Shares of Avnet Inc. AVT were up 5.9% on Aug 5, following better-than-expected fiscal fourth-quarter 2015 results.
The company reported fourth-quarter 2015 adjusted earnings of $1.16 per share, which surpassed the Zacks Consensus Estimate of $1.07 per share. Earnings also came ahead of the guided range of $1.02 per share to $1.12 and were up 1.8% on a year-over-year basis.
Quarter Details
Although revenues of $6.79 billion were down 3.6% from the year-ago quarter, it surpassed the Zacks Consensus Estimate of $6.43 billion. Reported revenues were toward the lower end of management’s guidance range of $6.6 billion to $7.2 billion. The year-over-year decrease was primarily due to a weak Technology Solutions (TS) business and the negative impact of foreign currency fluctuations.
Segment wise, revenues on a constant currency basis from Electronics Marketing (EM) increased 7.2% from the year-ago quarter to $4.32 billion. In reported dollars, revenues from EM were roughly flat on a year-over-year basis. The increase was driven by a sales increase in Asian regions (up 7.4% year over year). Also, growth in Americas (up 1.8% year over year) contributed to the segmental increase.
Revenues on a constant curency basis from Technology Solutions (TS) decreased 3.5% from the year-ago quarter to $2.48 billion.In reported dollars, sales from TS decreased a massive 9.2% on a year-over-year basis. The decrease in sales was primarily due to a 14.8% decline in the Asian region and a 16.3% decline in the EMEA region. Also, the negative impact of currency fluctuations and a decline in the computing components business impacted the quarter’s revenues.
Gross profit decreased 6.1% year over year to $785.8 million due to a lower revenue base. Gross margin contracted 30 basis points (bps) and came in at 11.6%, primarily due to lower margin in Asia.
Adjusted operating income decreased a marginal 0.4% from the year-ago quarter to $243.8 million due to the negative impact of currency. Operating margin came in at 3.6% compared with 3.5% reported in the year-ago quarter. The increase was primarily led by lower selling, general and administrative expenses as a percentage of revenues (down 30 bps on a year-over-year basis).
Adjusted net income came in at $159.5 million or $1.16 per share compared with $160.1 million or $1.14 per share in the year-ago quarter. Adjusted net income excludes restructuring, integration and other charges, and amortization of intangible assets.
Avnet exited the quarter with cash and cash equivalents of $932.6 million compared with $803.5 million in the previous quarter. Avnet’s long-term debt was $1.65 billion. The company generated $300 million cash in operating activities during the quarter. It paid a dividend of $21.7 million (16 cents per share) and repurchased shares worth $15.8 million during the quarter.
Guidance
For first-quarter fiscal 2016, the company projects consolidated sales in the range of $6.4 billion to $7.0 billion (mid-point $6.7 billion). The Zacks Consensus Estimate is pegged at $6.86 billion. Avnet projects EM and TS sales in the range of $4.15 billion–$4.45 billion and $2.25 billion–$2.55 billion, respectively.
Adjusted earnings per share (excluding restructuring and integration charges related to costs reductions and acquisitions and amortization of intangibles) are expected within 97 cents per share to $1.07 (mid-point $1.02 per share). The Zacks Consensus Estimate is pegged at $1.00 per share. The tax rate is likely to be in the range of 27%–31%.
Our Take
Avnet posted better-than-expected fourth-quarter fiscal 2015 results. Year-over-year revenue comparison was however unfavorable primarily due to a weak TS business and the negative impact of currency. The guidance, also, was not so 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.
Currently, Avnet has a Zacks Rank #3 (Hold).
However, a better-ranked stock in the technology space is Amazon.com, Inc. AMZN, sporting a Zacks Rank #1 (Strong Buy).
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