) reported adjusted earnings per share (EPS) of 90 cents in the
third quarter of fiscal 2013, which surpassed the Zacks Consensus
Estimate of 87 cents and was toward the higher end of
management's guidance range of 81 cents to 91 cents per share.
But the result came below the year-ago quarter level.
Revenues came in at $6.30 billion, relatively flat compared with
$6.25 billion recorded in the year-ago quarter and down 6.0%
sequentially, reflecting tough spending environment. Revenues in
the quarter were toward the higher end of management's guidance
range of $5.95 billion to $6.65 billion and above the Zacks
Consensus Estimate of $6.13 billion.
On a segmental basis, revenues from Electronics Marketing (EM)
grew 1.1% from the year-ago quarter to $3.80 billion; within
management's guidance range of $3.625 billion - $3.925 billion.
Marginal improvement in revenues was led by double-digit growth
in the volume fulfillment business in Asia, which offset weak
performances in America (especially due to the exit of the Latin
American commercial component business).
Revenues from Technology Solutions (TS) fell 0.9% from the
year-ago quarter to $2.50 billion. Segmental revenues were within
management's guidance range of $2.325 billion - $2.625 billion.
The year-over-year decline was mainly due to a 5.1% decrease in
Americas revenues partially offset by growth in Europe, Middle
East & Africa (EMEA) and Asia.
Reported gross margin in the quarter was 12.0%, flat year over
year. Operating margin was 2.7% versus 3.5% in the year-ago
quarter. The year-over-year contraction was mainly due to softer
margin performances by both the segments.
Electronics Marketing operating margin came in at 4.3%, down
from 5.2% in the year-ago quarter. Margin decline was mainly due
to lower profitability in the western regions, given slow
recovery and increased competitive pressure in the EMEA region.
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Technology Solutions operating margin decreased to 2.5% from 2.7%
in the year-ago quarter due to the fall in the EMEA region
Reported net income was $86.2 million or 62 cents compared with
$147.6 million or $1.00 in the year-ago quarter. Excluding
restructuring, integration and other charges, gain on bargain
purchase and other, and tax gains, adjusted net income came to
$125.4 million or 90 cents per share compared with $151.6 million
or $1.03 per share in the year-earlier quarter.
Balance Sheet and Cash Flow
Avnet ended the quarter with cash and cash equivalents of $820.9
million, up from $805.3 million in the prior quarter. Long-term
debt was $2.08 billion, up from $2.0 billion in the previous
The company generated $22.0 million of cash from operating
activities, down from $326.4 million in the prior quarter.
Capital spending in the quarter amounted to $20.1 million.
Avnet did not buy back any shares during the quarter. At the
quarter end, Avnet had roughly $225.0 million outstanding under
the $750.0 million stock repurchase program.
For the fourth quarter of fiscal 2013, the company projects
consolidated sales in the range of $6.15 billion and $6.75
billion. Avnet projects EM sales and TS sales to be in the range
of $3.70-$4.0 billion and $2.45-$2.75 billion, respectively.
Adjusted EPS (excluding restructuring charges, acquisitions
charges and post-closing integration activities) is likely to be
within 90 cents to $1.00 per share along with a tax rate of 27% -
Avnet believes that IT spending will remain muted in the coming
quarters. But it remains optimistic about reducing annualized
costs and investing heavily in new growth opportunities.
Specifically, management expects to reduce roughly $140.0 million
in costs in fiscal 2013.
The company's third quarter results exceeded our expectations,
with EPS and revenues beating the Zacks Consensus Estimate. But
year-over-year comparisons were disappointing due to continued
soft industry demand owing to macroeconomic uncertainty, weak PC
demand, and softness in geographical contributions, specifically
from Americas. Continuous margin contraction is another negative.
The company also guided a relatively flat to slightly up
sequential fourth quarter citing macro uncertainty.
The company has been prudent in acquiring companies to boost its
product portfolio as well as revenue streams. Recently, Avnet
acquired Hong Kong-based value-added distributor, RTI Holdings
Ltd. and strengthened its Electronics Marketing segment. With RTI
Holdings, Avnet will be able extend its geographical reach in
Asia (mainly in China). Nevertheless, its archrival
) is also making acquisitions to strengthen its market position,
which is a cause of concern.
But we look forward to management's decision to optimize costs
and investments to tap the changing demand.
Currently, Avnet has a Zacks Rank #3 (Hold).
You can also consider other stocks that are going to report this
earnings season and have positive Zacks Ranks and Expected
Surprise Prediction or ESP (Read:
Zacks Earnings ESP: A Better Method
) with a Zacks Rank #2 (Buy) and an Earnings ESP of +120.0%
) with a Zacks Rank #2 (Buy) and an Earnings ESP of +12.5%.