Shares of Avnet Inc. (AVT) were up 2.7% on Jan 22 following better-than-expected fiscal second-quarter 2015 results.
The company reported second-quarter 2015 adjusted earnings of $1.27 per share, which beat the Zacks Consensus Estimate of $1.20 per share. Earnings came ahead of management’s guidance of $1.15 per share to $1.25 and were also up 8.5% on a year-over-year basis.
Quarter Details
Revenues of $7.55 billion were up 1.8% from the year-ago quarter. Reported revenues were toward the higher end of management’s guidance range of $7.0 to $7.6 billion and beat the Zacks Consensus Estimate of $7.34 billion. The year-over-year increase was primarily due to a strong Electronics Marketing (EM) business.
On a segmental basis, revenues from EM increased 6.8% from the year-ago quarter to $4.44 billion. The year-over-year increase was driven by sales increase in Asian regions (up 17.1% year over year).
Revenues from Technology Solutions (TS) decreased 4.6% from the year-ago quarter to $3.12 billion, primarily due to a 13.4% decline in the Asian region. The company witnessed growth in software, services and storage solutions, which was offset by a decline in the computing components business.
Gross profit for the quarter decreased 1.3% year over year to $837.5 million due to higher cost of sale. Gross margin contracted 30 basis points (bps) and came in 11.1%, primarily due to margin contraction in the EM business and TS business.
Adjusted operating income increased 4.3% from the year-ago quarter to $274.6 million. Operating margin came in at 3.6% compared with 3.5% reported in the year-ago quarter. The increase was primarily led by the EMEA region and higher revenue base.
Adjusted net income came in at $175.9 million or $1.27 per share compared with $163.9 million or $1.17 per share in the year-ago quarter. Adjusted net income excluded restructuring, integration and other charges, and amortization of intangible assets.
Avnet exited the quarter with cash and cash equivalents of $903.3 million compared with $814.4 million in the previous quarter. Avnet’s long-term debt came to $1.69 billion. The company generated $265 million cash in operating activities during the quarter. Avnet paid a dividend of $21.8 million (16 cents per share) in the quarter.
During the quarter, Avnet repurchased shares worth $91 million and had $357 million remaining under its stock repurchase program at quarter-end.
Guidance
For third-quarter fiscal 2015, the company projects consolidated sales in the range of $6.6 billion to $7.2 billion (mid-point $6.9 billion). The mid-point of the range is in line with the Zacks Consensus Estimate. Avnet projects EM and TS sales in the range of $4.15 billion–$4.45 billion and $2.45 billion–$2.75 billion, respectively.
Adjusted earnings per share (excludes restructuring and integration charges related to costs reductions and acquisitions and amortization of intangibles) are expected within $1.04 per share to $1.14, lower than the Zacks Consensus Estimate of $1.15. The tax rate is likely to be in the range of 27%–31%.
Our Take
Avnet posted better-than-expected second-quarter 2015 results. Year-over-year comparisons were also favorable primarily due to the solid performance of the EM business and higher operating income. The guidance, however, was less than encouraging.
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. However, competition from Arrow Electronics Inc. (ARW) and Ingram Micro (IM) remains a headwind. Nevertheless, 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 another technology stock, Avago Technologies Ltd. (AVGO) that sports a Zacks Rank #1 (Strong Buy).
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