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Avenet, Inc. (AVT)

Raymond James IT Supply Chain Conference

December 13, 2011 2:25 p.p. ET


Rick Hamada - President and COO


Brian Alexander - Raymond James


Brian Alexander

(abrupt start) everybody. Brian Alexander, head of the tech research team. One of the analysts at Raymond James here to introduce Rick Hamada, CEO of Avenet. And he'll talk for about five or ten minutes. Their Analyst Day is tomorrow for those of you that don't know. And then we'll move to fireside. Rick?

Rick Hamada

Very good. Thank you, Brian. Good afternoon, everybody. Thanks for your time. Appreciate your interest in Avenet. Really I have I think – going to just tee up two or three slides to get the conversation started and then move through there.

My IR team always requires me to make sure I have my Safe Harbor statement in place here today so that's Slide 1. Number two, kind of gets to the – if I have to do the elevator pitch on Avenet overall, I would highlight technology is still a good place to be and we'll show some data specifically on what we think the TAM growth looks like for the next few years. We add to the organic growth opportunity, a disciplined approach to value creating M&A. Number of examples of that. In fact there was another announcement out yesterday at a small business and continue to make sure M&A is a big part of our overall growth story.

We then apply to all operations, our value-based management approach, focus return on capital and particularly incentivizing our team to continue to optimize the growth of economic profit dollars. The more we do that the more we strengthen the balance sheet. We are committed from a capital structure point of view to maintaining an investment grade balance sheet, which implies certain assumptions regarding our coverage and leverage ratios, which are well within those ranges today.

And we're very proud not only of the track record but of the broader overall leadership team that continues to work on creating that shareholder value via those results. Won't go through all the history of the top leadership team overall, but a week ago Monday I celebrated 28 years with Avenet even though I'm still coming up now in my first six months as CEO.

Here's a snapshot of what we believe is going on for the total available market for Avenet broken into the subcomponents of semiconductors as well as for the IT market. For 2011, roughly a $1.3 trillion sandbox. But looking more importantly perhaps out at '12, '13 and '14 even off the most revised estimates we have for the served market growth going forward. Some of these have been updated as late as October and November from the group of sources that you'll see highlighted and noted at the bottom. We believe that we've got a 5% to 6% secular growth rate opportunity in the markets that we serve.

Again providing the basis for organic growth, upon which then we continue to add selective M&A to try to keep the growth rate above that market rate. If we take a look at what's going on with our key businesses today, we are – the structure for Avenet starts with two worlds we call Electronics Marketing and Technology Solutions. So components and computer products. And then below that we essentially break into three sub regions; Asia Pacific, Americas and EMEA. You'll see a couple of other highlights on there including EM Japan and TS for Latin America but those are the big major regions we drive both income statement as well as balance sheet accountability down to that level. So we hold those leaders accountable for not only their profit performance but their return on capital and you'll see on the vertical axis now, where are these businesses performing relative to their long-range goals for return on capital and what do we believe the three-year market CAGR rate is.

The size of the bubble is indicative of the critical mass or the total revenue in that particular region overall. The green bubbles represent our EM businesses and the blue represent our TS. It's good to see on balance the majority of our portfolio operating at or above their long range planning targets for total returns. For those that follow us quite well, we've talked a number of quarters now about the improving performance profile for our TS EMEA business, which is key to getting the TS margins back up to our range that we want. Associated with that are the higher growth regions where we've built out a global footprint for TS in Latin America and Asia to get those performance profiles up as well. But as you can see based on their placement on the chart, there's some higher market growth rates available there, which we're very excited to be participating with.

And the EM Japan, the only part of the EM portfolio below the range today. It's about a $600 million part of a $15 billion components distribution business. There we're taking the opportunity to take a look at opportunities for consolidation that we believe will lead to some more critical mass in that marketplace as we believe the global pressures – or the pressures of a global economy tend to create opportunity for us in that particular market. All right? So that's a little bit about Avenet. Little bit about what we think will grow. Little bit about our overall performance and then the final slides, little touch on current market conditions, which I'm sure some of the questions will get into.

Read the rest of this transcript for free on seekingalpha.com