Avnet Inc. (AVT) reported fourth-quarter 2014 adjusted earnings of $1.14 per share, which beat the Zacks Consensus Estimate of $1.10. Earnings were at the higher end of management’s guidance range of $1.04 to $1.14 and were also up 11.8% on a year-over-year basis.
Quarter Details
Revenues of $7.05 billion were up 6.9% from the year-ago quarter. Reported revenues were at the higher end of management’s guidance range of $6.6 to $7.2 billion and beat the Zacks Consensus Estimate of $6.9 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 8.8% from the year-ago quarter to $4.32 billion. The year-over-year increase was driven by sales increase in Americas and EMEA regions. Organic sales reported 8.1% year-over-year growth.
Revenues from TS grew 4.2% from the year-ago quarter to $2.73 billion. The company witnessed growth in the Americas region, which more than offset the decline in EMEA region. 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 up 0.3% year over year.
Gross profit for the quarter increased 8.6% year over year to $837 million, while gross margins came in at 11.9% compared with 11.7% reported in the year-ago quarter as margin expansion in the EM business was offset by decline in TS business margins.
Adjusted operating income increased 5.9% from the year-ago quarter to $244.9 million, while operating margin remained flat at 3.5% year over year. The increase was primarily due to improvement in EM.
Adjusted net income came in at $160.1 million or $1.14 per share compared with $141.8 million or $1.02 in the year-ago quarter. Adjusted net income excluded restructuring, integration and other charges, foreign currency loss and amortization of intangible assets.
Avnet exited the quarter with cash and cash equivalents of $928.9 million compared with $960.1 million in the previous quarter. The company generated $34 million cash in operating activities during the quarter. Avnet paid a dividend of $20.7 million (15 cents per share) in the quarter.
During the quarter, Avnet repurchased shares worth $7.4 million and had $216 million remaining under its $750 million stock repurchase program at quarter-end.
Guidance
For first-quarter fiscal 2015, the company projects consolidated sales in the range of $6.4 to $7.0 billion (mid-point $6.7 billion), while the Zacks Consensus Estimate is pegged at $7.08 billion. Avnet projects EM and TS sales in the range of $4.1–$4.4 billion and $2.3–$2.6 billion, respectively.
Adjusted earnings per share (excludes restructuring and integration charges related to costs reductions and acquisitions and amortization of intangibles) is expected within 93 cents to $1.03, lower than the Zacks Consensus Estimate of $1.18. The tax rate is likely to be in the range of 26–30%.
Our Take
Avnet posted better-than-expected fourth-quarter 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. It does, however, face stiff competition in both its domestic and foreign operations, especially from archrival Arrow Electronics Inc. (ARW). However, we look forward to management’s decision to optimize costs and investments to tap the changing demand.
Currently, Avnet has a Zacks Rank #2 (Buy).
Investors can also consider other technology stocks such as DST Systems (DST) and Micron Technology (MU) that have the same Zacks Rank as Avnet.
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