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Avnet (AVT) Down 2.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Avnet (AVT - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Avnet due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Avnet's Q4 Earnings & Revenues Beat Estimates, Fall Y/Y

Avnet reported fourth-quarter fiscal 2020 non-GAAP earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 14 cents. However, the figure plunged 32.6% year over year.

Revenues of $4.16 billion surpassed the Zacks Consensus Estimate by 6.3% but fell 11.1% year over year.

Soft demand in Europe, Middle East, and Africa (EMEA) was a deterrent in the reported quarter.  Moreover, lower pricing and higher logistics costs stemming from the coronavirus pandemic affected the bottom line.

Quarter in Detail

Electronic Components segment revenues fell 10.8% year over year to $3.87 billion due to lower revenues from EMEA.

Premier Farnell segment’s revenues of $292.1 million declined 15% year over year.

New customer acquisition increased more than 13% year over year, largely driven by coronavirus-related safety products.

Revenues from the Americas declined 9.2% year over year and the same from the EMEA region was down 18%. Further, Asia revenues dropped 6.2% year over year.

Avnet reported gross profit of $475.1 million, down 20.2% year over year. Gross margin plunged 130 basis points (bps) to 11.4%.

Adjusted operating income was $42.9 million, plunging 72.5% year over year. Adjusted operating margin came in at 1%, down 231 bps.

Adjusted operating expenses declined 1.5% year over year to $432.1 million.

Avnet announced a new cost-cutting plan, which will be implemented by December 2020. Under this plan, the company aims to reduce net operating expenses by $75 million annually.

Balance Sheet and Cash Flow

As of Jun 30, 2020, Avnet had cash and cash equivalents of $477 million compared with $402.7 million at the end of the previous quarter.

Long-term debt was $1.43 billion as of Jun 30, up from $1.19 billion reported in the previous quarter. The company used $300 million in cash to pay-off debt.

Net debt leverage ratio was 2.1 at the end of the reported quarter. Operating cash flow was $288.2 million in fourth-quarter fiscal 2020. Avnet returned $21 million to its shareholders in the form of dividends in the quarter under review.

First-Quarter Fiscal 2021 Guidance

Avnet expects top line for the first quarter of fiscal 2021 to be in the range of $3.8 -$4.2 billion. First quarter revenues are likely to be impacted by seasonality leading to lower revenues from EMEA. Non-GAAP adjusted earnings for the first quarter is likely to range from breakeven to 16 cents per share.

Notably, Avnet expects Farnell revenue to register slight increase in the first quarter while Texas Instruments revenues are anticipated to witness a sequential decline in revenues, in the $100-$150 million band.

Avnet also expects a slight decline in operating margin.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -46.82% due to these changes.

VGM Scores

At this time, Avnet has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Avnet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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