Avnet, Inc. Reports Second Quarter Fiscal 2005 Results
Avnet, Inc. Reports Second Quarter Fiscal 2005 Results
January 27, 2005
Avnet, Inc. Reports Second Quarter Fiscal 2005 ResultsPhoenix, Arizona - Avnet, Inc. (NYSE:AVT) today reported results for second quarter fiscal year 2005, which ended January 1, 2005. Revenue was $2.88 billion for the quarter, representing an increase of 13% over second quarter fiscal 2004 and an increase of 11% sequentially. Net income for second quarter fiscal 2005 was $43.5 million, or $0.36 per share on a diluted basis, as compared with net income of $8.9 million, or $0.07 per share on a diluted basis, in the same quarter in fiscal 2004 including certain charges (which are further discussed in the accompanying financial statements). Excluding certain charges in the prior year second quarter, net income was $25.3 million, or $0.21 per share on a diluted basis, representing an increase of $18.2 million, or 72%, year over year.
Operating income for second quarter fiscal 2005 was $84.0 million, an improvement of $49.8 million, or 145%, over operating income of $34.2 million, including certain charges, in second quarter fiscal 2004. Excluding these charges, operating income increased $26.3 million, or 46%, over the prior year quarter. Operating income as a percent of sales increased 65 basis points from 2.3% in second quarter fiscal 2004, excluding certain charges, to 2.9% in the current year quarter. This represents the tenth consecutive quarter of year over year improvement in operating income dollars and margin, excluding certain charges.
Roy Vallee, Chairman and Chief Executive Officer commented, 'In the second quarter of fiscal 2005, Avnet continued its trend of improving performance with the fourth straight quarter of year over year double digit operating income growth. Leading the growth in the current quarter was the Technology Solutions group where strong year over year and sequential growth resulted in record sales of $1.40 billion and record operating income of $51.2 million.'
The Company generated nearly $255 million of free cash flow (as defined later in this release) during the second quarter of fiscal 2005 due to improved working capital management and earnings. As a result, the Company ended the quarter with $547 million of cash and cash equivalents; bringing net debt (total debt less cash and cash equivalents) to $797 million, the lowest it has been since the first quarter of fiscal 2000.
Ray Sadowski, Chief Financial Officer, stated: 'Our cash generation this quarter further demonstrates the impact our value based management initiatives have had on our business operations. We saw improvements in both our operating income margin and our working capital velocity aided by these initiatives. As a result, our balance sheet and liquidity continue to strengthen.
Operating Groups Technology Solutions (TS) sales of $1.40 billion were up 15% year over year and 36% sequentially. Sales in the Americas and EMEA regions increased 14% and 17%, respectively, on a year over year basis. TS operating income was $51.2 million, a 69% increase as compared with second quarter fiscal 2004 operating income of $30.4 million, and its operating income margin of 3.7% increased 116 basis points over the prior year second quarter. The operating income for TS is the highest on record and was driven by strength in all three regions.
Electronics Marketing (EM) sales of $1.48 billion were up 11% over the prior year second quarter and were down 6% sequentially. Sales in the Americas, EMEA and Asia increased 6%, 21% and 5%, respectively, on a year over year basis. EM operating income of $47.4 million for second quarter fiscal 2005 was 18% higher than the year ago quarter operating income of $40.2 million.
Mr. Vallee added, 'Technology Solutions year over year revenue growth across all geographies is further evidence that our emphasis on solutions selling is contributing to the success of both our customers and suppliers. This, combined with record operating income, exceeded our expectations on all fronts. Sequential growth at Technology Solutions of 88% on the operating income line driven by a 36% increase in revenue is further proof of the leverage we have in our business model. Although the results for Electronics Marketing were below our expectations, we are pleased that EM delivered a meaningful sequential reduction in inventory while slightly improving their gross profit margin in the face of softer market conditions. We continue to believe most of the softness is due to the mid-cycle inventory correction and expect our broad customer base across multiple vertical segments to drive improved performance in upcoming quarters.'
Outlook Looking forward to Avnet's third quarter fiscal 2005, Mr. Vallee stated, 'We expect revenues for Electronics Marketing to be up 8% to 12% sequentially and we anticipate sales for Technology Solutions to decline 20% to 24% sequentially. Therefore, Avnet's consolidated sales should be in the range of $2.67 billion to $2.77 billion in the third quarter fiscal 2005, and we expect earnings to be in the range of $0.33 to $0.37 per share.'
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 or alter 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 (loss), income (loss) before income taxes, income tax provision (benefit), net income (loss) and basic and 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 and debt extinguishments in the periods presented. Reconciliations of the Company's reported results to the results adjusted for these items are included in the tables that follow. Management believes that providing this additional information is useful to investors to better 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 believes the non-GAAP measures also help indicate underlying trends in the business. Management also uses the non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes.
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.
The following table summarizes the Company's cash flow activity for the second quarter and the first half of fiscal year 2005 ended January 1, 2005 including the Company's computation of free cash flow and a reconciliation of this metric to the nearest GAAP measure of net cash flow from operations. 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.
Teleconference Webcast and Upcoming Events Avnet will host a Webcast of its quarterly teleconference today at 5:00 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, can be accessed 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 February and March: The Thomas Weisel Partners Technology Conference 2005 on February 8, 2005, The Goldman Sachs Technology Investment Symposium 2005 on February 24, 2005, The Raymond James Institutional Investors Conference and The Morgan Stanley Semiconductor & Systems Conference both in March, 2005, dates 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.cominvestorrelations@avnet.com.
CONTACT: Avnet, Inc. Vincent Keenan Investor Relations (480) 643-7053 investorrelations@avnet.com
Operating income for second quarter fiscal 2005 was $84.0 million, an improvement of $49.8 million, or 145%, over operating income of $34.2 million, including certain charges, in second quarter fiscal 2004. Excluding these charges, operating income increased $26.3 million, or 46%, over the prior year quarter. Operating income as a percent of sales increased 65 basis points from 2.3% in second quarter fiscal 2004, excluding certain charges, to 2.9% in the current year quarter. This represents the tenth consecutive quarter of year over year improvement in operating income dollars and margin, excluding certain charges.
Roy Vallee, Chairman and Chief Executive Officer commented, 'In the second quarter of fiscal 2005, Avnet continued its trend of improving performance with the fourth straight quarter of year over year double digit operating income growth. Leading the growth in the current quarter was the Technology Solutions group where strong year over year and sequential growth resulted in record sales of $1.40 billion and record operating income of $51.2 million.'
The Company generated nearly $255 million of free cash flow (as defined later in this release) during the second quarter of fiscal 2005 due to improved working capital management and earnings. As a result, the Company ended the quarter with $547 million of cash and cash equivalents; bringing net debt (total debt less cash and cash equivalents) to $797 million, the lowest it has been since the first quarter of fiscal 2000.
Ray Sadowski, Chief Financial Officer, stated: 'Our cash generation this quarter further demonstrates the impact our value based management initiatives have had on our business operations. We saw improvements in both our operating income margin and our working capital velocity aided by these initiatives. As a result, our balance sheet and liquidity continue to strengthen.
Operating Groups Technology Solutions (TS) sales of $1.40 billion were up 15% year over year and 36% sequentially. Sales in the Americas and EMEA regions increased 14% and 17%, respectively, on a year over year basis. TS operating income was $51.2 million, a 69% increase as compared with second quarter fiscal 2004 operating income of $30.4 million, and its operating income margin of 3.7% increased 116 basis points over the prior year second quarter. The operating income for TS is the highest on record and was driven by strength in all three regions.
Electronics Marketing (EM) sales of $1.48 billion were up 11% over the prior year second quarter and were down 6% sequentially. Sales in the Americas, EMEA and Asia increased 6%, 21% and 5%, respectively, on a year over year basis. EM operating income of $47.4 million for second quarter fiscal 2005 was 18% higher than the year ago quarter operating income of $40.2 million.
Mr. Vallee added, 'Technology Solutions year over year revenue growth across all geographies is further evidence that our emphasis on solutions selling is contributing to the success of both our customers and suppliers. This, combined with record operating income, exceeded our expectations on all fronts. Sequential growth at Technology Solutions of 88% on the operating income line driven by a 36% increase in revenue is further proof of the leverage we have in our business model. Although the results for Electronics Marketing were below our expectations, we are pleased that EM delivered a meaningful sequential reduction in inventory while slightly improving their gross profit margin in the face of softer market conditions. We continue to believe most of the softness is due to the mid-cycle inventory correction and expect our broad customer base across multiple vertical segments to drive improved performance in upcoming quarters.'
Outlook Looking forward to Avnet's third quarter fiscal 2005, Mr. Vallee stated, 'We expect revenues for Electronics Marketing to be up 8% to 12% sequentially and we anticipate sales for Technology Solutions to decline 20% to 24% sequentially. Therefore, Avnet's consolidated sales should be in the range of $2.67 billion to $2.77 billion in the third quarter fiscal 2005, and we expect earnings to be in the range of $0.33 to $0.37 per share.'
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 or alter 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 (loss), income (loss) before income taxes, income tax provision (benefit), net income (loss) and basic and 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 and debt extinguishments in the periods presented. Reconciliations of the Company's reported results to the results adjusted for these items are included in the tables that follow. Management believes that providing this additional information is useful to investors to better 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 believes the non-GAAP measures also help indicate underlying trends in the business. Management also uses the non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes.
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.
The following table summarizes the Company's cash flow activity for the second quarter and the first half of fiscal year 2005 ended January 1, 2005 including the Company's computation of free cash flow and a reconciliation of this metric to the nearest GAAP measure of net cash flow from operations. 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.
Teleconference Webcast and Upcoming Events Avnet will host a Webcast of its quarterly teleconference today at 5:00 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, can be accessed 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 February and March: The Thomas Weisel Partners Technology Conference 2005 on February 8, 2005, The Goldman Sachs Technology Investment Symposium 2005 on February 24, 2005, The Raymond James Institutional Investors Conference and The Morgan Stanley Semiconductor & Systems Conference both in March, 2005, dates 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.cominvestorrelations@avnet.com.
CONTACT: Avnet, Inc. Vincent Keenan Investor Relations (480) 643-7053 investorrelations@avnet.com