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Phoenix, Ariz. -- Avnet, Inc. (NYSE:AVT) today announced results for the first quarter fiscal year 2016 ended October 3, 2015.
Sales for the quarter ended October 3, 2015 increased 1.9% year over year and 8.4% in constant currency to $6.97 billion (Q1 FY16 includes an extra week of sales)
Adjusted operating income of $240.4 million increased 7.5% year over year and adjusted operating income margin of 3.5% increased 18 basis points year over year
Adjusted net income of $152.9 million increased 6.1% and adjusted diluted earnings per share of $1.12 increased 9.8% year over year
Adjusted diluted earnings per share was negatively impacted by approximately $0.09, or 8.0%, from the impact of changes in foreign currency exchange rates from the year ago quarter
The Company repurchased approximately 3.5 million shares during the quarter representing an aggregate investment of $145.1 million
Rick Hamada, Chief Executive Officer, commented, "Our team delivered a strong Q1 performance starting with revenues at the high end of our expectations for both operating groups led by growth in our EMEA region. In constant currency, both EM and TS EMEA increased revenue over 15% year over year and delivered strong leverage as over 80% of the incremental gross profit dollars dropped through to operating income. With this growth and our continued discipline in expense management, both operating groups expanded operating income margin year over year and adjusted diluted earnings per share increased 10% to $1.12. With working capital velocity consistent with the year ago quarter, return on working capital increased 100 basis points to 21% and our trailing twelve months cash flow from operations was over $590 million. While we continue to navigate a global marketplace with mixed economic signals and a stronger dollar, we will continue to focus on expanding margins and returns while maintaining our disciplined approach to capital allocation."
Avnet Electronics Marketing Results
Sales increased 8.7% in constant currency and reported sales increased 2.2% year over year to $4.47 billion
Operating income increased 5.1% year over year to $213 million and operating income margin increased 13 basis points primarily due to an improvement in the EMEA region
Working capital (defined as receivables plus inventories less accounts payables) increased 5.2% sequentially in constant currency primarily due to an increase in inventory in the Asia region to support expected growth in high volume supply chain engagements in the December quarter
Mr. Hamada added, "In our September quarter, EM grew revenue 8.7% year over year in constant currency as double digit growth at EM EMEA offset slower growth in our Asiaregion related to select high volume supply chain engagements. As in recent quarters, this strong growth in EMEA was reduced to 2.2% year-over-year growth at the EM global level due to the stronger dollar versus the year ago quarter. Our results in EMEA coupled with our disciplined expense management combined to grow operating income more than twice as fast as revenue and operating income margin increased 13 basis points from the year ago quarter. EM's inventory increased sequentially to support expected growth in high volume supply chain engagements in our Asia region. Return on working capital is consistent with the year ago quarter and economic profit increased 7.3% year over year. We did see bookings moderate late in the quarter as our book to bill ratio finished at 0.95 to 1.0, although through the first three weeks of fiscal Q2, our book to bill ratio has improved to parity. Excluding the estimated impact of the extra week from our fiscal Q1, our guidance is within our normal seasonal range driven by strong growth in high volume supply chain engagements in EM Asia and we remain committed to driving continued improvement in our financial performance."
Avnet Technology Solutions Results
Sales increased 7.8% in constant currency and reported sales increased 1.3% year over year to $2.50 billion
Operating income increased 19.5% to $74.5 million and operating income margin increased 45 basis points year over year to 3.0%
ROWC increased 539 basis points year over year primarily due to higher operating income in the EMEA region
At a product level, year-over-year growth in networking and security, software, and services was offset by a decline in computing components
Mr. Hamada further added, "TS continued to deliver improved financial performance as operating income margin expanded year over year for a fourth consecutive quarter and return on working capital increased 539 basis points from the year ago quarter. Key elements of this performance included revenue growth in our core datacenter solutions business combined with ongoing expense efficiencies. In our September quarter, TS revenue grew 1.3% year over year, or 7.8% in constant currency, as double digit growth at TS EMEA was offset by a significant decline in our computing components business. TS operating income grew 19.5% year over year led by our EMEA region where operating income more than doubled from the year ago quarter. TS Americas grew operating income double digits year over year while our Asia region declined due to the decline in our computing components business and the strengthening of the U.S. Dollar against local currencies. We believe that our computing components revenue is stabilizing and operating income margin is consistent with the year ago quarter as a result of our deliberate focus on higher gross profit margin engagements. Going forward, we will continue to focus on higher growth segments as we leverage our investments in solution sales and help our channel partners transition their customers to 3rd platform technologies."
Cash Flow/Dividend
Cash used by operations was $33.7 million in the September quarter and for the trailing twelve months cash generated from operations was $590.8 million
Cash and cash equivalents at the end of the quarter was $824.7 million; net debt (total debt less cash and cash equivalents) was $1.29 billion
During the past twelve months, the Company repurchased 7.1 million shares, or 5.1% of outstanding shares, representing an aggregate investment of $290.7 million, or$40.94 per share
The Board of Directors expanded the current share repurchase authorization program by $250 million during the quarter to an aggregate total of $1.25 billion. Entering the second fiscal quarter, the Company had $407.4 million remaining under the current repurchase authorization
The Company paid a dividend of $0.17 per share or $22.6 million during the quarter
Kevin Moriarty, Chief Financial Officer, stated, "Our team continues to do a good job of managing working capital as working capital velocity remained consistent with the year ago quarter even as we continue to invest to support growth. With increased operating income and a slow growth environment, our trailing twelve months cash flow from operations grew to over $590 million this quarter. Consistent with our capital allocation priorities, which includes elements of returning cash to shareholders, we increased our dividend for the second consecutive year and our Board authorized an additional $250 million for our disciplined share repurchase program. During the quarter, we invested another $145 millionin our share repurchase program and have $407 million remaining in our current authorization. Our ongoing focus on operating efficiencies including our Avnet Advantage program, contributed to additional leverage this quarter as our adjusted operating expense to gross profit ratio declined 225 basis points from the year ago quarter to 69.6%. With improving profitability and strong cash generation, we are well positioned to invest in our growth strategies while maintaining our discipline in how and when we return capital to shareholders."
Outlook for Second Quarter of Fiscal 2016 Ending on January 2, 2016
EM sales are expected to be in the range of $4.10 billion to $4.40 billion and TS sales are expected to be in the range of $2.80 billion to $3.10 billion
Avnet sales are expected to be in the range of $6.90 billion to $7.50 billion. Excluding the estimated impact of the extra week of sales from Q1 of fiscal 2016, the midpoint of guidance would be within the seasonal range at EM and at the high end of the seasonal range at TS
Adjusted diluted earnings per share is expected to be in the range of $1.20 to $1.30per share
The guidance assumes 135 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 is $1.12 to €1.00. This compares with an average exchange rate of $1.25 to €1.00 in the second quarter of fiscal 2015.
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