Avnet, Inc. (AVT)

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Avnet, Inc. (AVT)

F4Q2011 Earnings Call

August 10, 2011 2:00 pm ET

Executives

Vince Keenan – VP, IR

Rick Hamada – CEO

Ray Sadowski – SVP and CFO

Phil Gallagher – President Technology Solutions

Harley Feldberg - President Electronics Marketing

Analysts

Amitabh Passi – UBS

Sherri Scribner – Deutsche Bank

Craig Hettenbach – Goldman Sachs

Will Stein – Credit Suisse

Brian Alexander – Raymond James

Ananda Baruah – Brean Murray, Carret

Matt Sheerin – Stifel Nicolaus

Jim Suva – Citigroup

Shawn Harrison – Longbow Research

Mona Eraiba – TCW

Presentation

Operator

I would now like to turn the floor over to Vince Keenan, Avnet’s Vice President of Investor Relations.

Vince Keenan

Good afternoon and welcome to Avnet's fourth quarter fiscal year 2011 financial update. If you are listening by telephone today and have not accessed the slides that accompany this presentation, please go to our website and click on the icon announcing today's event.

As we provide the highlights for our fourth quarter and full fiscal year 2010, please note that in the accompanying presentation and slides we have excluded the gain on the sale of assets impairment charges and restructuring, integration and other items for all periods presented.

When discussing pro forma sales, or organic growth, prior periods have been adjusted to include acquisitions and the impact of divestitures. In addition, when we refer to the impact of foreign currency we mean the impact due to the change in foreign currency exchange rates when translating Avnet’s non-U.S. dollar based financial statement into U.S. dollars. And finally, when addressing working capital, return on capital employed and return on working capital the definitions are included in the non-GAAP section of our presentation.

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 SEC.

In just a few moments, Rick Hamada, Avnet's new CEO will provide Avnet's fourth quarter and fiscal year 2011 highlights. Following Rick, Ray Sadowski, Chief Financial Officer of Avnet will review our progress on growing shareholder value and provide first quarter fiscal 2012 guidance.

At the conclusion of Ray's remarks the Q&A will follow. Also here today to take any questions you may have related to Avnet's business operations is Phil Gallagher, President Technology Solutions and joining us by phone from London where he gave a key note address at the RM [ph] partner meeting is Harley Feldberg, President of Avnet Electronics Marketing, also with us today is Roy Vallee, Avnet's Executive Chairman.

With that, let me introduce Mr. Rick Hamada to discuss Avnet's fourth quarter and fiscal 2011 business highlights.

Rick Hamada

Thank you, Vince and welcome everyone. Thank you all for taking the time to be with us and for your interest in Avnet. Fiscal 2011 was an exciting year to Avnet as we started the year with three significant acquisitions that expanded our footprint into higher growth markets and strengthened our competitive position in several other important markets. When combined with strong year-over-year organic growth of 17% Avnet’s total revenue grew 38.5% to a record $26.5 billion.

While managing multiple integrations spanning both operating groups the entire Avnet team did an excellent job translating that growth into improved financial performance. As a result of the leverage in our model and expense synergies adjusted operating income grew 1.4 times faster than revenue and exceeded $1 billion for the full year.

Even as year-over-year growth slow through the year after the v shaped recovery peaked in the fourth quarter of our fiscal 2010. Adjusted operating income dollars grew sequentially every quarter and adjusted EPS increased 56% year-over-year to $4.32 easily exceeding our previous record of $3.18 set in FY ’08. While the multi core string of records is very impressive the metrics we are most proud of our economic profit growth and return on capital employed. In the year in which we invested almost $700 million in value creating M&A ROCE increased 76 basis points to 15.4% which is comfortably within our targeted range of 14% to 16%. This combination of rapid revenue growth and ROCE resulted in a substantial increase in economic profit.

Turning to the fourth quarter of fiscal 2011, although year-over-year organic growth moderated from 16% in the March quarter to 13.5% in the June quarter our reported revenue was up 33% year-over-year to a record $6.9 billion and our sequential growth of 2% in constant dollars was in line with normal seasonality.

Adjusted operating income increased 25% year-over-year to $270.9 million even though operating income margin declined 24 basis points to 3.9%. The year-over-year decline in operating income margin was primarily due to the impact of the lower margin profile of some of our acquired businesses. However, gross profit margin, operating income margin and ROCE improved sequentially. On the bottom line adjusted EPS grew 33% year-over-year to $1.22 which represented a fifth consecutive quarter of record EPS.

Return on capital employed of 15.6% was within our target range for the seventh quarter in a row and cash flow from operations came in at a strong $281 million. This financial performance and our strong balance sheet when measured against our historical investment levels and acquisitions and our current stock value lead management and our board of directors to decide that now was an appropriate time to initiate a $500 million share buyback program.

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