Avnet Inc. (AVT - Analyst Report) reported adjusted earnings (excluding restructuring, integration and other charges, gain on bargain purchase and other, amortization of intangibles, and tax gains) of 90 cents per share in the first-quarter of fiscal 2014, beating the Zacks Consensus Estimate of 88 cents. Earnings were toward the higher end of management’s guidance range of 83 cents to 93 cents.
Revenues came in at $6.35 billion, up 8.1% from the year-ago quarter. Revenues in the quarter were within management’s guidance range of $6.05 billion to $6.65 billion but missed the Zacks Consensus Estimate of $6.36 billion. The year-over-year increase was primarily due to strength in the Asia region
On a segmental basis, revenues from Electronics Marketing (EM) grew 7.8% from the year-ago quarter to $3.94 billion; within management’s guidance range of $3.70 billion - $4.0 billion. The year-over-year improvement was led by double-digit growth in Asia and EMEA, which offset weak performances in America.
Revenues from Technology Solutions (TS) grew 8.6% from the year-ago quarter to $2.41 billion. Segmental revenues were within management’s guidance range of $2.35 billion – $2.65 billion. The year-over-year growth was mainly due to a 9.3% increase in Europe, Middle East & Africa (EMEA), 10.7% increase in Americas and 1.8% in Asia revenues.
Gross margin in the quarter was 11.6%, down 7 basis points year over year, primarily due to a decline in Electronics Marketing segment margin.
Adjusted operating margin was 3.1% versus 2.5% in the year-ago quarter. Electronics Marketing operating margin came in at 4.5%, up 38 basis points from the year-ago quarter, primarily due to improvement in the Americas region. Technology Solutions operating margin was 2.6%, up 86 basis points from the year-ago quarter, primarily due to strength in the America and Asia region.
Adjusted net income was $125.9 million or 90 cents compared with $88.9 million or 62 cents in the year-ago quarter. Adjusted net income excluded restructuring, integration and other charges, gain on bargain purchase and other, amortization of intangibles, and tax gains.
Balance Sheet and Cash Flow
Avnet ended the quarter with cash and cash equivalents of $865.6 million, down from $1.0 billion in the previous quarter. Long-term debt was $1.20 billion, down from $2.05 billion in the previous quarter.
The company generated $489.0 million of cash from operating activities, significantly up from $267.0 million in the prior quarter.
Avnet paid a dividend of $21 million (15 cents per share) in the quarter. Avnet did not buy back any shares during the quarter. At quarter end, Avnet had approximately $225.0 million outstanding under the stock repurchase program.
For the second-quarter of fiscal 2014, the company projects consolidated sales in the range of $6.65 billion and $7.25 billion. Avnet projects EM sales and TS sales to be in the range of $3.80–$4.10 billion and $2.85–$3.15 billion, respectively. Adjusted EPS (excludes restructuring and integration charges related to costs reductions and acquisitions and amortization of intangibles) is likely to be within $1.05 to $1.15 per share while tax rate is likely to be in a range of 27% – 31%.
Avnet posted mixed first quarter results, with earnings per share beating the Zacks Consensus Estimate but revenues missing the same. Both the top and bottom line were within managements guided range. The company provided decent fiscal second-quarter 2014 guidance. The restructuring and share buyback plans could boost share prices in the near term.
Avnet’s leading position in electronics distribution, continuous cost cutting initiatives and acquisition synergies are encouraging. It does however see significant competition for both its domestic and foreign operations, especially from archrival Arrow Electronics Inc. (ARW - Analyst Report)).
But 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 other technology stocks such as Plexus Corp. (PLXS - Analyst Report) and Western Digital Corporation (WDC - Analyst Report), both carrying a Zacks Rank #1 (Strong Buy).