Avnet, Inc. Reports Fourth Quarter Fiscal Year 2013 Results

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Avnet, Inc. Reports Fourth Quarter Fiscal Year 2013 Results

Revenue Growth Drives Sequential Improvement in Earnings and Cash Flow

PHOENIX--(BUSINESS WIRE)-- Avnet, Inc. (NYS: AVT) today announced results for the fourth quarter and fiscal year ended June 29, 2013.


Q4 Fiscal 2013 Results

  Fourth Quarter Ended
June 29,  June 30,  
20132012Change
 $ in millions, except per share data
Sales$6,590.7$6,307.44.5%
 
GAAP Operating Income$162.8$213.4-23.7%
Adjusted Operating Income (1)$222.7$233.9-4.8%
 
GAAP Net Income$126.1$133.4-5.5%
Adjusted Net Income (1)$135.8$145.3-6.5%
 
GAAP Diluted EPS$0.91$0.910.0%
Adjusted Diluted EPS (1)$0.98$0.99-1.0%

(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 June 29, 2013 increased 4.5% year over year to $6.59 billion; organic revenue (as defined later in this release) was up 0.2% year over year and 0.5% in constant currency
  • Adjusted operating income decreased 4.8% year over year due primarily to a decline in gross profit margin in the EMEA region
  • Adjusted net income declined 6.5% year over year due primarily to the decline in gross profit margin and higher interest and other expenses
  • Adjusted diluted earnings per share declined 1.0% year over year to $0.98 as the decline in adjusted net income was partially offset by a lower share count as a result of the shares repurchased

Rick Hamada, Chief Executive Officer, commented, "Our Q4 results came in above our original expectations as better than expected sequential revenue growth at EM and our expense management actions combined to deliver significant bottom-line leverage resulting in operating income growing three times faster than revenue. Organic enterprise revenue in constant currency grew 5.0% sequentially, at the high end of normal seasonality as year-over-year growth crossed into positive territory for the first time in seven quarters. Adjusted operating income increased 14.2% sequentially and adjusted operating income margin was up 28 basis points with both operating groups contributing to this improvement. An improvement in working capital velocity, both sequentially and year over year, coupled with strong profits drove cash flow from operations of $267 million this quarter and $696 million for the full fiscal year. Given that the substantial majority of our previously announced restructuring initiatives have been implemented, and we are beginning to see various positive signals on our dashboards, we plan to build on this most recent performance and sustain progress toward our long-term goals."

Avnet Electronics Marketing Results

    Year-over-Year Growth Rates
Q4 FY13Reported  Organic
RevenueRevenueRevenue
(in millions)
 
Total

 

$3,970.65.5%2.0%
Excluding FX (1)

 

6.0%2.6%
Americas

 

$1,391.0-3.1%-4.6%
EMEA

 

$1,123.27.5%6.1%
Excluding FX (1)

 

5.9%4.5%
Asia

 

$1,456.413.4%5.9%
 
Q4 FY13Q4 FY12Change
Operating Income

 

$175.4 $191.1 $(15.7)
Operating Income Margin

 

 4.42% 5.08%-66 bps

(1)

 

Year-over-year revenue growth rate excluding the impact of changes in foreign currency exchange rates.

 

  • Fourth quarter reported revenue increased 5.5% year over year to $3.97 billion while organic revenue was up 2.6% in constant dollars
  • After adjusting for acquisitions and currency, sequential revenue growth of 4.7% was above both expectations and the high end of normal seasonality, with all three regions coming in above expectations
  • Operating income margin increased 15 basis points sequentially and was down 66 basis points from the year ago quarter due primarily to a decline in the EMEA region
  • Working capital velocity increased 5.1% sequentially and the cash cycle declined 4 days from the March quarter
  • Return on working capital (ROWC) increased 200 basis points sequentially to its highest level in fiscal 2013 and decreased 185 basis points from the prior year quarter

Mr. Hamada added, "EM revenue came in above expectations this quarter with all three regions contributing to the solid topline performance. Organic revenue in constant currency grew 4.7% sequentially, which is above our typical seasonal range of flat to plus four percent. This sequential growth was led by our Americas region which grew 5.5%, while our Asia and EMEA regions increased 4.3% and 3.3%, respectively. Year-over-year organic revenue growth turned positive for the first time in eight quarters and our book to bill ratio remained above one in all three regions for the third consecutive quarter. On the bottom line, operating income margin increased 15 basis points sequentially but decreased 66 basis points year over year as recent expense management actions were offset by continued gross margin pressure in our western regions. While we are encouraged by this quarter's sequential revenue increase, the component supply chain continues to be characterized by an environment of relatively short and stable lead times and mixed demand signals by end markets. Going forward, EM is poised to leverage its strong competitive position across all three regions to capitalize on profitable growth opportunities and continue to expand margins and returns in fiscal 2014."

Avnet Technology Solutions Results

    Year-over-Year Growth Rates
Q4 FY13Reported  Organic
RevenueRevenueRevenue
(in millions)
 
Total

 

$2,620.13.0%-2.4%
Excluding FX (1)

 

3.0%-2.4%
Americas

 

$1,389.8-1.7%-2.5%
EMEA

 

$799.618.3%-1.3%
Excluding FX (1)

 

17.9%-1.6%
Asia

 

$430.7-4.8%-4.1%
 
Q4 FY13Q4 FY12Change
Operating Income

 

$73.3 $67.5 $5.8 
Operating Income Margin

 

 2.80% 2.65%15 bps

(1)

 

Year-over-year revenue growth rate excluding the impact of changes in foreign currency exchange rates.

 

  • Fourth quarter reported revenue grew 3.0% year over year to $2.62 billion
  • On a sequential basis, organic revenue in constant currency grew 5.4% as compared to a typical seasonal range of 3% to 7%
  • Operating income margin increased 29 basis points sequentially and 15 basis points year over year led by the Americas region
  • Return on working capital (ROWC) increased 437 basis points sequentially and 245 basis points year over year
  • Year-over-year growth in storage, services and software was offset by a decline in servers

Mr. Hamada further added, "TS continued its improvement in financial performance as seasonal revenue growth combined with the portfolio and expense management actions taken during the year resulted in year over year increases in both margins and returns. In the June quarter, organic revenue in constant currency grew 5.4% sequentially, representing our third consecutive quarter of seasonal growth. Operating income grew 3.5 times faster than revenue sequentially and operating income margin increased 29 basis points, with our Americas and EMEA regions driving the improvement. In Asia, where we have consciously increased our focus on profitability and returns, operating income margin increased 58 basis points year over year with the ASEAN region driving much of that improvement. In addition to this progress, TS continues to develop strategic growth initiatives that enhance the breadth and depth of our portfolio. In our Americas region, our investments in professional services contributed to incremental growth and higher gross profit margins. The addition of Magirus in our EMEA region has strengthened our competitive position in key technologies including virtualization, storage and converged solutions. Despite a challenging start to fiscal 2013, our TS team has responded by delivering steady improvement through the year while continuing to invest in organic growth initiatives and value creating M&A."

Cash Flow

  • Cash flow from operations was $267 million for the quarter
  • Cash flow from operations for the full fiscal year was $696 million
  • Cash and cash equivalents at the end of the quarter was $1.01 billion; net debt (total debt less cash and cash equivalents) was $1.04 billion

Kevin Moriarty, Chief Financial Officer, stated, "We delivered another strong quarter of cash generation due to the combination of improving profits and higher working capital velocity. After adjusting for acquisitions and currency, working capital declined $48 million sequentially even though organic revenue grew $316 million providing evidence of the strong working capital management demonstrated by our team. We closed the quarter with over $1 billion of cash on the balance sheet and $224 million remaining in our share repurchase program. With this strong financial position, we enter fiscal 2014 with the flexibility to capitalize on growth opportunities to drive further improvement in our financial metrics."

Fiscal Year 2013 Results

  Fiscal Year Ended
June 29,  June 30,  
20132012Change
 $ in millions, except per share data
Sales$25,458.9$25,707.5-1.0%
 
GAAP Operating Income$626.0$884.2-29.2%
Adjusted Operating Income (1)$775.5$957.8-19.0%
 
GAAP Net Income$450.1$567.0-20.6%
Adjusted Net Income (1)$485.1$607.9-20.2%
 
GAAP Diluted EPS$3.21$3.79-15.3%
Adjusted Diluted EPS (1)$3.47$4.06-14.5%

(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 fiscal year decreased 1% from the prior year to $25.5 billion; organic revenue was down 5.3% year over year and 4.2% in constant currency
  • Adjusted operating income of $775 million, 3.1% of sales, decreased 19% year over year
  • Adjusted diluted earnings per share of $3.47 decreased 14.5% year over year; GAAP diluted earnings per share was $3.21, down 15.3% year over year
  • Cash flow from operations increased 32% year over year to $696 million; investments of $262 million were made in value creating M&A and another $207 million in share repurchases

Mr. Hamada continued, "Our fiscal 2013 results reflect the impact of slower global economic growth and businesses' cautious spending on technology, particularly in our higher margin western regions. Excluding the impact of acquisitions and currency, revenue declined 4% year over year with our Americas and EMEA regions down 9% and 6%, respectively, while our Asia region grew 5%. As a result of challenging market conditions early in the fiscal year when revenue in our western regions declined double digits year over year, our team responded by aligning both expenses and working capital to marketplace realities and focusing the portfolio on profitable growth opportunities. These ongoing activities helped to offset some of the impact of this revenue decline and the associated margin pressure as we generated $775 million of adjusted operating income and cash flow from operations grew 32% to $696 million. We continued to invest in future growth opportunities as we deployed $262 million of this cash to acquire companies that are expected to strengthen our competitive position and enhance our margins once the integrations are complete. While there continues to be questions around global macro conditions going forward, we enter fiscal 2014 with a strong focus on our profitable growth initiatives and remain committed to delivering improved financial performance across our portfolio."

Outlook for 1st Quarter of Fiscal 2014 Ending on September 28, 2013

  • EM sales are expected to be in the range of $3.70 billion to $4.00 billion and TS sales are expected to be between $2.35 billion and $2.65 billion
  • Consolidated sales are forecasted to be between $6.05 billion and $6.65 billion
  • Adjusted diluted earnings per share ("EPS") is expected to be in the range of $0.83 to $0.93 per share
  • The adjusted diluted EPS guidance above assumes 139.0 million average diluted shares outstanding used to determine earnings per share and a tax rate of 28% to 30%

The above adjusted diluted EPS guidance does not include any potential restructuring charges or any charges related to acquisitions and post-closing integration activities and, as previously announced, excludes the amortization of intangibles. In addition, the above guidance assumes that the average Euro to U.S. Dollar currency exchange rate for the first quarter of fiscal 2014 is $1.32 to €1.00. This compares with an average exchange rate of $1.25 to €1.00 in the first quarter of fiscal 2013 and $1.31 to €1.00 in the fourth quarter of fiscal 2013.

As highlighted at Avnet's May 1 Analyst Day, at the beginning of fiscal 2014 Avnet combined its reverse logistics business, Avnet Integrated, with Technology Solutions' services offering into a newly created organization within Technology Solutions called Avnet Services. In addition, the Company decided to combine its regional computing components businesses into a single global organization within TS called Avnet Global Computing Components. As a result of these changes, roughly $450 million of annual revenue that had been previously reported in Electronics Marketing will be consolidated within Technology Solutions beginning in fiscal 2014. Therefore, the above sales guidance for the first quarter of fiscal 2014 takes into account the transfer from EM to TS of approximately $100 million. When adjusted for these transfers, acquisitions and the impact of foreign currency, the midpoint of guidance for EM and TS would represent sequential growth rates of -0.9% and -8.4% respectively, as compared with a normal seasonal range of +1% to -3% for EM and -5% to -10% for TS.

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," "estimate," "forecast," "expect," "believe," and "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 vary 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: 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, 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 the Company'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.

Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the United States ("GAAP"), the Company also discloses in this document certain non-GAAP financial information including adjusted operating income, adjusted net income and adjusted diluted earnings per share, as well as revenue adjusted for the impact of acquisitions and other items (as defined in the Organic Revenue section of this release). Management believes organic revenue is a useful measure for evaluating current period performance as compared with prior periods and for understanding underlying trends.

Management believes that operating income adjusted for restructuring, integration and other items is a useful measure to help investors better assess and understand the Company's operating performance, especially when comparing results with previous periods or forecasting performance for future periods, primarily because management views the excluded items to be outside of Avnet's normal operating results. Management analyzes operating income without the impact of these items as an indicator of ongoing margin performance and underlying trends in the business. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes.

Management believes net income and EPS adjusted for the impact of the items described above is useful to investors because it provides a measure of the Company's net profitability on a more comparable basis to historical periods and provides a more meaningful basis for forecasting future performance. Additionally, because of management's focus on generating shareholder value, of which net profitability is a primary driver, management believes net income and EPS excluding the impact of these items provides an important measure of the Company's net results of operations for the investing public.

Other metrics management monitors in its assessment of business performance include return on working capital (ROWC), return on capital employed (ROCE) and working capital velocity (WC velocity).

  • ROWC is defined as annualized operating income, excluding restructuring, integration and other items, divided by the sum of the monthly average balances of receivables and inventory less accounts payable.
  • ROCE is defined as annualized, tax affected operating income, excluding restructuring, integration and other items, divided by the monthly average balances of interest-bearing debt and equity less cash and cash equivalents.
  • WC velocity is defined as annualized sales divided by the sum of the monthly average balances of receivables and inventory less accounts payable.

However, analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

Fiscal Year 2013

  Fourth Quarter Ended Fiscal 2013  Fiscal Year Ended Fiscal 2013
      Diluted      Diluted
Op IncomePre-taxNet IncomeEPSOp IncomePre-taxNet Income

EPS*

 

$ in thousands, except per share data

GAAP results$162,826$127,139$126,091$0.91$625,981$549,265$450,073$3.21
Restructuring, integration and other charges59,84559,84543,6100.31149,501149,501116,382$0.83
Gain on bargain purchase and other-339
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