Avnet Reports Fourth Quarter and Fiscal Year 2017 Results

August 9, 2017

Avnet Reports Fourth Quarter and Fiscal Year 2017 Results 13.2 KB

PHOENIX--(BUSINESS WIRE)-- Avnet, Inc. (NYSE:AVT) today announced results for the fourth quarter and fiscal year ended July 1, 2017.

Fourth Quarter Results

Sales of $4.6 billion increased 16.1% year over year
Organic sales increased 8.4% in constant currency from the year ago quarter
Diluted earnings per share (EPS) from continuing operations of $0.59
Adjusted diluted EPS from continuing operations of $0.84
Cash generated from operations of $81 million

	Fourth Quarters Ended
								Organic
	July 1, 2017		July 2, 2016		Change			Growth
Avnet⁽¹⁾	$ in millions, except per share data
Sales	$	4,606.4	$	3,969.0	16.1		%	6.8	%
Constant Currency⁽²⁾					17.9		%	8.4	%
Americas		1,332.2		1,105.0	20.6		%	7.2	%
EMEA		1,651.0		1,293.1	27.7		%	13.3	%
Constant Currency⁽²⁾					32.1		%	17.2	%
Asia		1,623.2		1,570.9	3.3		%	0.6	%
Constant Currency⁽²⁾					4.0		%	1.2	%

Operating Income		93.4		120.2	(22.3	)	%
Adjusted Operating Income⁽³⁾		155.2		131.7	17.9		%

Income from continuing operations		73.3		72.1	1.7		%
Adj Income from continuing operations⁽⁴⁾		105.0		75.4	39.3		%

Diluted EPS continuing operations	$	0.59	$	0.56	5.4		%
Adj Diluted EPS continuing operations⁽⁴⁾	$	0.84	$	0.59	42.4		%

(1)			Financial information is for continuing operations and excludes the Technology Solutions (TS) business as the sale of this business was completed during the March quarter. See "Discontinued Operations" below.
(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 Avnet's results of operations is included in Exhibit 99.2 to the Form 8-K filed with the Securities Exchange Commission on August 9, 2017 ("Exhibit 99.2").
(3)			Non-GAAP adjustments to operating income in fiscal 2017 include $42.0 million of restructuring, integration and other expenses and $19.8 million of amortization expense. Refer to Exhibit 99.2 for a complete reconciliation of non-GAAP financial information.
(4)			Non-GAAP measures. Refer to Exhibit 99.2.

"We closed out the fiscal year with a strong quarter as organic revenue grew 8.4% year over year in constant currency with all three regions contributing to the growth. In our EMEA region, where our electronic components group continues to grow faster than the market, revenue increased 32% in constant currency and organic revenue was up 17%," said Bill Amelio, CEO of Avnet. "Our digital initiatives continue to gain traction as Premier Farnell's Element 14 community surpassed 500 thousand members and we continue to add over 30 thousand new digital customers each month. We are seeing meaningful improvement in demand creation metrics as we redeploy field application engineers to new products and suppliers that value the reach and technical breadth we bring to high growth markets. With our digital ecosystem growing steadily and as we realize the positive impacts from our transformation initiatives, we enter fiscal 2018 positioned to drive further organic growth and improve financial performance."

Segment Reporting

As a result of the sale of the TS Business and the acquisition of Premier Farnell, during the fourth quarter of fiscal 2017, the Company changed its reportable segments to the Electronic Components and Premier Farnell operating groups.

Operating Group Results

				Year-over-Year Growth Rates
	Q4 FY17			Reported		Organic
	Sales			Sales		Sales
	(in millions)
Sales
Electronic Components	$	4,260.7		7.4	%	7.4		%
Constant Currency⁽¹⁾				8.8	%	8.8		%

Premier Farnell (acquired Oct 16, 2016)	$	345.7		—		0.1		%
Constant Currency⁽¹⁾				—		4.0		%


	Q4 FY17			Q4 FY16		Change
Operating Income
Electronic Components	$	152.4		154.7		(1.5	)	%
Premier Farnell		35.5		—		—		%

Operating Income Margin
Electronic Components		3.6	%	3.9	%	(32	)	bps
Premier Farnell		10.3	%	—		—

(1)			Refer to Exhibit 99.2.

Electronic Components sales increased 8.8% from the year ago quarter in constant currency
- Sales increased 3.0% sequentially in constant currency, driven by strength in the Asia region
Premier Farnell organic sales increased 4.0% year over year in constant currency
Electronic Components EMEA organic sales increased 18.6% year over year in constant currency, the 16^th consecutive quarter of year-over-year growth
Excluding the Company's decision to exit select high volume supply chain engagements, Electronic Components Asia grew 11.6% year over year in constant currency
Premier Farnell EMEA organic sales increased 5.8% year over year in constant currency and Premier Farnell Asia organic sales increased 13.0% from the year ago quarter in constant currency
Electronic Components operating income margin in the Asia region improved 25 bps sequentially and 45 bps from the year ago quarter
Electronic Components inventory declined 4.5% from the year ago quarter, 5.0% in constant currency, and average inventory days declined 10.0% primarily driven by improvement in the Americas region

Cash Flow and Returns to Shareholders

Cash generated from continuing operations was $81 million in the June quarter and $221 million in fiscal 2017
Cash and cash equivalents at the end of the quarter was $836 million; net debt (total debt less cash and cash equivalents) was $943 million
During the June quarter, the Company repurchased 3.3 million shares, representing an aggregate investment of $136 million
Entering fiscal 2018, the Company had $399 million remaining under the current share repurchase authorization
Avnet paid a dividend of $0.18 per share, or $22 million, during the quarter

"In the June quarter, we generated approximately $81 million of cash from continuing operations and $221 million for the fiscal year," said Kevin Moriarty, CFO of Avnet. "In fiscal 2017, we used the proceeds from the sale of Technology Solutions to fund the acquisition of Premier Farnell while strengthening our balance sheet and credit statistics with the pay down of debt. We also returned over $364 million of cash to shareholders via our dividend and share repurchase program. With improved liquidity and a strong balance sheet, we are well positioned to leverage the digital ecosystem we built and invest in offerings that continue to meet the evolving needs of a customer base that is changing how they design, procure and deliver innovative technology products."

Fiscal 2017 Results

Sales of $17.4 billion, increased 4.2% year over year (5.1% in constant currency), primarily driven by a strong performance in the EMEA region
- Organic sales increased 1.0% in constant currency
Gross profit margin improved 117 bps year over year, primarily driven by the acquisition of Premier Farnell
Operating income declined 19.5% year over year, and operating income margin was 2.6%
- Adjusted operating income grew 4.1% year over year, and adjusted operating income margin was consistent with the prior year at 3.7%
Generated $221 million cash from continuing operations in fiscal 2017
- Repurchased $276 million in stock, paid $89 million in dividends


	FISCAL YEARS ENDED
	July 1, 2017		July 2, 2016		Change
Avnet⁽¹⁾	$ in millions, except per share data

Sales	$	17,440.0	$	16,740.6	4.2		%
Constant Currency⁽²⁾					5.1		%

Operating Income		461.4		572.9	(19.5	)	%
Adjusted Operating Income⁽³⁾		653.3		627.5	4.1		%

Income from continuing operations		263.4		390.9	(32.6	)	%
Adjusted Income from continuing operations⁽⁴⁾		416.6		403.6	3.2		%

Diluted EPS continuing operations	$	2.05	$	2.93	(30.0	)	%
Adjusted Diluted EPS continuing operations⁽⁴⁾	$	3.24	$	3.02	7.3		%

(1)			See "Discontinued Operations" below.
(2)			Refer to Exhibit 99.2.
(3)			Non-GAAP adjustments to operating income in fiscal 2017 include $137.4 million of restructuring, integration and other expenses and $54.5 million of amortization expense. Refer to Exhibit 99.2.
(4)			Non-GAAP measures. Refer to Exhibit 99.2.

Outlook for First Quarter of Fiscal 2018 Ending on September 30, 2017

Sales are expected to be in the range of $4.15 billion to $4.45 billion
- This sales outlook reflects the net impact from supplier channel consolidation. Excluding the impact of supplier channel consolidation, the midpoint of guidance would be at the low end of the Company's seasonal range
Adjusted diluted earnings per share is expected to be in the range of $0.67 to $0.77 per share
The guidance assumes 125 million average diluted shares outstanding and an adjusted tax rate of 23% to 27%

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 first quarter of fiscal 2018 is $1.14 to €1.00. This compares with an average exchange rate of $1.12 to the Euro in the first quarter of fiscal 2017.

Refer to Exhibit 99.2 for a complete reconciliation of non-GAAP guidance.

Discontinued Operations

In February 2017, Avnet completed the sale of its Technology Solutions business to Tech Data Corporation. As a result, the historical results and the gain on sale of the TS business are considered discontinued operations.

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 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 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.


AVNET, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Fourth Quarters Ended						Years Ended
	July 1,			July 2,			July 1,			July 2,
	2017			2016			2017			2016
	(Thousands, except per share data)

Sales	$	4,606,404		$	3,968,969		$	17,439,963		$	16,740,597
Cost of sales		3,975,788			3,473,192			15,070,521			14,662,651
Gross profit		630,616			495,777			2,369,442			2,077,946
Selling, general and administrative expenses		495,210			366,291			1,770,627			1,460,273
Restructuring, integration and other expenses		42,033			9,306			137,415			44,761
Operating income		93,373			120,180			461,400			572,912
Other (expense) income, net		(13,495	)		(3,247	)		(44,305	)		(2,963	)
Interest expense		(25,173	)		(27,550	)		(106,691	)		(91,936	)
Income from continuing operations before taxes		54,705			89,383			310,404			478,013
Income tax (benefit) expense		(18,574	)		17,330			47,053			87,104
Income from continuing operations, net of tax		73,279			72,053			263,351			390,909
Income from discontinued operations, net of tax		2,899			24,753			39,571			115,622
Gain on sale of discontinued operations, net of tax		5,268			—			222,356			—
Income from discontinued operations, net of tax		8,167			24,753			261,927			115,622
Net income	$	81,446		$	96,806		$	525,278		$	506,531

Earnings per share - basic:
Continuing operations	$	0.59		$	0.57		$	2.07		$	2.99
Discontinued operations		0.07			0.19			2.06			0.88
Net income per share basic	$	0.66		$	0.76		$	4.13		$	3.87

Earnings per share - diluted:
Continuing operations	$	0.59		$	0.56		$	2.05		$	2.93
Discontinued operations		0.07			0.19			2.03			0.87
Net income per share diluted	$	0.65		$	0.75		$	4.08		$	3.80

Shares used to compute earnings per share:
Basic		124,209			127,930			127,032			130,858
Diluted		125,062			129,799			128,651			133,173
Cash dividends paid per common share	$	0.18		$	0.17		$	0.70		$	0.68


AVNET, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	July 1,		July 2,
	2017		2016
	(Thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	836,384	$	1,031,478
Marketable securities		281,326		—
Receivables, net		3,337,624		2,769,906
Inventories		2,824,709		2,559,921
Prepaid and other current assets		253,765		73,786
Current assets of discontinued operations		—		2,568,882
Total current assets		7,533,808		9,003,973
Property, plant and equipment, net		519,575		453,209
Goodwill		1,148,347		621,852
Intangible assets, net		277,291		22,571
Other assets		220,568		239,133
Non-current assets of discontinued operations		—		899,067
Total assets	$	9,699,589	$	11,239,805

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt	$	50,113	$	1,152,599
Accounts payable		1,861,635		1,590,777
Accrued expenses and other		542,023		394,888
Current liabilities of discontinued operations		—		1,804,229
Total current liabilities		2,453,771		4,942,493
Long-term debt		1,729,212		1,339,204
Other liabilities		334,538		223,053
Non-current liabilities of discontinued operations		—		43,769
Total liabilities		4,517,521		6,548,519
Shareholders' equity		5,182,068		4,691,286
Total liabilities and shareholders' equity	$	9,699,589	$	11,239,805


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

	Years Ended
	July 1, 2017			July 2, 2016
	(Thousands)
Cash flows from operating activities:
Net income	$	525,278		$	506,531
Less: Income from discontinued operations, net of tax		261,927			115,622
Income from continuing operations		263,351			390,909

Non-cash and other reconciling items:
Depreciation		101,407			70,344
Amortization		53,953			9,246
Deferred income taxes		(25,305	)		107,598
Stock-based compensation		47,686			56,908
Other, net		26,230			29,379
Changes in (net of effects from businesses acquired and divested):
Receivables		(371,820	)		191,209
Inventories		84,408			(416,644	)
Accounts payable		163,604			(326,217	)
Accrued expenses and other, net		(122,466	)		(161,607	)
Net cash flows provided (used) by operating activities - continuing operations		221,048			(48,875	)
Net cash flows (used) provided by operating activities - discontinued operations		(589,738	)		273,190
Net cash flows (used) provided by operating activities		(368,690	)		224,315

Cash flows from financing activities:
Issuance of notes, net of issuance costs		296,374			541,500
Repayment of notes		(530,800	)		(250,000	)
Borrowings (repayments) under accounts receivable securitization, net		(588,000	)		79,996
Borrowings (repayments) of bank and revolving debt, net		(72,553	)		119,895
Borrowings of term loans		530,756			—
Repayments of term loans		(511,358	)		—
Repurchases of common stock		(275,884	)		(380,943	)
Dividends paid on common stock		(88,657	)		(88,594	)
Other, net		48,530			(11,448	)
Net cash flows (used) provided by financing activities - continuing operations		(1,191,592	)		10,406
Net cash flows provided by financing activities - discontinued operations		3,447			22,949
Net cash flows (used) provided by financing activities		(1,188,145	)		33,355

Cash flows from investing activities:
Purchases of property, plant and equipment		(120,397	)		(137,375	)
Acquisitions of businesses, net of cash acquired		(802,744	)		—
Other, net		18,656			15,574
Net cash flows used for investing activities - continuing operations		(904,485	)		(121,801	)
Net cash flows provided (used) by investing activities - discontinued operations		2,242,959			(30,712	)
Net cash flows provided (used) by investing activities		1,338,474			(152,513	)
Effect of currency exchange rate changes on cash and cash equivalents		23,267			(6,232	)
Cash and cash equivalents:
— (decrease) increase		(195,094	)		98,925
— at beginning of period		1,031,478			932,553
— at end of period	$	836,384		$	1,031,478

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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

Source: Avnet, Inc.

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