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Avnet Falls Short of 1Q13 Guidance

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Avnet, Inc. ((AVT - Free Report) ) recently released preliminary results for the first quarter of fiscal 2013.  The company posted sales of approximately $5.85 million, down 9% from the year-ago quarter and towards the lower end of management’s guidance of $5.80 billion – $6.40 billion.  

Electronics Marketing (EM) is expected to report sales of $3.65 billion, in line with management’s guidance of $3.55 billion – $3.85 billion. Technology Solutions (TS) is likely to report sales of approximately $2.20 billion, below management’s guidance of $2.25 billion - $2.55 billion.
Avnet estimates to report EPS between $0.52 and $0.58, below management’s expectations of $0.78 – $0.88. 
The shortfall in guidance was primarily attributable to lower than expected revenues, mainly at Technology Solutions (TS). In addition, lower gross profit margin in the Western regions at EM due to the weak sales environment also impacted results. Moreover, the business was also adversely impacted by a larger than anticipated geographic mix shift in the EM business wherein better than expected sales in the lower-margin Asia region were more than offset by weaker sales in the higher-margin Western regions. 
The uncertain macroeconomic environment was the key factor impacting the end demand in the markets that Avnet serves, particularly the Americas. 
The guidance shortfall was more pronounced for TS business where Avnet experienced a second consecutive quarter of weaker than expected transaction activity at the end of the quarter as customers delayed IT projects.
Revenues came in line with initial expectations at the EM segment where the lower-margin Asia business had a stronger than expected quarter more than offset by a significant slowdown in the Americas region. 
This revenue shortfall accounted for more than half of the decline in bottom line coupled with the regional mix shift and lower gross profit margins at EM. 
Consequently, Avnet is taking steps to reduce costs to the extent of $40 million – $50 million across the portfolio. 
We maintain a Neutral recommendation on Avnet, Inc. In the short run, we have a Zacks #4 Rank on the stock which translates into a short-term rating of Sell. 

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