It seems as though the industry has been waiting forever to see the end of the current “challenging environment,” but it’s unlikely to happen in the next few quarters. Distribution is a bellwether for the overall supply chain and it sounds like the channel would welcome a return to normal seasonal patterns.
The March quarter is usually slow, and executives at Avnet Inc. said results were in line with expectations. Sales for the quarter ended March 30, 2013 were essentially flat year over year at $6.30 billion; and adjusted operating income of $195.0 million declined 17.2% year over year.
Avnet has been cost-cutting to support margins; by the end of its fiscal year the cuts will amount to $140 million. “On a regional basis, both operating groups experienced year-over-year organic revenue declines in the higher-margin western regions for the fifth consecutive quarter,” said CEO Rick Hamada. “Strongly influenced by this, our adjusted operating income margin declined 65 basis points year over year and adjusted earnings per share declined 12.6%. As a result, we are continuing to drive actions for margin improvement including new annualized cost reductions of approximately $40 million that are expected to be completed by the end of our fourth fiscal quarter.
“While these cost reductions are designed to contribute to improving our operating income margins, the rate of improvement will depend on market trends going forward. We remain positioned to leverage future growth into higher margins and returns, and are committed to drive continued progress toward our long-term goals across our portfolio no matter what course the recovery takes,” added Hamada.
Within Avnet’s Electronics Marketing business, components are still plentiful, so distributors haven’t been able to capitalize on higher prices and margins associated with volatility in demand. Profit margins continue to be under pressure, said Harley Feldberg, president of Avnet Electronics Marketing, Global. “We are operating in a supply chain with short, stable lead times and customers taking a conservative approach to managing inventory,” he said.
Avnet is also pruning some of its less-profitable relationships, and distribution continues to see a gap between higher-margin design business and low-margin fulfillment business. “The question there is, is this something that has changed permanently in the industry?” said Feldberg. “If so, we have to adjust accordingly.”