Start Time: 02:00 End Time: 03:02 Avnet, Inc. (AVT) Q4 2012 Earnings Call August 8, 2012 02:00 p.m. ET Executives Vince Keenan – VP of IR Rick Hamada – CEO Raymond Sadowski – CFO & SVP Harley Feldberg – SVP & President of Avnet Electronics Marketing Philip R. Gallagher – SVP & President of Avnet Technology Solutions Analysts Brendan Oliver Furlong – Miller Tabak Shawn Harrison – Longbow Research Amitabh Passi – UBS Investment Bank Ananda Baruah – Brean Murray, Carret & Co. Sherri Scribner – Deutsche Bank Craig Hettenbach – Goldman Sachs Brian Alexander – Raymond James Matthew Sheerin – Stifel Nicolaus Jim Suva – Citigroup Steven Fox – Cross Research Mona Eraiba – TCW Presentation Operator
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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 U.S. 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 fourth quarter and fiscal year 2012 highlights. Following Rick, Ray Sadowski, Chief Financial Officer of Avnet, will review our progress and growing shareholder value and provide first quarter fiscal 2013 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 fourth quarter and fiscal 2012 business highlights. Rick Hamada Thank you, Vince and hello everyone. Thank you all for taking the time to be with us and for your interest in Avnet. In fiscal 2012, growth rate slowed in the technology markets we served after two years of double digit organic growth driven by an increase in global GDP growth and the V-shaped recovery in semiconductors. At electronics marketing, our fiscal year started with two quarters of below seasonal growth as the electronic component supply chain dealt with a typical post upturn inventory correction as lead times contracted to more normal levels. Growth return to the low end of normal seasonality in the second half of the year which suggests the inventory correction has run its course, but customer demand is tentative given the macro economic uncertainty as evidenced by the unexpected decline in our sales late in the fourth quarter.
At Technology Solutions, year-over-year pro forma growth rates turn negative in the spring as macro economic conditions worsened and the slowdown in Europe spread to other regions.For fiscal 2012, Avnet’s total revenues of $25.7 billion declined 3% in reported dollars while pro forma revenue was down 4% with EMEA being the weakest region at both operating groups. As growth rates declined, we applied our value based management discipline across the portfolio and initiated targeted restructuring actions in order to focus our resources and opportunities for growth and margin enhancement. Associated with these initiatives, we reduced expenses and exited some revenue streams in underperforming business units while realigning resources in the parts of the portfolio where we experienced revenue shortfalls. While we could not offset all of the gross margin loss from the revenue decline, we did mitigate a meaningful portion of the impact as adjusted operating income of $958 million was down 5% from record levels in fiscal 2011 and adjusted operating income margin declined only seven basis points to 3.7%. Adjusted net income which was down 8.8% from the prior fiscal year declined more than operating income primarily due to a negative $15 million swing in other income due to the cost related to foreign currency hedging as exchange rates were more volatile in the second half of fiscal 2012. For the full year, adjusted earnings per share declined $0.26 to $4.06 due to the decline in revenue and the negative translation impact of changes in foreign currency exchange rates offset somewhat by the positive impact of our share repurchases. Looking at the balance sheet, working capital was roughly flat in constant dollars as compared with fiscal 2011 while working capital velocity declined roughly three quarters of a turn to 6.4 turns which remains above pre-recession levels. Return on working capital of 23.9% declined 333 basis points as improvements at TS were offset by a decline at EM after our record setting year in fiscal 2011. Read the rest of this transcript for free on seekingalpha.com