Avnet Reports First Quarter Fiscal Year 2017 Results
Strategic Transition Underway
Highlights
-
Completed purchase of Premier Farnell in October, expects to realize
$70 to$80 million of synergies -
Announced sale of Technology Solutions (TS) for
$2.6 billion , expects to close in Q3 or Q4 FY2017 - Q1 financial results consistent with previous expectations
- Electronics Marketing sales and operating income exceeded the midpoint of expectations
- TS reported as discontinued operations
The first quarter of fiscal 2016 ended
| First Quarters Ended | ||||||||||||||||
|
|
|
Change | ||||||||||||||
|
$ in millions, except per share data |
||||||||||||||||
| Adjusted Sales (1) | $ | 6,040.3 | $ | 6,969.7 | (13.3 | ) | % | |||||||||
| Constant Currency (2) |
(13.3 |
) |
% | |||||||||||||
| Sales | $ | 4,173.4 | $ | 4,600.8 | (9.3 | ) | % | |||||||||
| Constant Currency (2) |
(9.7 |
) |
% | |||||||||||||
| Operating Income | 131.0 | 170.0 | (22.9 | ) | % | |||||||||||
| Adjusted Operating Income (1) | 193.1 | 240.4 | (19.7 | ) | % | |||||||||||
| Net Income | 68.8 | 130.3 | (47.1 | ) | % | |||||||||||
| Adjusted Net Income (3) | 118.4 | 152.9 | (22.6 | ) | % | |||||||||||
| Adjusted Diluted EPS (3) | $ | 0.91 | $ | 1.12 | (18.8 | ) | % | |||||||||
| Diluted EPS | $ | 0.53 | $ | 0.96 | (44.8 | ) | % | |||||||||
| (1) |
As the TS business is a discontinued operation, the |
|
| (2) | 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 included in Exhibit 99.2. | |
| (3) | Non-GAAP financial measures. See Exhibit 99.2. |
- TS sales and operating income below expectations
- The year-over-year decline in adjusted operating income was driven by the decline in sales including the impact of the extra week in fiscal 2016
"We took a significant step in our strategic transition as we completed
the acquisition of Premier Farnell on
Amelio further added, "Avnet has a long history of adapting to changes in the technology marketplace and we believe the strategic direction we are setting today will expand our growth opportunities, increase our margins and returns and generate increased shareholder value in the future."
Cash Flow and Returns to Shareholders
-
Cash generated from operations over the trailing twelve months
increased
$34 million to$258 million -
Cash and cash equivalents at the end of the quarter was
$1.20 billion ; net debt (total debt less cash and cash equivalents) was$1.51 billion -
The Company has
$174.9 million remaining under the current share repurchase authorization -
The Company paid a dividend of
$0.17 per share or$21.7 million during the quarter
"At the end of October we will use approximately
Discontinued Operations
On
Avnet Electronics Marketing Results
The first quarter of fiscal 2016 ended
| Year-over-Year Growth Rates | ||||||||||||||||||
|
Q1 FY17 |
Reported |
Organic |
||||||||||||||||
|
(in millions) |
||||||||||||||||||
| EM Total | $ | 4,173.4 | (9.3 | ) | % | (3.0 | ) | % | ||||||||||
|
Constant Currency (1) |
(9.7 | ) | % | (3.4 | ) | % | ||||||||||||
|
|
$ | 1,305.8 | (5.1 | ) | % | 1.0 | % | |||||||||||
| EMEA | $ | 1,265.3 | (5.4 | ) | % | 1.5 | % | |||||||||||
| Constant Currency (1) | (5.3 | ) | % | 1.7 | % | |||||||||||||
|
|
$ | 1,602.3 | (15.1 | ) | % | (9.0 | ) | % | ||||||||||
| Constant Currency (1) |
(16.1 |
) |
% |
(10.1 |
) |
% | ||||||||||||
| Q1 FY17 | Q1 FY16 | Change | |||||||||||||||||||
| Operating Income | $ | 186.5 | $ | 217.7 | (14.3 | ) | % | ||||||||||||||
| Operating Income Margin | 4.5 | % | 4.7 | % | (26 | ) | bps | ||||||||||||||
| (1) | Refer to Exhibit 99.2. | |
-
Excluding the impact of the extra week of sales in the prior year
quarter and the decision to exit certain select high volume supply
chain engagements in the
Asia region, sales would have increased by approximately 1%. -
Gross profit margin increased 35 basis points from the year ago
quarter due to an improvement in the
Asia region and a regional mix shift to the higher margin western regions, both of which were driven by the decision to exit certain low margin supply chain engagements. -
Operating income margin declined 26 basis points from the year ago
quarter primarily due to the decline in sales related to the extra
week in the year ago quarter and higher expenses related to the ERP
implementation in the
Americas region. - Working capital (defined as receivables plus inventories less accounts payables) increased 16.0% from the year ago quarter due to the transfer of the embedded computing solutions business from TS at the beginning of fiscal 2017 and a decrease in accounts payable. Excluding the transfer of the embedded computing solutions business from TS at the beginning of fiscal 2017 and the impact of foreign currency exchange rates, inventory declined 8.2% sequentially.
Avnet Technology Solutions Results
The first quarter of fiscal 2016 ended
| Year-over-Year Growth Rates | ||||||||||||||||||
|
Q1 FY17 |
Reported |
Organic |
||||||||||||||||
|
(in millions) |
||||||||||||||||||
| TS Total (1) | $ | 1,866.9 | (21.2 | ) | % | (14.8 | ) | % | ||||||||||
| Constant Currency (2) | (20.3 | ) | % | (13.8 | ) | % | ||||||||||||
|
|
$ | 1,043.5 | (25.4 | ) | % | (17.7 | ) | % | ||||||||||
| EMEA | $ | 580.3 | (14.3 | ) | % | (11.0 | ) | % | ||||||||||
| Constant Currency (2) | (10.0 | ) | % | (6.5 | ) | % | ||||||||||||
|
|
$ | 243.1 | (17.1 | ) | % | (10.1 | ) | % | ||||||||||
| Constant Currency (2) | (18.3 | ) | % | (11.4 | ) | % | ||||||||||||
| Q1 FY17 | Q1 FY16 | Change | ||||||||||||||||
| Operating Income (1) | $ | 42.7 | $ | 69.8 | (38.9 | ) | % | |||||||||||
| Operating Income Margin | 2.3 | % | 3.0 | % | (66 | ) | bps | |||||||||||
| (1) | The TS business is a discontinued operation. Refer to Exhibit 99.2. | |
| (2) | Refer to Exhibit 99.2. |
- At a product level, year-over-year declines in servers, storage and software drove the revenue decline
Outlook for Second Quarter of Fiscal 2017
Ending on
-
Avnet outlook only includes the EM business, including Premier Farnell -
Sales are expected to be in the range of
$4.2 billion to$4.5 billion -
Adjusted diluted earnings per share is expected to be in the range of
$0.69 to$0.79 per share - The guidance assumes 130 million average diluted shares outstanding and an adjusted tax rate of 23% to 27
The above guidance excludes any additional acquisitions, the
amortization of intangibles, any potential restructuring, integration
and other expenses and certain income tax adjustments. The above
guidance also excludes any results from the TS business. In addition,
the above guidance assumes that the average
Refer to Exhibit 99.2 to the Current Report on Form 8-K filed with the
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
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, the
separation and pending sale of the TS business, 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
More detailed information about these and other factors is set forth in
Avnet's filings with the
Teleconference and Upcoming Events
For a listing of Avnet's upcoming events and other information, please visit Avnet's investor relations website at www.ir.avnet.com.
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|
|
||||||||||
|
First Quarters Ended |
||||||||||
|
|
|
|||||||||
|
(Thousands, except per share data) |
||||||||||
| Sales | $ | 4,173,405 | $ | 4,600,802 | ||||||
| Cost of sales | 3,647,920 | 4,037,546 | ||||||||
| Gross profit | 525,485 | 563,256 | ||||||||
| Selling, general and administrative expenses | 365,025 | 380,751 | ||||||||
| Restructuring, integration and other expenses | 29,469 | 12,518 | ||||||||
| Operating income | 130,991 | 169,987 | ||||||||
| Other income (expense), net | (13,733 | ) | 882 | |||||||
| Interest expense | (27,237 | ) | (22,032 | ) | ||||||
| Income from continuing operations before income taxes | 90,021 | 148,837 | ||||||||
| Income tax expense | 21,435 | 37,849 | ||||||||
| Income from continuing operations | 68,586 | 110,988 | ||||||||
|
Income from discontinued operations, net of income taxes of |
257 | 19,266 | ||||||||
| Net income | $ | 68,843 | $ | 130,254 | ||||||
| Earnings per share- basic: | ||||||||||
| Continuing operations | $ | 0.54 | $ | 0.83 | ||||||
| Discontinued operations | 0.00 | 0.14 | ||||||||
| Net income per share - basic | $ | 0.54 | $ | 0.97 | ||||||
| Earnings per share- diluted: | ||||||||||
| Continuing operations | $ | 0.53 | $ | 0.82 | ||||||
| Discontinued operations | 0.00 | 0.14 | ||||||||
| Net income per share - diluted | $ | 0.53 | $ | 0.96 | ||||||
| Shares used to compute earnings per share: | ||||||||||
| Basic | 127,531 | 133,783 | ||||||||
| Diluted | 129,763 | 136,326 | ||||||||
| Cash dividends paid per common share | $ | 0.17 | $ | 0.17 | ||||||
|
|
|||||||||||
|
|
|
||||||||||
| (Thousands) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,196,545 | $ | 1,031,478 | |||||||
| Receivables, net | 2,876,346 | 2,803,678 | |||||||||
| Inventories | 2,418,761 | 2,589,659 | |||||||||
| Prepaid and other current assets | 76,514 | 81,196 | |||||||||
| Assets held for sale | 3,131,587 | 2,497,962 | |||||||||
| Total current assets | 9,699,753 | 9,003,973 | |||||||||
| Property, plant and equipment, net | 471,321 | 453,209 | |||||||||
|
|
620,850 | 621,852 | |||||||||
| Intangible assets, net | 20,823 | 22,571 | |||||||||
| Other assets | 233,376 | 239,133 | |||||||||
| Non-current assets held for sale | — | 899,067 | |||||||||
| Total assets | $ | 11,046,123 | $ | 11,239,805 | |||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ | 98,017 | $ | 1,152,599 | |||||||
| Accounts payable | 1,463,555 | 1,616,694 | |||||||||
| Accrued expenses and other | 419,445 | 394,888 | |||||||||
| Liabilities held for sale | 1,452,851 | 1,778,312 | |||||||||
| Total current liabilities | 3,433,868 | 4,942,493 | |||||||||
| Long-term debt | 2,609,617 | 1,339,204 | |||||||||
| Other liabilities | 213,612 | 223,053 | |||||||||
| Non-current liabilities held for sale | — | 43,769 | |||||||||
| Total liabilities | 6,257,097 | 6,548,519 | |||||||||
| Shareholders' equity | 4,789,026 | 4,691,286 | |||||||||
| Total liabilities and shareholders' equity | $ | 11,046,123 | $ | 11,239,805 | |||||||
|
|
|||||||||||||
| Three Months Ended | |||||||||||||
|
|
|
||||||||||||
| (Thousands) | |||||||||||||
| Cash flows from operating activities: | |||||||||||||
| Net income | $ | 68,843 | $ | 130,254 | |||||||||
| Less: Income from discontinued operations, net of tax | 257 | 19,266 | |||||||||||
| Income from continuing operations | 68,586 | 110,988 | |||||||||||
| Non-cash and other reconciling items: | |||||||||||||
| Depreciation | 19,694 | 8,237 | |||||||||||
| Amortization | 1,930 | 2,436 | |||||||||||
| Deferred income taxes | 6,412 | 3,381 | |||||||||||
| Stock-based compensation | 17,576 | 24,350 | |||||||||||
| Other, net | 10,714 | 9,411 | |||||||||||
| Changes in (net of effects from businesses acquired): | |||||||||||||
| Receivables | (64,587 | ) | 124,076 | ||||||||||
| Inventories | 182,240 | (282,846 | ) | ||||||||||
| Accounts payable | (164,777 | ) | (2,476 | ) | |||||||||
| Accrued expenses and other, net | 33,522 | (33,535 | ) | ||||||||||
| Net cash flows provided (used) for operating activities- continuing operations | 111,310 | (35,978 | ) | ||||||||||
| Net cash flows (used) provided by operating activities- discontinued operations | (111,446 | ) | 2,237 | ||||||||||
| Net cash flows used for operating activates | (136 | ) | (33,741 | ) | |||||||||
| Cash flows from financing activities: | |||||||||||||
| Repayment of notes | (300,000 | ) | (250,000 | ) | |||||||||
| Repayments under accounts receivable securitization, net | (150,265 | ) | (33,045 | ) | |||||||||
| Borrowings of bank and revolving debt, net | 669,803 | 418,756 | |||||||||||
| Repurchases of common stock | — | (143,725 | ) | ||||||||||
| Dividends paid on common stock | (21,676 | ) | (22,612 | ) | |||||||||
| Other, net | 682 | (2,503 | ) | ||||||||||
| Net cash flows provided (used) for financing activities - continuing operations | 198,544 | (33,129 | ) | ||||||||||
| Net cash flows used for financing activities - discontinued operations | (4,756 | ) | (160 | ) | |||||||||
| Net cash flows provided (used) for financing activities | 193,788 | (33,289 | ) | ||||||||||
| Cash flows from investing activities: | |||||||||||||
| Purchases of property, plant and equipment | (34,729 | ) | (31,205 | ) | |||||||||
| Other, net | 432 | 1,568 | |||||||||||
| Net cash flows used for investing activities - continuing operations | (34,297 | ) | (29,637 | ) | |||||||||
| Net cash flows used for investing activities - discontinued operations | (95 | ) | (2,395 | ) | |||||||||
| Net cash flows used for investing activities | (34,392 | ) | (32,032 | ) | |||||||||
| Effect of currency exchange rate changes on cash and cash equivalents | 5,807 | (8,796 | ) | ||||||||||
| Net change in cash and cash equivalents | 165,067 | (107,858 | ) | ||||||||||
| Cash and cash equivalents at beginning of period | 1,031,478 | 932,553 | |||||||||||
| Cash and cash equivalents at end of period | $ | 1,196,545 | $ | 824,695 | |||||||||
|
|
|||||||||||||
| First Quarters Ended | |||||||||||||
|
|
|
||||||||||||
| (Millions) | |||||||||||||
| Sales: | |||||||||||||
| Electronics Marketing (continuing operations) | $ | 4,173.4 | $ | 4,600.8 | |||||||||
| Technology Solutions (discontinued operations) | 1,866.9 | 2,368.9 | |||||||||||
| Operating Income (Expense): | |||||||||||||
| Electronics Marketing (continuing operations) | $ | 186.5 | $ | 213.0 | |||||||||
| Technology Solutions (discontinued operations) | 42.7 | 74.5 | |||||||||||
| Corporate specific to or benefiting Electronic Marketing | (23.6 | ) | (32.1 | ) | |||||||||
| Corporate specific to or benefiting Technology Solutions | (12.5 | ) | (15.1 | ) | |||||||||
| 193.1 | 240.4 | ||||||||||||
| Restructuring, integration and other expenses - continuing operations | (29.5 | ) | (12.5 | ) | |||||||||
| Restructuring, integration and other expenses - discontinued operations | (4.2 | ) | (13.4 | ) | |||||||||
| Amortization of acquired intangible assets and other - continuing operations | (2.4 | ) | (2.8 | ) | |||||||||
| Amortization of acquired intangible assets and other - discontinued operations | (4.5 | ) | (4.6 | ) | |||||||||
| Less: TS discontinued operations | (21.5 | ) | (37.0 | ) | |||||||||
| Operating Income | $ | 131.0 | $ | 170.0 | |||||||||
|
* Sub-totals and totals may not foot due to rounding |
|||||||||||||
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