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Avnet, Inc. grew global sales year-over-year by eight percent in fiscal year 2014, reaching $27.5 billion. This translates into organic sales growth of 5.2 percent year-over-year and 4.8 percent in constant currency. In addition to adding more than $2 billion in sales, Avnet also expanded margins and returns, and grew adjusted earnings per share at twice the rate of revenue.
"In fiscal 2014, our return to year-over-year growth helped drive meaningful improvements in our financial and operational performance. We added over $2 billion to our top line, expanded margins and returns, and grew adjusted diluted earnings per share at twice the rate of revenue,” said Rick Hamada, chief executive officer, in a statement. “Led by double-digit growth in our Electronics Marketing (EM) businesses in Asia and EMEA, enterprise revenue increased 8 percent and organic revenue was up 5 percent. The combination of revenue growth, relatively stable gross profit margin and continued expense discipline resulted in adjusted earnings per share growing 16.8 percent over fiscal 2013 to $4.24.”
Part of the growth can be attributed to growth initiatives at EM including the acquisition of MSC Group that strengthened Avnet’s embedded systems capabilities. Since 1990, Avnet has acquired more than 90 companies, primarily in North America and Europe, driven by consolidation and geographic expansion for both business groups: EM and Technology Solutions (TS).
“We started earlier in components but we were on the same track for our computer business [TS] in the mid-2000s,” said Hamada during an earnings call. “Neither one of those plays are 100 percent done, but there has been a lot of consolidation and we’ve built up a very strong geographic footprint. Looking ahead, we’re looking for opportunities to expand our share of market with logical adjacencies.”
The MSC transaction is a good indicator of what Avnet is looking for in an acquisition, added Hamada. MSC expands Avnet’s EM business with high-end technical and engineering services for the embedded systems market. “In our EMEA region, our integration of the MSC Group has proceeded as planned and we are confident that our newly combined strengths in embedded solutions will position us to accelerate growth in this new and incremental market segment," said Hamada.
Fourth Quarter Growth
Avnet also closed the year on a strong note, reporting a 6.9 percent increase year-over-year, reaching $7 billion in the fourth quarter fiscal year, ended June 28, 2014. Organic sales grew 5 percent year-over-year and 3.9 percent in constant currency.
Source: Avnet (Click image to enlarge.)
Both of Avnet’s operating groups contributed to revenue growth. Avnet Electronics Marketing reported sales of $4.3 billion in fourth quarter fiscal year 2014, an increase of 8.8 percent year-over-year. By region, sales in Asia totaled $1.7 billion, followed by EMEA at $1.4 billion, and the Americas at $1.2 billion.This represents a fourth consecutive quarter of year-over-year organic growth and operating margin expansion.
Revenue at Avnet Technology Solutions, which distributes enterprise computing technology, increased 4.2 percent year-over-year to $2.7 billion in fourth quarter fiscal year 2014. Avnet TS’ sequential sales growth of 7 percent was at the high end of normal seasonality, said Avnet.
“EM closed out the fiscal year with another strong performance as our team delivered four consecutive quarters of year-over-year organic growth and operating margin expansion,” said Hamada. “In the June quarter sequential growth was above expectation with all three regions contributing. Revenue grew 4.4 percent sequentially in constant currency as compared with our normal seasonal expectation of flat to up 4 percent. At the regional level, sequential revenue increased 8 percent in our Asia region, 4.5 percent in the Americas, and roughly flat in our EMEA region in constant currency. On a year-over-year basis reported revenue increased 8.8 percent while organic growth was up 6.7 percent in constant currency, which represents our fourth consecutive quarter of at least mid-single digits year over year growth.”
“For the full year, our Asia team delivered double digit year-over-year organic growth in all four quarters, grew operating income 1.4 times the rate of sales growth and doubled economic profit over fiscal 2013,” stated Hamada.
Earlier this year, Gerry Fay, president of Avnet Electronics Marketing, said his division began building on initiatives rolled out over the last decade in Asia including the establishment of a robust management team, partnerships with key suppliers, partnerships with OEMs and contract manufacturers and a formidable presence in the major countries of the region. “Asia is where the growth is and we are going to be in the market where growth exists.”
Avnet also discussed plans to target acquisitions as well as put more resources into supporting supply chain assets and services in response to growing demand in the region. “In the West, we continue to run very profitable businesses and in Asia, we’ll make investments in both our core operations and adjacencies that we believe will drive differentiating growth and profit margins,” Fay further stated in the interview.
Avnet expects continued growth heading into fiscal year 2015. "With our book to bill continuing above parity and seasonal growth projected for the September quarter, we expect to continue the steady progress we have made towards EM's long-range financial goals," said Hamada.
Avnet EM’s sales for the first quarter of fiscal year 2015 are estimated to range between $4.1 billion and $4.4 billion. Total sales is forecast between $6.4 billion and $7 billion. “As we enter fiscal 2015, we are poised to build on this performance and drive further improvements in both margins and returns as we continue to execute on our profitable growth initiatives across our portfolio,” Hamada stated.
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