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Avnet (AVT) Q1 Earnings & Revenues Beat, FY18 Guidance Up

Avnet Inc. AVT reported first-quarter fiscal 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. The company reported fiscal first-quarter adjusted earnings of 76 cents per share, beating the Zacks Consensus Estimate of 71 cents and also marked improvement from the year-ago quarter by a couple of cents.

The adjusted figure excludes restructuring, integration and other charges, and amortization of intangible assets. Earnings also came toward the high-end of the company’s previous guidance range of 67-77 cents per share.

Before delving into the financial results, it should be noted that Avnet changed its reportable segments during fourth-quarter fiscal 2017, which comprised the Electronic Components and Premier Farnell operating groups.

The change in reportable segment was done to reflect the company’s actual business post completion of the divesture of Technology Solutions business to Tech Data Corporation TECD, as well as the closure of the much-awaited acquisition of Premier Farnell plc in the fourth-quarter fiscal 2017 as well.

Avnet’s shares have underperformed the industry in the last one year. While the industry gained 16.5%, the stock lost 0.3%.

 

Quarter Details

Avnet’s quarterly revenues of $4.66 billion not only increased 13.2% year over year but also surpassed the Zacks Consensus Estimate of $4.332 billion. Moreover, revenues remained toward the higher end of management’s guidance of $4.15-$4.45 billion.

On a constant currency basis, revenues were up 11.8% year over year, while organic revenues climbed 3.5% from the year-ago quarter. The company’s quarterly revenues mainly benefited from the recently acquired Premier Farnell business and Electronic Components group.

Electronics Components witnessed strong year-over-year growth across the EMEA and Asia regions. Revenues from EMEA surged 33.8%, while the Asia region revenues were up 11.2%. Revenues from the Americas, however, declined 5.2% year over year.

The company reported a year-over-year increase of 17% in gross profit, reaching $613 million. However, gross profit margin contracted 55 basis points (bps) to 13.1% primarily due to supplier channel and program changes.

Adjusted operating income dropped 12% from the year-earlier quarter to $141.9 million, as benefit from the Premier Farnell acquisition, and sound growth across the EMEA and Asia regions were more than offset by a decline in the Americas revenues. Adjusted operating margin came in at 3%, contracting 87 bps from the year-ago quarter, chiefly due to the supplier channel and program changes.

Adjusted net income amounted to $94.8 million compared with $96.6 million reported in the year-ago quarter.

Avnet exited the fiscal first quarter with cash and cash equivalents and marketable securities of $737.6 million compared with $1.118 billion recorded in the previous quarter. Long-term debt was $1.495 billion. During the reported quarter, the company generated $58.2 million of cash from operational activities.

Avnet paid a dividend of 18 cents worth $22 million during the fiscal first quarter. Avnet repurchased 1.9 million shares worth $72.1 million during the quarter and has approximately $327 million remaining under the current share-repurchase authorization program.

Guidance

Buoyed by better-than-expected fiscal first-quarter performance, the company raised its outlook for fiscal 2018. Avnet now expects sales to be in the range of $18.1-$18.5 billion (mid-point $18.3 billion), up from the previous range of $17.3-$17.7 billion (mid-point $17.5 billion). Currently, the Zacks Consensus Estimate is pegged at $17.5 billion.

Adjusted earnings per share are projected to come between $3.10 and $3.60 (mid-point $3.35), up from the prior guidance range of $3-$3.5 per share. The Zacks Consensus Estimate is pegged at 3.27 per share.

For the second quarter, the company projects sales in the range of $4.25-$4.55 billion (mid-point $4.4 billion). Currently, the Zacks Consensus Estimate is pegged at $4.27 billion.

Adjusted earnings per share are estimated in the range of 67-77 cents. The Zacks Consensus Estimate is pegged at 73 cents. The tax rate is likely to be in the 21-25% band.

Our Take

Avnet posted impressive fiscal first-quarter results and issued an optimistic guidance for the fiscal second quarter as well as raised the outlook for fiscal 2018.

The divestment of the Technology Solution division has enabled 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 October 2016, Avnet completed the much-awaited acquisition of Premier Farnell plc in a total cash deal worth approximately £691 million. The 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. The company operates in nearly 36 countries, with its business spread across Europe, North America and the Asia-Pacific regions.

It is believed that the above-mentioned acquisition has strengthened Avnet’s worldwide digital footprint. In our opinion, the acquisition strategically fits with the company’s policy of focusing on high-growth electronic component business.

Nonetheless, 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 also remains a headwind.

Currently, Avnet carries a Zacks Rank #2 (Hold). Another top-ranked stock in the broader technology sector is NVIDIA Corporation NVDA, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA has an expected long-term EPS growth rate of 11.2%.

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