Press Release

Quarterly sales grew 12% year over year to $5.05 billion; GAAP diluted EPS of $0.33 decreased 30%; Adjusted diluted EPS of $1.04 rose 33%

PHOENIX--(BUSINESS WIRE)--Jan. 24, 2019-- Avnet, Inc. (Nasdaq: AVT) today announced results for the second quarter ended December 29, 2018.

Second Quarter Key Financial Highlights

• Sales rose 11.7% year over year (13.1% in constant currency) to $5.05 billion
• GAAP diluted EPS from continuing operations decreased 30% year over year to $0.33
  • Non-GAAP adjusted diluted EPS rose 33% year over year to $1.04
  • Foreign exchange rates negatively impacted adjusted diluted EPS by $0.02
• GAAP operating income rose 18% year over year to $96.1 million
  • Adjusted operating income rose 28% year over year to $178.8 million
• GAAP operating income margin was 1.9%, up from 1.8% a year ago
  • Adjusted operating income margin was 3.5%, up from 3.1% a year ago
• Returned $197 million to shareholders with $175 million of share repurchases and dividends of $22 million

CEO Commentary

“Our second quarter results demonstrate the tremendous progress we are making in transforming Avnet into a global technology solutions company,” said Avnet CEO Bill Amelio. “Even with the current uncertainties in Asia, Avnet posted strong gains in revenue and profitability compared to a year ago. Our unique ecosystem approach is really starting to pay off with our suppliers and customers. With the addition of Softweb Solutions, we now have the software and hardware to deliver an end-to-end IoT capability that can lower costs, speed time to market, and reduce complexity for our customers.”

Key Financial Metrics

CFO Commentary

“This quarter, we continued to execute broadly across our stated goals including accelerating the Americas, optimizing our cost structure and reducing share count,” stated Tom Liguori, Avnet Chief Financial Officer. “We delivered year-over-year, double-digit sales growth while reducing selling, general and administrative expenses by $12 million. Our diluted share count decreased by 10 million shares year over year or 8%. Our remaining buyback authorization stands at $440 million at the end of the quarter which we will utilize appropriately to signal our continued confidence in Avnet’s long-term outlook.”

Additional Second Quarter Fiscal 2019 Highlights and Key Developments

• Expanded Avnet’s Internet of Things (IoT) capabilities with the acquisition of Softweb Solutions. The integration of Softweb’s best-of-breed artificial intelligence (AI) software for IoT applications, along with its data services and digital process capabilities, provides Avnet with rapid design, development, and deployment capabilities that can help customers increase efficiency, speed time to market and help their businesses transform.
• Capitalized on the significance of electronica, a leading trade show for electronics, by building Avnet City. This was the first time Avnet used an industry event to bring together under one exhibit the expanse of Avnet’s end-to-end ecosystem. The well-received Avnet exhibit included community-oriented events hosted by Hackster.io and element14, and demonstrations highlighting the Company’s innovation capabilities, including robotics, AI and virtual reality.
• Demonstrated at CES the depth and breadth of Avnet’s IoT R&D resources including its role as a lead partner for Microsoft Azure Sphere; the unveiling of Avnet’sSmartEdge Agile,which is ideal for developing machine learning applications such as predictive maintenance and remote monitoring; and Avnet’s SmartEdge Industrial IoT Gateway, which is designed for automation applications that require strong end-to-end security.
• Generated $72 million of cash flow from continuing operations during the quarter.
• Recorded restructuring, integration and other expenses of $62 million during the second quarter primarily for non-cash impairment and severance costs. These charges were incurred in connection with the continued transformation of our IT, distribution center and business operations including the re-prioritization of our IT initiatives and resources. Second quarter transformation projects are expected to deliver approximately $10 million in savings per quarter once fully implemented.

Awards and Notable Recognition Received During the Quarter

• Received ROHM Semiconductor’s Global Distributor Award
• Named Supplier of the Year by L3 Technologies for the second year in a row
• Received Infineon’s Top Distributor Award in Asia and Greater China
• Recognized by Micron with the Most Valuable Demand Creation Distributor Award in Asia
• Received several TE Connectivity awards in China/Asia for Excellent Solution Design and Growth

Outlook for the Third Quarter of Fiscal 2019 Ending on March 30, 2019

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 including certain impacts of the recent tax law changes in the U.S. The above guidance assumes 110 million average diluted shares outstanding and average U.S. Dollar to Euro and GBP currency exchange rates are as shown below:

Today’s Conference Call and Webcast Details

Avnet will host a quarterly teleconference and webcast today at 2:30 p.m. MST/4:30 p.m. EST to discuss the financial results and provide a corporate update. To participate in the live call, dial 877-407-8112 or 201-689-8840. To access the slides, follow the webcast link below. The slides also can be accessed via Avnet’s Investor Relations web page at: www.ir.avnet.com. A replay of the conference call will be available for 30 days, through February 23 at 5:00 p.m. EST, and can be accessed by dialing: 877-660-6853 or 201-612-7415 and using Conference ID: 13685891. The live webcast can be accessed from the following link Avnet Earnings Call Webcast and Slides and will be available for 90 days.

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 IT systems, 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.

About Avnet

Avnet is a global technology solutions provider with an extensive ecosystem delivering design, product, marketing and supply chain expertise for customers at every stage of the product lifecycle. We transform ideas into intelligent solutions, reducing the time, cost and complexities of bringing products to market. 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. (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 other income (expense), (iii) adjusted income tax expense, (iv) adjusted income from continuing operations, (v) adjusted diluted earnings per share, and (vi) 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 “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 adjusted for restructuring, integration and other expenses, goodwill impairment expense 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 without the impact of these items as well as other income (expense) excluding certain 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. Management measures operating income for our reportable segments excluding restructuring, integration and other expenses, goodwill impairment expense and amortization of acquired intangible assets and other.

Additional non-GAAP metrics management uses is adjusted operating income margin, which is defined as adjusted operating income (as defined above) divided by sales.

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 other expense and 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. Adjustments to income tax expense and the effective income tax rate include the effect of changes in tax laws including recent tax law changes in the U.S., changes in valuation allowances and unrecognized tax benefits, income tax audit settlements and adjustments to the adjusted interim effective tax rate based upon the expected annual adjusted effective tax rate. 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.

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. All amounts below relate to Avnet’s continuing operations.

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 table presents reported and organic sales growth rates for the second quarter of fiscal 2019 compared to the second quarter of fiscal 2018.

Sales from suppliers lost as a result of supplier channel changes were $4.0 million, $1.0 million and $2.6 million in the second 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 third quarter of fiscal 2019.

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Source: Avnet, Inc.

Investor Relations Contacts

Tom Liguori, CFO
Avnet
480-643-7550
or
Ina McGuinness
480-643-7053
investorrelations@avnet.com

Media Relations Contact

Maureen O’Leary
Media Relations
480-643-7499
maureen.oleary@avnet.com