarters Ended				Years Ended
	July 2,		June 27,		July 2,		June 27,
	2016		2015		2016*		2015
	(Millions)
Sales:
Electronics Marketing	$	3,939.2	$	4,315.9	$	16,566.8	$	17,344.7
Technology Solutions		2,287.6		2,480.5		9,652.5		10,580.0
Avnet Sales	$	6,226.8	$	6,796.4	$	26,219.3	$	27,924.7
Operating Income (Expense):
Electronics Marketing	$	155.6	$	205.9	$	725.9	$	797.4
Technology Solutions		70.8		77.6		317.9		325.7
Corporate		(31.7)		(39.7)		(148.2)		(150.5)
		194.7		243.8		895.6		972.5
Restructuring, integration and other expenses		(16.0)		(43.7)		(79.3)		(90.8)
Amortization of intangible assets and other		(5.8)		(19.6)		(28.6)		(54.0)
Operating Income	$	173.0	$	180.5	$	787.7	$	827.7

Sub-totals and totals may not foot due to rounding

View source version on businesswire.com: http://www.businesswire.com/news/home/20160810005299/en/

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

Source: Avnet, Inc.

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