) reported adjusted earnings per share (EPS) of $1.01 in the
second quarter of fiscal 2013, which surpassed the Zacks
Consensus Estimate of 83 cents and management's guidance range of
79 cents to 89 cents per share for the quarter. But the result
came below the year-ago quarter level.
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Revenues came in at $6.70 billion, relatively flat compared with
$6.69 billion recorded in the year-ago quarter, reflecting tough
spending environment. But the company posted 14.0% sequential
growth on strong performance by the Technology Solutions segment
and better component business in Asia. Revenues in the quarter,
however, were above management's guidance range of $5.95 billion
to $6.65 billion and the Zacks Consensus Estimate of $6.25
On a segmental basis, revenues from Electronics Marketing (EM)
grew 2.2% from the year-ago quarter to $3.67 billion; inching
past management's guidance range of $3.35 billion - $3.65
billion. Revenue improvement was led by double-digit growth in
the volume fulfillment business in Asia, which offset weak
performances in America and Europe.
Revenues from Technology Solutions (TS) fell 2.3% from the
year-ago quarter to $3.03 billion. Segmental revenues were
slightly above management's guidance range of $2.60 billion -
$3.00 billion. Low demand from the Europe, the Middle East and
Africa (EMEA) region continued to pervasively affect the
segment's yields. But the segment's sequential double-digit
growth was attributable to strong contributions across all
Reported gross margin in the quarter was 11.5%, down 20 basis
points from the year- ago level. Operating margin was 2.9% versus
3.4% 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 3.8%, down from
4.9% in the year-ago quarter. The lower gross margin in the
Western regions and a geographic mix shift toward low-margin
Asian region and difficult comparison due to hard drive pricing
benefit (due to Thailand flood) adversely impacted segment margin
during the quarter.
Technology Solutions operating margin decreased to 3.6% from 3.8%
in the year-ago quarter due to the fall in the EMEA region
Reported net income was $137.5 million or 99 cents compared with
$147.1 million or 98 cents in the year-ago quarter. Excluding
restructuring, integration and other charges, gain on bargain
purchase and other, tax gains, adjusted net income came to $140.0
million or $1.01 per share compared with $172.0 million or $1.15
per share in the year-earlier quarter.
Balance Sheet and Cash Flow
Avnet ended the quarter with cash and cash equivalents of $805.3
million, down from $1.0 billion in the prior quarter. Long-term
debt was $2.0 billion, significantly up from $1.4 billion in the
The company generated $326.4 million of cash from operating
activities, up from $81.0 million in the prior quarter. Capital
spending in the quarter amounted to $30.9 million.
Avnet bought back 2.5 million shares for a value of $68.9
million. Since August 2011, Avnet has bought-back 17.9 million
shares worth $525.5 million.
For the third quarter of fiscal 2013, the company projects
consolidated sales in the range of $5.95 billion and $6.55
billion. Avnet projects EM sales and TS sales to be in the range
of $3.625-$3.925 billion and $2.325-$2.625 billion, respectively.
Adjusted EPS (excluding restructuring charges, acquisitions
charges and post-closing integration activities) is likely to be
within 81 cents to 91 cents per share along with a tax rate of
27% - 31%.
Avnet believes that IT spending will remain muted in the coming
quarters. But it remains optimistic about investing heavily in
new growth opportunities.
The company's second quarter results exceeded our expectations,
with EPS and revenue beating the Zacks Consensus Estimates. But
year-over-year comparisons were disappointing due to continued
soft industry demand driven by macroeconomic uncertainty, weak PC
demand, and inventory rebalancing. Continuous margin contraction
is another negative. The company also guided for a weak third
quarter citing tough spending environment.
The company has been prudent in acquiring companies to boost its
product portfolio as well as revenue streams. But we don't see
much contribution from the acquisitions, which are disappointing
enough. Moreover, its competitor
) is also making acquisitions to strengthen its market position,
which is a cause of concern.
Currently, Avnet has a Zacks Rank #4 (Sell).
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