Top distributors see slip in March quarter numbers

Avnet and Arrow report sequential declines in March quarter revenue, with each company's CEO expressing disappointment. Despite the declines, both companies note record sales for the typically harsh quarter.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 4/24/2008

In stark contrast to previous quarter’s results, top two distributors Avnet Inc and Arrow Electronics Inc this week reported March quarter financial results that the electronics supply chain companies’ respective CEOs both expressed disappointment in.

“We are extremely disappointed with our earnings for the third quarter as both operating groups were below our profit forecast,” Roy Vallee, Avnet’s chairman and CEO, said in a statement on the Phoenix-based company’s fiscal Q3 ended March 29.

Avnet Electronic Marketing (EM), the company’s better performing business in terms of sales, saw revenue of $2.62 billion in the quarter, up 7.3% year over year and also up from its December quarter revenue of $2.48 billion. Avnet EM operating income of $153.5 million for the quarter was up over the prior year’s fiscal Q3 operating income of $141.6 million and fiscal Q2 operating income $126.6 million.

Avnet Technology Solutions’ (TS) sales of $1.8 billion in the company’s fiscal Q3 were up 23.2% year over year but down from fiscal Q2’s revenue of $2.27 billion. Avnet TS operating income was $41.3 million in the March quarter, a 31.7% decrease as compared with fiscal Q3 2007 operating income of $60.6 million and less than half of its $99.4 million fiscal Q2 operating income.

“Our Electronics Marketing group managed to slightly improve its margins and generated higher returns despite lower-than-expected sales. However, revenue weakness in some business units at Technology Solutions resulted in lower gross profit volume, which was further exacerbated by lower gross margins due primarily to the impact of rebates,” Vallee said. “This combination led to some unacceptable operating margin performances and, as a result, we have begun to take targeted corrective actions. We remain steadfastly committed to achieving our long-term margin and return goals.”

Total Avnet fiscal Q3 sales came in at $4.42 billion, representing an increase of 13.3% year over year but a decline from fiscal Q2 revenue of $4.75 billion. Avnet noted that the fiscal Q3 results showed record revenue for a March quarter. Net income for the March quarter was $107.2 million, up as compared with net income of $105.2 million for the year-ago quarter and down as compared with net income of $142.2 million for fiscal Q2. Avnet’s operating income in fiscal Q3 was $166.8 million, down 3.4% as compared with operating income of $172.6 million in the year-ago quarter and significantly down from the company’s record fiscal Q2 operating income of $207.9 million.

Meanwhile, Melville, NY-based Arrow saw net income of $85.9 million on sales of $4.03 billion for its March Q1. The numbers compared with net income of $96.3 million on sales of $3.5 billion in the year-ago quarter, and net income of $114 million and sales of $4.42 billion in Arrow’s Q4 2007. Arrow also noted record sales for the March quarter. Arrow Q1 operating income of $144 million compared with Q1 2007 operating income of about $163 million and Q4 operating income of $193.5 million.

“The first quarter was a challenging one for us and did not meet all of our expectations,” said William E. Mitchell, Arrow’s chairman and CEO, in a statement. “We saw increasingly challenging market conditions in the last few weeks of the quarter, primarily in our enterprise computing solutions business. This created headwinds for our operating performance and resulted in lower than expected earnings per share. We will continue to run our company conservatively and prudently based upon changing market conditions, while maintaining the flexibility to take advantage of opportunities to invest in both organic and M&A related growth during periods of weakness.”

Arrow’s global enterprise computing solutions (ECS) sales of $1.11 billion increased 55% year over year but were down from Q4 sales of $1.61 billion. Arrow’s global components business saw sales of $2.92 billion, up 5% year over year and up from Q4 sales of $2.81 billion.

Meanwhile, looking to the June quarter, Avnet said its fiscal Q4 is expected to show normal seasonality at its EM business with anticipated sales to be in the range of $2.6 billion to $2.7 billion. Sales for Avnet TS are expected to be slightly below normal seasonality with sales between $1.95 billion and $2.05 billion. Avnet’s consolidated sales are forecasted to be between $4.55 billion and $4.75 billion for the June quarter.

On Arrow’s end, the company is predicting total Q2 sales between $3.85 billion and $4.15 billion, with global component sales between $2.7 billion and $2.9 billion and global enterprise computing solutions sales between $1.15 billion and $1.25 billion.