Avnet's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Avnet (AVT)

Q3 2012 Earnings Call

April 26, 2012 2:00 pm ET


Vincent Keenan - Vice President of Investor Relations

Richard P. Hamada - Chief Executive Officer, President, Chief Operating Officer, Chairman of Global Executive Council and Member of Management Board

Raymond J. Sadowski - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Assistant Secretary

Philip R. Gallagher - Senior Vice President and Global President of Avnet Technology Solutions

Harley Feldberg - Senior Vice President, Member of the Management Board and President of Avnet Electronics Marketing - Global


Scott D. Craig - BofA Merrill Lynch, Research Division

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Shawn M. Harrison - Longbow Research LLC

Jim Suva - Citigroup Inc, Research Division

Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

Amitabh Passi - UBS Investment Bank, Research Division

Steven B. Fox - Cross Research LLC

Sherri Scribner - Deutsche Bank AG, Research Division

Mona Eraiba

Unknown Analyst



Please stand by. Our presentation will begin now. I would now like to turn the floor over to Vince Keenan, Avnet's Vice President of Investor Relations. Thank you, sir. You may begin.

Vincent Keenan

Good afternoon, and welcome to Avnet's Third Quarter Fiscal Year 2012 Business and Financial Update. If you're listening by telephone today and have not accessed the slides that accompany this presentation, please go to our website and click on the icon announcing today's event.

As we provide the highlights for our third quarter fiscal year 2012, please note that in the accompanying presentation and slides, we have excluded restructuring, integration and other charges from both the current and prior year periods and a gain related to the negative goodwill from an acquisition during the current quarter. When discussing pro forma sales or organic growth, prior periods have been adjusted to include acquisitions and the impact of a divestiture, as well as the transfer of the Latin America computing components business from TS to EM in the first quarter of fiscal 2012.

In addition, when we refer to the impact of foreign currency, we mean the impact due to the change in foreign currency exchange rates when translating Avnet's non-U.S. dollar based financial statement into US dollars. And finally, when addressing working capital, return on capital employed and return on working capital, the definitions are included in the non-GAAP section of our presentation.

Before we get started with the presentation from Avnet management, I would like to review Avnet's Safe Harbor statement. This presentation contains certain forward-looking statements, which are statements addressing future financial and operating results of Avnet. Listed on this slide are several factors that could cause actual results to differ materially from those described in the forward-looking statements. More detailed information about these and other factors is set forth in Avnet's filings with the Securities and Exchange Commission.

In just a few moments, Rick Hamada, Avnet's CEO, will provide Avnet's third quarter fiscal year 2012 highlights. Following Rick, Ray Sadowski, Chief Financial Officer of Avnet, will review some other financial highlights, our return on capital performance and provide further fiscal 2012 guidance. At the conclusion of Ray's remarks, a Q&A will follow.

Also here today to take any questions you may have related to Avnet's business operations is Phil Gallagher, President of Technology Solutions; and Harley Feldberg, President of Electronics Marketing.

With that, let me introduce Mr. Rick Hamada to discuss Avnet's third quarter fiscal 2012 business highlights.

Richard P. Hamada

Thank you, Vince, and good afternoon, everyone. Thank you all for taking the time to be with us and for your interest in Avnet. Similar to the first 2 quarters of fiscal 2012, the pace of recovery continued to vary by region. However, we did see some incremental signs of encouragement towards the end of the quarter.

At Electronics Marketing, the supply chain inventory correction that negatively impacted the first half of fiscal 2012 appeared to be nearing an end, as sequential revenue growth returned to more normal seasonal trends and the book-to-bill ratio finished at parity for the quarter.

At TS, which was coming off its seasonally strong December quarter, the continued focus on improving performance and the benefits from restructuring initiatives resulted in the third consecutive quarter of year-over-year improvements in both margins and returns. Despite the challenges presented by the sluggish macroeconomic environment, solid execution at both operating groups led to results that were in line with our expectations and demonstrated the positive impact that our value-based management discipline continues to have on our business.

Enterprise revenue were up $6.3 billion, decreased 6% year-over-year in reported dollars, while pro forma revenue was down 7% in constant dollars primarily due to a double-digit decline in our EMEA region at both operating groups. This represents the first quarter in this fiscal year that pro forma year-over-year growth turned negative as the prior year third quarter was particularly strong.

On a sequential basis, revenue declined 6% in reported dollars and pro forma revenue was down 7%, which was at the low end of normal seasonality of down 4% to down 7%. In the March quarter, gross profit margin increased 29 basis points sequentially to 12%, primarily due to the seasonal mix shift to our higher gross profit margin EM business. On a year-over-year basis, gross profit margin increased 21 basis points, driven by the third consecutive quarter of improvements at TS in both the Americas and EMEA regions.

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