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Avnet (AVT) Beats Q2 Earnings Estimates, Misses Revenues

Avnet Inc.AVT reported mixed second-quarter fiscal 2017 results wherein its earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Avnet reported second-quarter adjusted earnings of 77 cents per share, beating the Zacks Consensus Estimate by a couple of cents.

Moreover, adjusted earnings were 2 cents higher than the year-ago quarter. The adjusted figure excludes restructuring, integration and other charges, and amortization of intangible assets.

Before delving into the financial results, it should be noted that in the past few months, Avnet has been taking major restructuring steps to streamline its business. It intends to focus on high growth businesses only and divest low profit or loss making businesses.

In doing so, the company has already entered into an agreement to sell its troubled Technology Solution (TS) business to Tech Data Corporation TECD . The cash-stock deal is valued at $2.6 billion.

Owing to the pending sale of the TS business, Avnet has decided to report it as discontinued operations beginning with the first quarter of fiscal 2017.

Quarter Details

The company's quarterly adjusted revenues of $4.274 billion missed the Zacks Consensus Estimate of $4.351 billion. Also, revenues were near the low end of management's guidance of $4.20 billion to $4.50 billion (mid-point $4.35 billion).

However, on a year-over-year basis, revenues witnessed a 2.7% increase. The company's quarterly revenues mainly benefited from the newly acquired Premier Farnell business.

Adjusted operating income tanked 5.9% from the year-ago quarter to $189.4 million mainly due to a 30.6% rise in adjusted operating expenses. Adjusted operating margin was 4.4% compared with 4.8% in the year-ago quarter.

Adjusted net income amounted to $100.8 million, or 77 cents per share, compared with $101.3 million, or 75 cents per share, in the year-ago quarter.

Avnet, Inc. Price, Consensus and EPS Surprise

Avnet, Inc. Price, Consensus and EPS Surprise | Avnet, Inc. Quote

Avnet exited the quarter with cash and cash equivalents of $1.270 billion compared with $1.197 billion in the previous quarter. Long-term debt was $3.382 billion. During the first half of fiscal 2017, the company generated $240.1 million of cash from operational activities.

Avnet paid a dividend of $43.4 million during the first six months of fiscal 2017. However, the company did repurchase shares during the period. At the end of first half of fiscal 2017, Avnet has $174.9 million remaining under the current share repurchase authorization program.

Guidance

The company provided its outlook for the third quarter of fiscal 2017, which only includes EM and the newly acquired Premier Farnell businesses. The company projects sales in a range of $4.30 billion to $4.6 billion (mid-point $4.45 billion). Currently, the Zacks Consensus Estimate is pegged at $4.46 billion.

Adjusted earnings per share are expected in a range of 80 cents to 90 cents. The tax rate is likely to be in the 23%-27% band.

Our Take

Avnet posted mixed results for the second quarter of fiscal 2017, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. However, both earnings and revenues increased on a year-over-year basis.

Note that Avnet has been taking major restructuring steps to mainly focus on the EM business. The divestment of the Technology Solution division will allow Avnet to focus on high growth areas such as marketing electronic components and related products in the supply chain. The company intends to use its resources to make investments in embedded solutions, IoT and critical digital platforms as well as expand its footprint in newer markets.

In Oct 2016, Avnet completed the much awaited acquisition of Premier Farnell plc in a total cash deal worth approximately £691 million. U.K.-based Premier Farnell is engaged in the distribution of technology products and solutions, particularly engineering solutions to the electronic system design, maintenance and repair communities.

With its business spread across Europe, North America and Asia Pacific regions, the company operates in about 36 countries. The company believes that the acquisition will strengthen its worldwide digital footprint.

In our opinion, the acquisition will strategically fit with Avnet's policy of focusing on high growth electronic component business.

Nonetheless, although Avnet has acquired over 100 small companies, it will be a challenging task for it to integrate Premier Farnell, its largest ever buyout.

Furthermore, a significant portion of Avnet's revenues comes from the sale of semiconductors, which is a cyclical industry, characterized by changes in technology and manufacturing capacity and subject to significant market upturns and downturns. Intensifying competition from Arrow Electronics Inc. ARW and Ingram Micro also remains a headwind.

Notably, Avnet's share price has underperformed the Zacks Categorized Electronics Parts Distribution industry over the last one year. While the industry gained 48.3%, the stock gained only 17.7%.

Currently, Avnet has a Zacks Rank #4 (Sell).

A better-ranked stock worth considering in the broader technology sector is Check Point Software CHKP , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Check Point Software has surpassed the Zacks Consensus Estimate thrice while matching the same once in the trailing four quarters with an average positive surprise of 6.02%. The expected long-term EPS growth rate for the stock is 10%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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