Avnet Reports Third Quarter Fiscal Year 2017 Results

Avnet, Inc. (NYSE:AVT) today announced results for the third quarter fiscal year 2017 ended April 1, 2017.

• Diluted earnings per share from continuing operations of $0.69
  • Adjusted diluted EPS from continuing operations of $0.88
• Premier Farnell sales exceeded expectations and contributed to margin expansion
• Completed sale of Technology Solutions for ~$2.4 billion in cash and ~$250 million in Tech Data Corporation shares
• Paid down ~$1.8 billion of debt and increased share repurchase authorization by $500 million
• Accelerating ERP depreciation charges of approximately $18 million in FY17 and $72 million in FY18

“Our organic revenue grew 3.4% sequentially in constant currency and adjusted operating income increased 4.8%. Our investments in e-commerce continue to yield results as digital sales exceeded a $700 million annual run rate driven by better than expected revenue at Premier Farnell where operating income margin exceeded 10%,” said Bill Amelio, CEO of Avnet. “Our EMEA team delivered another strong quarter as organic revenue grew 16% sequentially in constant currency and operating income margin increased 21 basis points. Despite near-term challenges in our upcoming quarters related to supplier losses and changes to supplier programs, we are confident our investments in digital tools and our transformation initiatives that are focused on streamlining our operations and improving our ability to serve our customers and suppliers. This will position Avnet for future profitable growth in a rapidly changing technology supply chain environment.”

Avnet Regional Sales Results

• Sales increased 10.6% from the year ago quarter in constant currency
  • Organic sales increased 1.8% in constant currency
• EMEA organic sales increased 12.3% year over year in constant currency on an organic basis, representing the 15th consecutive quarter of organic growth
• Gross profit margin increased 142 basis points from the year ago quarter primarily due to the addition of Premier Farnell, as well as improvements in the Asia region
• Working capital (defined as receivables plus inventories less accounts payables) increased 9.1% sequentially, primarily due to an increase in the EMEA and Asia regions

Cash Flow and Returns to Shareholders

• Cash flow from continuing operations was a use of $163 million in the March quarter
• Cash and cash equivalents at the end of the quarter was $1.13 billion; net debt (total debt less cash and cash equivalents) was $628 million
• During the March quarter, the Company repurchased 3.1 million shares, representing an aggregate investment of $140.1 million
• Entering the fourth quarter, the Company had $534.8 million remaining under the current share repurchase authorization
• Avnet paid a dividend of $0.18 per share or $23.1 million during the quarter

“In the March quarter, we used approximately $2.4 billion of cash from the sale of our Technology Solutions business to strengthen our balance sheet and increase the amount of funds available to return to shareholders,” said Kevin Moriarty, CFO of Avnet. “We paid down approximately $1.8 billion of debt, which will reduce our future interest expense and result in credit statistics that solidly support our investment grade credit rating. We also increased our dividend 5.9% while allocating an additional $500 million to our share repurchase program. In addition, we locked in the gain on our Tech Data Corporation shares to ensure that we will have another $250 million of cash available over the next twelve months. With our strong balance sheet and improved liquidity, we are well positioned to invest in growth and our digital transformation that will drive financial performance in the future.”

ERP Update

Given the Company is now solely focused on components and has acquired significant digital resources, the Company recently performed a thorough review of both its Enterprise Resource Planning (ERP) system in the Americas (“Evolve”) and its global IT strategy going forward. The Company has decided to pursue a global ERP system that incorporates key elements of its international ERP systems that have been successfully supporting the business for many years. In addition to supporting the Company’s emerging digital business model, the global ERP system is expected to enhance the customer experience, lower operational cost and improve global analytics. While this system may take up to 24 months to complete, the Company will continue to invest necessary resources to modify and maintain the Evolve system in the Americas to continue to deliver support to customers and suppliers. As a result of this decision, the Company expects to recognize accelerated depreciation on the Evolve system, which will negatively impact results by approximately $18 million per quarter over the next eight quarters.

Outlook for Fourth Quarter of Fiscal 2017 Ending on July 1, 2017

• Sales are expected to be in the range of $4.35 billion to $4.65 billion
• Adjusted diluted earnings per share from continuing operations is expected to be in the range of $0.72 to $0.82 per share
• The guidance assumes 127 million average diluted shares outstanding and an adjusted tax rate of 22% to 26%

Preliminary Outlook for Fiscal 2018 Ending on June 30, 2018

• Sales are expected to be in the range of $17.3 billion to $17.7 billion
• Adjusted diluted earnings per share from continuing operations is expected to be in the range of $3.00 to $3.50 per share
• The guidance assumes 126 million average diluted shares outstanding and an adjusted tax rate of 22% to 26%

The above guidance excludes any additional acquisitions, the amortization of intangibles, Evolve accelerated depreciation, any potential restructuring, integration, and other expenses and certain income tax adjustments. In addition, the above guidance assumes that the average U.S. Dollar to Euro currency exchange rate for the fourth quarter of fiscal 2017 is $1.08 to €1.00. This compares with an average exchange rate of $1.13 to the Euro in the fourth quarter of fiscal 2016.

Refer to Exhibit 99.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 27, 2017, for a reconciliation of non-GAAP guidance.

Discontinued Operations

In February 2017, Avnet completed the sale of its Technology Solutions business to Tech Data Corporation. As a result, the TS business is considered a discontinued operation.

Forward-Looking Statements

This document contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on management’s current expectations and are subject to uncertainty and changes in facts and circumstances. The forward-looking statements herein include statements addressing future financial and operating results of Avnet and may include words such as “will,” “anticipate,” “intend,” “estimate,” “forecast,” “expect,” “feel,” “believe,” “should,” and other words and terms of similar meaning in connection with any discussions of future operating or financial performance, business prospects or market conditions. Actual results may differ materially from the expectations contained in the forward-looking statements.

The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: Avnet’s ability to retain and grow market share and to generate additional cash flow, risks associated with any acquisition activities and the successful integration of acquired companies, implementing and maintaining ERP systems and transitioning to a global ERP system, supplier losses and changes to supplier programs, the sale of the TS business, an industry down-cycle in semiconductors, declines in sales, changes in business conditions and the economy in general, changes in market demand and pricing pressures, any material changes in the allocation of product or product rebates by suppliers, and other competitive and/or regulatory factors affecting the businesses of Avnet generally.

More detailed information about these and other factors is set forth in Avnet’s filings with the Securities and Exchange Commission, including Avnet’s reports on Form 10-K, Form 10-Q and Form 8-K. Except as required by law, Avnet is under no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Teleconference and Upcoming Events

Avnet will host a quarterly teleconference today at 11:00 a.m. Eastern Time. Financial information including financial statement reconciliations of GAAP to non-GAAP financial measures, will be available through www.ir.avnet.com. Please log onto the site 15 minutes prior to the start of the event to register or download any necessary software. An archive copy of the teleconference will also be available after the call.

For a listing of Avnet’s upcoming events and other information, please visit Avnet’s investor relations website at www.ir.avnet.com.

About Avnet

From idea to design and from prototype to production, Avnet supports customers at each stage of a product’s lifecycle. A comprehensive portfolio of design and supply chain services makes Avnet the go-to guide for innovators who set the pace for technological change. For nearly a century, Avnet has helped its customers and suppliers around the world realize the transformative possibilities of technology. Learn more about Avnet at www.avnet.com.

Visit the Avnet Investor Relations website at www.ir.avnet.com or contact us at investorrelations@avnet.com.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170427005717/en/