Avnet beats estimates on Americas sales, acquisitions
The top distributor's sales of $4.75 billion not only bested Avent's own December quarter projections for revenue between $4.45 billion and $4.65 billion, but also outdid Wall Street's expectations.
By Suzanne Deffree, Managing Editor, News -- EDN, January 24, 2008
Top distributor Avnet Inc today proved its market strength, reporting revenue that bested estimates.
The Phoenix-based electronics supply chain giant reported revenue of $4.75 billion for its fiscal Q2, ended December 29, 2007, representing an increase of 22.2% year over year and up from fiscal Q1’s revenue of $4.1 billion. Sales not only bested Avent’s own projections for revenue between $4.45 billion and $4.65 billion in the quarter, but also outdid Wall Street's expectations for $4.56 billion in revenue.
Net income for the quarter was $142.2 million, or $0.93 per share on a diluted basis, as compared with net income of $99.1 million, or $0.67 per share, for the year-ago quarter. Excluding one-time items, net income and diluted earnings per share were $135.9 million and $0.89, respectively, representing an increase of 37.1% and 32.8% over the year-ago period.
Avnet’s operating income for the quarter was a record $207.9 million, up 26.9% as compared with operating income of $163.8 million in the year-ago quarter. Operating income as a percent of sales was 4.4%, up 16 basis points from Avnet’s fiscal Q2 2007.
“Our results continue to demonstrate the positive impact that our value-based management strategy, augmented by value-creating acquisitions, is having on our business,” Roy Vallee, chairman and CEO, said in a company statement.
Vallee credited the sequential sales growth to normal seasonal trends, but said the year-over-year growth was bolstered by the company’s seven acquisitions that span both of its operating groups and all three worldwide regions.
Indeed, the company has relied heavily on its merger and acquisition strategy in recent quarters, contributing fiscal Q1 growth in large part to non-organic growth. Of Avnet’s recent acquisitions, three have been in interconnect, passive and electromechanical (IP&E) product areas: The company in July acquired U.K.-based Flint Distribution; in September, Avnet announced plans to buy German passive components distributor Betronik; and this month, the company announced plans to buy Yel Electronics Hong Kong.
Those three acquisitions fall within Avnet’s Electronics Marketing (EM) operating group, which recorded sales of $2.48 billion in fiscal Q2, up 6.2% year over year. EM sales in the Americas, EMEA (Europe Middle East and Africa), and Asia regions increased 3.7%, 7.2%, and 8.5%, respectively, year over year. EM operating income of $126.6 million for the quarter was up 6.4% sequentially and operating income margin of 5.1% was flat as compared with the prior-year quarter.
“Electronics Marketing’s revenue growth was above our expectations and represents the third consecutive quarter of moderate acceleration in year-over-year growth,” Vallee said. “The Americas region grew sequentially and returned to positive year-over-year growth following four quarters of negative growth. EM had another strong performance in its interconnect, passive and electromechanical product line which grew revenue at a double-digit rate over the year-ago quarter. Since the beginning of the fiscal year, we closed three IP&E international acquisitions, which should increase EM’s global revenue for its IP&E business to roughly 15% of total revenue exiting this fiscal year, as compared with 10% just a year ago.”
Avnet’s Technology Solutions (TS) operating group reported sales of $2.27 billion in fiscal Q2, up 46% year over year. The quarter’s sales in the Americas, EMEA, and Asia were up 6.6%, 1.9%, and 45.6%, respectively, year over year. TS operating income was $99.4 million in the quarter, a 55.3% increase as compared with the year-ago period, and operating income margin of 4.4% increased by 26 basis points over the prior-year quarter.
“Technology Solutions revenue was above the high end of our guidance range as we delivered a strong December quarter aided by better than expected sales in the final week,” Vallee said. The CEO had warned Wall Street at Avnet’s analyst day in New York last month that quarterly numbers could be heavily impacted by the last week of business in 2007, as Avnet’s quarter closed on December 29, not December 31, the last business day of the year.
“Despite the well publicized concerns with the U.S. economy, our Americas region experienced better than normal sequential growth in our seasonally strong December quarter and year-over-year pro forma growth of 6.6%,” Vallee said in today’s statement. “We also achieved strong sequential growth in the EMEA and Asia regions. With solid revenue growth, both organically and through our value-creating acquisitions, TS delivered record operating income for the quarter.”
Looking ahead to fiscal Q3, Avnet expects normal seasonality at both operating groups with sales at EM anticipated to be in the range of $2.64 billion to $2.74 billion and sales for TS to be between $1.73 billion and $1.83 billion, putting Avnet’s consolidated sales between $4.37 billion and $4.57 billion. The company projected March quarter earnings to be in the range of $0.85 to $0.89 per share, up 16.4% to 21.9% as compared with last year’s fiscal Q3.
For commentary on this news story, see "Quarterback Vallee."
