Avnet, Inc. (NYSE:AVT) today announced results for the first quarter fiscal year 2015 ended September 27, 2014.
- Sales for the quarter ended September 27, 2014 increased 7.8% year over year to $6.8 billion; organic sales (as defined later in the document) grew 5.8% year over year and 5.6% in constant currency
- Adjusted operating income of $223.7 million increased 12.2% year over year and adjusted operating income margin of 3.3% increased 13 basis points year over year
- Adjusted net income of $144.2 million increased 14.4% and adjusted diluted earnings per share of $1.02 increased 13.3% year over year
Rick Hamada, Chief Executive Officer, commented, "Our team carried the momentum of fiscal 2014 into our new fiscal year as they leveraged continued revenue growth into another year-over-year increase in EPS. At an enterprise level, year-over-year organic revenue grew 5.6% in constant dollars led by a sixth consecutive quarter of year-over-year organic growth at Electronics Marketing (EM), along with a return to positive growth at Technology Solutions (TS). This top-line growth, combined with an increase in gross profit margin at EM and continued expense efficiencies across the enterprise, resulted in operating income growing 1.6 times faster than revenue and operating income margin increasing 13 basis points year over year to 3.3%. Even given an environment of heightened sensitivity to current market conditions, we remain focused on profitable growth opportunities and will continue to align our investments toward maintaining our momentum. With our strong team and financial position, we have the resources to respond as needed while continuing to return cash to shareholders via both our dividend and disciplined share repurchase program."
- Reported sales increased 11.1% year over year to $4.4 billion while organic sales were up 7.8% in constant currency
- Operating income margin increased 17 basis points year over year to 4.6% due to improvements across all three regions
- Working capital (defined as receivables plus inventory less accounts payables) increased 2.4% sequentially and was up 8.4% year over year primarily due to the increase in sales and the acquisition of MSC
- Return on working capital (ROWC) increased 86 basis points year over year and decreased 150 basis points sequentially
Mr. Hamada added, "EM delivered another quarter of top-line growth that was at the high end of expectations and normal seasonality while expanding margins and returns year over year. In the September quarter, revenue increased 2.3% sequentially in constant currency, primarily due to a 10.8% increase in Asia partially offset by seasonal declines in the western regions. On a year-over-year basis, EM's organic revenue grew 7.8% led by the Asia region, which increased over 13.2%. Operating income grew 15.3% year over year with all three regions delivering double digit growth and operating income margin increased 17 basis points to 4.6%. Although September is typically a seasonally weak quarter for EM, our team delivered another quarter of improved financial performance across all regions. In Asia, where select high volume supply chain engagements are driving much of the current top-line growth, the team continues to increase returns and grow economic profit dollars. In EMEA, our team delivered a sixth consecutive quarter of year-over-year organic growth, and with the integration of MSC now essentially complete, our team is back to posting year-over-year increases in both margins and returns. In our Americas region, the team returned to modest year-over-year revenue growth, which drove an increase in both margins and returns. While our book to bill ratio was slightly above parity at the end of the quarter, we are diligently monitoring our dashboards and we remain committed to driving further improvement in our financial performance as we continue to focus on our goals for the full fiscal year."
- Reported sales increased 2.4% year over year to $2.5 billion and organic sales increased 2.0% in constant currency primarily due to strength in the Americas region
- Operating income margin decreased 7 basis points year over year primarily due to a decline in the Americas and Asia regions partially offset by an improvement in the EMEA region
- ROWC decreased 282 basis points year over year primarily due to lower operating income in the Asia region
- At a product level, year-over-year growth in software, services, and networking and security, was partially offset by a decline in computing components
Mr. Hamada further added, "During our September quarter, TS delivered top-line growth of 2.4% year over year driven by strength in our Americas region, which experienced double digit organic growth for the first time in three years. In our EMEA region, which declined 5.8% in constant currency, mid-single digit growth in our core enterprise distribution business was offset by a decline in our computing components business. TS Asia was below our expectations this quarter as revenue declined 14.6% sequentially with this weakness reflected broadly across the region. In our TS EMEA region, our team has been driving efficiencies as operating income margin improved both sequentially and year over year. Going forward, we will continue to utilize our disciplined portfolio management to ensure we are focusing our resources on high growth opportunities in the enterprise IT ecosystem."
- Cash used for operations was $40.7 million in the September quarter and for the trailing twelve months, cash generated from operations was $323.0 million
- Cash and cash equivalents at the end of the quarter was $814.4 million; net debt (total debt less cash and cash equivalents) was approximately $1.3 billion
- The Company repurchased 423,419 shares during the quarter at an aggregate cost of $17.8 million. Entering the second quarter, the Company had approximately $198 million remaining under the current authorization
- The Company paid a quarterly dividend of $0.16 per share or $22.1 million
Kevin Moriarty, Chief Financial Officer, stated, "We used roughly $41 million in cash flow to fund operations for the quarter as the working capital grew to support our organic sales growth. Despite the use of cash during the quarter, the trailing twelve months cash flow generated from operations improved by 36% to $323 million, and we exited the quarter with roughly $814 million of cash on our balance sheet. Our disciplined approach to our capital allocation priorities has positioned us well for the recent equity market environment and, during the quarter, we returned approximately $40 million to shareholders. In the September quarter, we raised our quarterly dividend by 7% to an annualized $0.64 a year, or $22 million per quarter, while also repurchasing approximately $18 million of shares through our share repurchase program. We began our fiscal second quarter with approximately $198 million remaining under our currently authorized share repurchase program, and through the first three weeks of our second fiscal quarter have repurchased approximately $55 million of shares. As of the end of September, we have over $2.0 billion of liquidity to support continued organic growth initiatives, invest in value creating M&A and shareholder returns."
Outlook for Second Quarter of Fiscal 2015 Ending on December 27, 2014
- EM sales are expected to be in the range of $4.15 billion to $4.45 billion and TS sales are expected to be in the range of $2.85 billion to $3.15 billion
- Avnet sales are forecasted to be in the range of $7.0 billion and $7.6 billion
- Adjusted diluted earnings per share is forecasted to be in the range of $1.15 to $1.25 per share
- The guidance assumes 139.0 million average diluted shares outstanding and a tax rate of 27% to 31%
The above guidance excludes the amortization of intangibles and any potential restructuring, integration and other expenses. In addition, the above guidance assumes that the average U.S. Dollar to Euro currency exchange rate for the second quarter of fiscal 2015 is $1.27 to €1.00. This compares with an average exchange rate of $1.36 to €1.00 in the second quarter of fiscal 2014 and $1.33 to €1.00 in the first quarter of fiscal 2015.