Avnet Beats on Q1 Earnings and Revenues; Outlook Cautious - Analyst Blog

Shares of Avnet Inc. (AVT) were up 1.5% on Oct 24 following better-than-expected fiscal first-quarter 2015 results.

The company reported first-quarter 2015 adjusted earnings of $1.02 per share, which beat the Zacks Consensus Estimate of 97 cents. Earnings were toward the higher end of management's guidance range of 93 cents to $1.03 and were also up 13.3% on a year-over-year basis.

 

Quarter Details

Revenues of $6.84 billion were up 7.8% from the year-ago quarter. Reported revenues were at the higher end of management's guidance range of $6.4 to $7.0 billion and beat the Zacks Consensus Estimate of $6.71 billion. The year-over-year increase was primarily due to strong Electronics Marketing (EM) business and Technology Solutions (TS) business.

On a segmental basis, revenues from EM grew 11.1% from the year-ago quarter to $4.37 billion. The year-over-year increase was driven by sales increase in Asia, Americas and EMEA regions. Organic sales reported 7.8% year-over-year growth.

Revenues from TS grew 2.4% from the year-ago quarter to $2.47 billion. The company witnessed growth in the Americas region, which more than offset the decline in EMEA and Asia. The company witnessed growth in software, services and storage solutions which was partially offset by a decline in the computing components business. Organic sales were also up 2.4% year over year.

Gross profit for the quarter increased 8.2% year over year to $795.5 million, while gross margins came in at 11.6%, approximately flat on a year-over year basis as margin expansion in the EM business was offset by a decline in TS business margins.

Adjusted operating income increased 12.2% from the year-ago quarter to $223.7 million. Operating margin came in at 3.3% compared with 3.1% reported in the year-ago quarter. The increase was primarily due to a higher revenue base.

Adjusted net income came in at $144.2 million or $1.02 per share compared with $125.9 million or 90 cents in the year-ago quarter. Adjusted net income excluded restructuring, integration and other charges, and amortization of intangible assets.

Avnet exited the quarter with cash and cash equivalents of $814.4 million compared with $928.9 million in the previous quarter. The company used $40.7 million cash in operating activities during the quarter. Avnet paid a dividend of $22.1 million (16 cents per share) in the quarter.

During the quarter, Avnet repurchased shares worth $17.8 million and had $198 million remaining under its stock repurchase program at quarter-end.

Guidance

For second-quarter fiscal 2015, the company projects consolidated sales in the range of $7.0 to $7.6 billion (mid-point $7.3 billion), while the Zacks Consensus Estimate is pegged at $7.34 billion. Avnet projects EM and TS sales in the range of $4.15–$4.45 billion and $2.85–$3.15 billion, respectively.

Adjusted earnings per share (excludes restructuring and integration charges related to costs reductions and acquisitions and amortization of intangibles) are expected within $1.15 per share to $1.25 (mid-point $1.18 per share), lower than the Zacks Consensus Estimate of $1.20 at mid-point. The tax rate is likely to be in the range of 27%–31%.

Our Take

Avnet posted better-than-expected first-quarter 2015 results. The guidance, however, was less-than-encouraging due to tepid IT spending environment.

Moreover, a significant portion of the company's revenues comes from the sale of semiconductors, which is a cyclical industry characterized by changes in technology and manufacturing capacity and is subject to significant market upturns and downturns.

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 headwind. Nevertheless, we look forward to management's decision to optimize costs and investments to tap the changing demand.

Currently, Avnet has a Zacks Rank #3 (Hold).

Investors can also consider another technology stock, SunEdison, Inc. (SUNE) that has the a Zacks Rank #1 (Strong Buy).

 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
INGRAM MICRO (IM): Free Stock Analysis Report
 
ARROW ELECTRONI (ARW): Free Stock Analysis Report
 
AVNET (AVT): Free Stock Analysis Report
 
SUNEDISON INC (SUNE): Free Stock Analysis Report
 
To read this article on Zacks.com click here.