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Avnet, Inc. Reports Third Quarter Fiscal Year 2014 Results

Avnet, Inc. (NYSE:AVT) today announced results for the third quarter fiscal year 2014 ended March 29, 2014.

Q3 Fiscal 2014 Results
 
THIRD QUARTERS ENDED
  March 29, 2014     March 30, 2013     Change
$ in millions, except per share data
Sales $6,683.6     $6,298.7     6.1 %
 
GAAP Operating Income 184.8 167.6 10.3 %
Adjusted Operating Income (1) 223.8 203.7 9.9 %
 
GAAP Net Income 113.9 86.2 32.1 %
Adjusted Net Income (1) 144.1 131.5 9.6 %
 
GAAP Diluted EPS $0.81 $0.62 30.6 %
Adjusted Diluted EPS (1) $1.03 $0.95 8.4 %

(1) A reconciliation of non-GAAP financial measures to GAAP financial measures is presented in the

Non-GAAP Financial Information section in this press release.
  • Sales for the quarter ended March 29, 2014 increased 6.1% year over year to $6.7 billion; organic sales (as defined later in the document) grew 3.7% year over year and 3.5% in constant currency
  • Gross profit margin of 12.0% increased 61 basis points sequentially and was essentially flat with the year ago quarter
  • Adjusted operating income of $223.8 million increased 9.9% and adjusted operating income margin of 3.3% increased 12 basis points year over year
  • Adjusted net income of $144.1 million increased 9.6% and adjusted diluted earnings per share of $1.03 increased 8.4% year over year

Rick Hamada, Chief Executive Officer, commented, “Our enterprise level results reflect a third consecutive quarter of year-over-year organic growth led by the performance of our Electronics Marketing (EM) business, which grew revenue 8.8% in its seasonally strong March quarter. This growth was somewhat offset by lower than expected revenue in our Technology Solutions (TS) business, despite the strong performance in the December quarter. TS’ organic revenue declined year over year and, as a result, our organic growth rate at the enterprise level was 3.5% in constant currency. Turning to our bottom line, adjusted operating income increased nearly 10% year over year and operating income margin was up 12 basis points to 3.3%. In line with our general expectations, we experienced strong cash flow from operations for the quarter at $358 million, which continues to bolster our balance sheet and available liquidity. We believe that our combination of resources and strategies continue to position us to build on this current performance with the clear goal of additional progress toward our long-term financial goals as companies continue to invest in technology to accelerate their success.”

Avnet Electronics Marketing Results
         
Year-over-Year Growth Rates

Q3 FY14Sales

ReportedSales
   

OrganicSales
(in millions)
EM Total $ 4,133.0 8.8 % 8.0 %
Excluding FX (1) 8.1 % 7.2 %
Americas $ 1,193.6 (9.6 )% (1.1 )%
EMEA $ 1,385.8 26.0 % 13.3 %
Excluding FX (1) 21.7 % 9.4 %
Asia $ 1,553.6 12.8 % 11.2 %
 
Q3' FY14 Q3' FY13 Change
Operating Income $ 193.4 $ 165.0 17.2 %
Operating Income Margin 4.7 % 4.4 % 33 bps

(1) Year-over-year sales growth rate excluding the impact of changes in foreign currency exchange rates.
  • Reported sales increased 8.8% year over year to $4.1 billion while organic sales were up 7.2% in constant currency
  • Operating income margin increased 33 basis points year over year to 4.7% primarily due to improvements in the Americas region
  • Working capital (defined as receivables plus inventory less accounts payables) declined 3.5% sequentially and was up 8.9% year over year due to the increase in sales and the acquisition of MSC; excluding acquisitions and the impact of currency, working capital increased 7.1% year over year
  • Return on working capital (ROWC) increased 245 basis points sequentially and 116 basis points year over year due primarily to higher operating income

Mr. Hamada added, “EM delivered another quarter of meaningful progress toward their financial targets as both margins and returns expanded year over year for a third consecutive quarter. In the March quarter, organic revenue increased 7.2% year over year in constant dollars, driven by strong growth in the EMEA and Asia regions. On a sequential basis, EM revenue was essentially flat, and below normal seasonality, due to the expected drop off in certain high volume fulfillment engagements in EM Asia, which drove our December quarter above seasonal levels. The seasonal mix shift to the western regions and the related gross profit margin improvement combined to drive operating income up 12.7% sequentially as operating income margin improved 55 basis points to 4.7%. On a year-over-year basis, the growth in revenue, when combined with the expense actions implemented in fiscal 2013 and the first half of fiscal 2014, drove operating income margin up 33 basis points. In addition to the strong financial performance this quarter, EM continues to position for future growth as the integration of MSC, which adds a broad offering of embedded and display solutions supported by in-depth technical expertise, is proceeding as planned. With a book to bill ratio above parity in all three regions, we are confident we can continue to leverage top line growth into improved financial performance as we return EM to our target margin and returns.”

Avnet Technology Solutions Results
         
Year-over-Year Growth Rates

Q3 FY14Sales

ReportedSales
   

OrganicSales
(in millions)
TS Total $ 2,550.6 2.0 % (2.5 )%
Excluding FX (1) 2.6 % (1.9 )%
Americas $ 1,373.5 5.6 % (2.9 )%
EMEA $ 774.6 (1.1 )% (1.1 )%
Excluding FX (1) (4.9 )% (4.9 )%
Asia $ 402.5 (3.8 )% (3.8 )%
 
Q3' FY14 Q3' FY13 Change
Operating Income $ 60.9 $ 68.6 (11.3 )%
Operating Income Margin 2.4 % 2.7 % (35) bps

(1) Year-over-year sales growth rate excluding the impact of changes in foreign currency exchange rates.
  • Reported sales increased 2.0% year over year to $2.6 billion and organic sales decreased 2.5% in reported dollars and 1.9% in constant currency
  • Operating income margin decreased 35 basis points year over year due primarily to a decline in the Americas region partially offset by an improvement in the EMEA region
  • ROWC decreased 809 basis points year over year primarily due to lower operating income
  • At a product level, year-over-year growth in networking and security, as well as services, was partially offset by a decline in servers

Mr. Hamada further added, “Despite coming off a stronger than expected Q2 performance, our TS results did not meet our original expectations primarily due to a weaker than expected close to the quarter in our Americas region, and somewhat softer demand experienced by our computing components business in EMEA. Our Americas revenue declined 26.1% sequentially and organic revenue declined 2.9% year over year. In our EMEA region, revenue declined 18.2% sequentially and organic revenue declined 4.9% year over year in constant currency. The revenue shortfall in our higher margin Americas region strongly influenced overall TS profitability as operating income dollars and margins at the global level declined 11.3% and 35 basis points year over year, respectively. We are, however, encouraged by our performance in EMEA this quarter as their ongoing portfolio management and resource allocation actions resulted in a 65 basis points increase in operating margin year over year. We will continue to monitor our current market conditions carefully and adjust our resources as necessary to resume progress toward our long-term goals.”

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