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Avnet (AVT) Beats on Q4 Earnings & Revenues, Offers View

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Avnet Inc.AVT reported better-than-expected results for the fourth quarter of fiscal 2016, wherein both the top and the bottom line came ahead of the respective Zacks Consensus Estimate. However, the company witnessed a year-over-year decline on both fronts.

Avnet reported third-quarter fiscal 2016 adjusted earnings of 86 cents per share, while the Zacks Consensus Estimate was pegged at 83 cents. However, reported earnings were lower than from $1.16 per share earned in the year-ago quarter.

Quarter Details

Although the company's quarterly revenues of $6.227 billion surpassed the Zacks Consensus Estimate of $6.206 billion, the figure declined 8.4% on a year-over-year basis. Reported revenues were also near the low end of management's guidance of $5.95 billion to $6.55 billion. The decline was primarily due to lower sales at both of the company's divisions - Electronics Marketing (EM) and Technology Solutions (TS).

Segment-wise, revenues from EM dropped 8.7% year over year to $3.939 billion. In constant currency, sales at the segment were down 9.4%. Revenues were also at the low end of the company's guidance range of $3.9 billion to $4.2 billion.

The decrease was primarily due to lower sales in the Asian region (down 13.2%) and the Americas (14.8%). Sales in the Americas were hampered mainly by inefficiencies during ERP implementation faced by the company's integration center. Sales from the EMEA region, however, improved 3.9% on a reported basis.

Revenues from TS on a reported basis were down 7.8 year over year % to $2.288 billion. In constant currency, sales at the segment fell 6.4%. However, revenues were above the midpoint of the company's guidance range of $2.05-$2.35 billion (midpoint: $2.20 billion).

Sales declined primarily due to lower sales in the Americas (down 7.6%), the EMEA region (0.7%) and the Asian region (20.8%). Product category-wise, the TS segment's services, software and networking businesses witnessed year-over-year growth, while the servers and legacy storage businesses registered a decline.

Gross profit decreased 7% year over year to $731 million due to a lower revenue base. Gross margin, however, expanded 10 basis points (bps) to 11.7% primarily backed by a favorable product mix.

Adjusted operating income tanked 20.1% from the year-ago quarter to $194.7 million owing to lower sales and unfavorable foreign exchange fluctuations. Operating margin was 3.1% compared with 3.6% in the year-ago quarter. Selling, general and administrative expenses, as a percentage of revenues, increased 40 bps on a year-over-year basis.

Adjusted net income amounted to $112.3 million, or 86 cents per share, compared with $159.5 million, or $1.16 per share, in the year-ago quarter. Adjusted net income excludes restructuring, integration and other charges, and amortization of intangible assets.

AVNET Price, Consensus and EPS Surprise

AVNET Price, Consensus and EPS Surprise | AVNET Quote

Avnet exited the quarter with cash and cash equivalents of $1.03 billion compared with $1.04 billion in the previous quarter. Long-term debt was $1.34 billion. The company generated $224.3 million of cash from operational activities during fiscal 2016.

Avnet paid a dividend of $21.6 million (17 cents per share) during the quarter and repurchased 1.2 million shares worth $46.8 million during the quarter. During fiscal 2016, the company returned $466 million via dividend payments and the share repurchase program. Avnet now has approximately $175 million remaining under the current share repurchase authorization program.

Guidance

The company provided its outlook for the first quarter of fiscal 2017. The company projects consolidated sales in the range of $5.80 billion to $60.4 billion (midpoint: $6.10 billion). The Zacks Consensus Estimate for consolidated sales is pegged at $6.14 billion. Sales at EM and TS are anticipated in the range of $3.90-$4.20 billion and $1.90-$2.20 billion, respectively.

Adjusted earnings per share (excluding restructuring and integration charges related to costs reductions and acquisitions, and amortization of intangibles) are expected in the range of 84 cents to 94 cents (midpoint: 89 cents). The Zacks Consensus Estimate for earnings is pegged at 85 cents. The tax rate is likely to be in the 26-30% band.

Our Take

Avnet posted better-than-expected results in the fourth quarter of fiscal 2016, wherein both the top and the bottom line beat the respective Zacks Consensus Estimate. However, both earnings and revenues declined on a year-over-year basis, primarily due to dull performance at the TS and EM business. In addition, the company provided a tepid revenue guidance for the forthcoming quarter.

Note that a significant portion of Avnet's revenues are derived from the sale of semiconductors - a cyclical industry characterized by changes in technology and manufacturing capacity, and subject to significant market upturns and downturns.

Nonetheless, Avnet's leading position in electronics distribution, continuous cost cutting initiatives and acquisition synergies are encouraging. However, competition from Arrow Electronics Inc. ARW and Ingram Micro IM remains a material headwind.

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

A better-ranked stock in the broader technology space is Adobe Systems Inc. ADBE , sporting a Zacks Rank #1 (Strong Buy).

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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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