) shares plunged 6.74% in Thursday's trade as the company's
adjusted earnings of $1.03 per share in the third quarter of
fiscal 2014, lagged the Zacks Consensus Estimate of $1.07 per
share. Earnings were at the lower end of management's guidance
range of $1.02 to $1.12 but were up 8.4% on a year-over-year
Revenues of $6.68 billion were up 6.1% from the year-ago
quarter. However, revenues came in at the lower end of
management's guidance range of $6.6 to $7.2 billion and lagged
the Zacks Consensus Estimate of $6.86 billion. The year-over-year
increase was primarily due to strong Electronics Marketing (EM)
business and softer-than-expected Technology Solutions (TS)
On a segmental basis, revenues from EM grew 8.8% from the
year-ago quarter to $4.13 billion and came within management's
guided range of $4.0-$4.3 billion. The year-over-year increase
was driven by increase in sales in the Asia and EMEA region.
Organic sales reported 8.0% year-over-year growth.
Revenues from TS grew 2.0% from the year-ago quarter to $2.55
billion. Segmental revenues also came below management's guidance
range of $2.6-$2.9 billion. The lower-than-expected growth was
mainly due to soft demand in the Americas and EMEA region. The
year-over-year growth was primarily due to higher sales from
networking and security, and services which offset the decline in
server sales. Organic sales were down 2.5% year over year.
Gross profit for the quarter increased 6.5% year over year to
$804.9 million, while gross margins remained flat at 12% year
over year as margin expansion in the EM business was offset by
decline in TS business margins.
Adjusted operating income increased 9.9% from the year-ago
quarter to $223.8 million, while operating margin came in at 3.3%
compared to 3.2% in the year-ago quarter. The increase was
primarily due to improvement in EM.
Adjusted net income came in at $144.1 million or $1.03 per
share compared with $131.5 million or 95 cents in the year-ago
quarter. Adjusted net income excluded restructuring, integration
and other charges, gain on legal settlement and other,
amortization of intangibles.
Avnet ended the quarter with cash and cash equivalents of
$960.1 million compared with $779.3 million in the previous
quarter. The company generated $358.1 million cash in operating
activities. Avnet paid a dividend of $20.7 million (15 cents per
share) in the quarter.
During the quarter, Avnet repurchased shares worth $1.3
million and at the end of the quarter the company had $223
million remaining under its $750 million stock repurchase
For fourth-quarter fiscal 2014, the company projects
consolidated sales in the range of $6.6 to $7.2 billion
(mid-point $6.9 billion), while the Zacks Consensus Estimate is
pegged at $7.08 billion. Avnet projects EM and TS sales in the
range of $4.05-$4.35 billion and $2.55-$2.85 billion,
Adjusted earnings per share (excludes restructuring and
integration charges related to costs reductions and acquisitions
and amortization of intangibles) is likely to be within $1.04 to
$1.14, lower than the Zacks Consensus Estimate of $1.18. The tax
rate is likely in the range of 27-31%.
Avnet posted mixed third-quarter results. The guidance was
less-than-encouraging due to seasonality.
Moreover, a significant portion of the company's revenues
comes from the sale of semiconductors, which is a cyclical
industry characterized by changes in technology and manufacturing
capacity and is subject to significant market upturns and
Avnet's leading position in electronics distribution,
continuous cost cutting initiatives and acquisition synergies are
encouraging. It does, however, face stiff competition for both
its domestic and foreign operations, especially from archrival
Arrow Electronics Inc.
). However, 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). Investors can
also consider other technology stocks such as
). Both the stocks sport a Zacks Rank #2 (Buy).
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