Avnet, Inc. (AVT)
F1Q09 Earnings Call
October 23, 2008 2:00 pm ET
Vincent Keenan - Vice President of Investor Relations
Roy Vallee - Chairman of the Board, Chief Executive Officer
Raymond Sadowski - Chief Financial Officer, Senior Vice President, Assistant Secretary
Harley Feldberg - Senior Vice President; President of Avnet Electronics Marketing
Richard P. Hamada - Chief Operating Officer, Senior Vice President
John E. Paget - Vice President; President of Avnet Technology Solutions
Carter Shoop - Deutsche Bank Securities
Jim Suva – Citigroup
Steven Fox – Merrill Lynch
Brian Alexander – Raymond James
William Stein – Credit Suisse
Matt Sharon – Thomas Weisel Partners
I would like to turn the floor over to Vince Keenan, Avnet’s Vice President of Investor Relations.
Previous Statements by AVT
» Avnet Inc. F1Q10 (Qtr End: 10/03/2009) Earnings Call Transcript
» Avnet Inc. F2Q09 (Qtr End 12/31/08) Earnings Call Transcript
» Avnet Inc. Q4 2008 Earnings Call Transcript
As we provide the highlights for our first quarter fiscal 2009, please note that we have excluded restructuring, integration and other items from the current year period in the accompanying presentation and slides. Additionally in discussing pro forma sales or organic growth, prior periods are adjusted to include acquisitions.
One additional item that I need to mention before we get started. In respect of our recent offer to acquire Abacus Group PLC we need to remind you that Abacus is a [puptilistic] company. As such Abacus Group PLC and Avnet’s offer for Abacus Group PLC are regulated by the UK takeover code. Under the code we are required to have a representative of our financial advisors, Bank of America Securities, present for the duration of this call. Further, we are not permitted under the code to disclose any new material information or comment on the offer over and above the information contained in our offer announcement published on October 10, 2008.
Before we get started with the presentation from Avnet management, I would like to review Avnet’s Safe Harbor statement. This presentation contains certain forward-looking statements which are statements addressing future financial and operating results of Avnet. Listed on this slide are several factors that could cause actual results to differ materially from those described in the forward-looking statements. More detailed information about these and other factors is set forth in Avnet’s filings with the Securities and Exchange Commission.
In just a few moments, Roy Vallee, Avnet’s Chairman and CEO, will provide Avnet’s first quarter fiscal 2009 highlights. Following Roy, Ray Sadowski, Chief Financial Officer of Avnet, will review the company’s financial performance during the quarter and provide second quarter fiscal 2009 guidance, after which a Q&A will follow. Also here today to take any questions you may have related to Avnet’s business operations are Rick Hamada, Avnet’s Chief Operating Officer, Harley Feldberg, President of Electronics Marketing, and John Paget, President of Technology Solutions.
With that let me introduce Mr. Roy Vallee to discuss Avnet’s first quarter fiscal 2009 business highlights.
Thank you all for taking the time to be with us and for your interest in Avnet. The first quarter of fiscal 2009 started off where fiscal 2008 ended. Top line performance continued a multi-quarter trend of muted organic growth rates as sluggish demand in several end markets persisted.
Revenue of $4.49 billion in the September quarter finished below expectations due to lower-than-expected sales in our technology solutions group. On a reported basis revenue grew 9.7% year-over-year and 7% adjusted to exclude the impact of changes in foreign currency exchange rates. Revenue was up 0.9% on a pro forma basis when you adjust for the impact of acquisitions.
Gross profit margin improved 15 basis points over the year ago quarter to 13%. This performance is a reflection of the excellent job the Avnet team around the world is doing by staying focused on profitable revenue despite the challenging market conditions.
Our previously-announced cost reduction initiatives are on target but lower-than-expected revenue this quarter had a negative effect on our operating income margin. Excluding restructuring, integration and other items operating income in the first quarter of fiscal 2009 was roughly flat compared to the year ago quarter with operating income margin declining year-over-year and on the bottom line diluted earnings per share declining $0.02 to $0.67.
We believe our team is executing well globally but the macro environment is having a negative impact on our sales. Given the turmoil in the capital markets and the well publicized decline in several economic indicators, it appears that organic growth may not improve in the near term.
As a result we are taking additional actions in order to continue managing our business to our stated long-term financial goals. In addition to the cost reductions that we announced in April and August, we are now targeting further cost reductions of $50 million on an annualized basis, which we expect will be fully implemented by the end of the March 2009 quarter.
While it is difficult to gauge what our revenue will be over the next few quarters, these actions reflect our ability and commitment to respond to changing market conditions while continuing to provide superior value to our trading partners. We will continue to closely monitor the vital signs across our diversified global portfolio of businesses and manage the things that are within our control.
While the cost actions we are taking are intended to protect the margins on our income statement, our balance sheet is the strongest it has been in years. Our debt-to-total-capital is 23% and we have over $1.3 billion of available liquidity including cash and committed credit lines. Since we are well positioned from a liquidity perspective, we can continue to invest in enhancing our competitive position both organically and through value creating M&A.