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Avnet (AVT) Earnings and Revenues Beat Estimates in Q4

Zacks

Avnet Inc. AVT reported fourth-quarter fiscal 2017 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate. The company reported fourth-quarter adjusted earnings of 84 cents per share, beating the Zacks Consensus Estimate of 77 cents.

Moreover, adjusted earnings grew 42.4% year over year. The adjusted figure excludes restructuring, integration and other charges, and amortization of intangible assets.

Before delving into the financial results, it should be noted that Avnet completed the divesture of its Technology Solutions business to Tech Data Corporation TECD. Further, the company completed the much-awaited acquisition of Premier Farnell plc.

As a result of this, Avnet changed its reportable segments during fourth-quarter fiscal 2017 to the Electronic Components and Premier Farnell operating groups.


Avnet’s share price underperformed the industry in the last one year. While the industry gained 6.2%, the stock lost 8.2%.

Quarter Details

The company’s quarterly revenues of $4.606 billion, not only increased 16.1% year over year but also surpassed the Zacks Consensus Estimate of $4.455 billion. Moreover, revenues were towards the higher end of management’s guidance of $4.35–$4.65 billion.

On a constant currency basis, revenues were up 17.9% year over year, while organic revenues increased 8.4% from the year-ago quarter. The company’s quarterly revenues mainly benefited from the newly acquired Premier Farnell business and Electronic Components group.

Electronics Components witnessed strong year-over-year growth across all three regions. Revenues from EMEA grew 27.7%, Americas increased 20.6% and the Asia region was up 3.3%.

Adjusted operating income increased 17.9% from the year-ago quarter to $155.2 million, mainly due to growth in EMEA and Premier Farnell acquisition. Adjusted operating margin was 3.4% compared with 3.3% in the year-ago quarter. The slight increase was primarily due to Premier Farnell acquisition and growth in Asia region.

Adjusted net income amounted to $105 million compared with $75.4 million reported in the year-ago quarter.

Avnet exited the quarter with cash and cash equivalents and marketable securities of $1.118 billion compared with $1.129 billion in the previous quarter. Long-term debt was $1.729 billion. During the quarter, the company generated $81 million of cash from operational activities.

Avnet paid a dividend of 18 cents worth $22 million during the quarter. Avnet repurchased 3.3 million shares worth $136 million during the said quarter and has $399 million remaining under the current share repurchase authorization program.

Guidance

The company provided outlook for the first quarter and reiterated fiscal 2018 outlook, which only includes EM and the newly acquired Premier Farnell businesses.

For the first quarter, the company projects sales in the range of $4.15–$4.45 billion (mid-point $4.3 billion). Currently, the Zacks Consensus Estimate is pegged at $4.34 billion.

Adjusted earnings per share are expected in the range of 67–77 cents. The Zacks Consensus Estimate is pegged at 73 cents. The tax rate is likely to be in the 23–27% band.

For fiscal 2018, the company continues to projects sales in the range of $17.3–$17.7 billion (mid-point $17.5 billion). Currently, the Zacks Consensus Estimate is pegged at $17.34 billion.

Adjusted earnings per share are expected in the range of $3–$3.5 per share. The Zacks Consensus Estimate is pegged at 3.21 per share.

Our Take

Avnet posted better-expected fourth-quarter results and issued an optimistic guidance for first quarter. Going forward, the company also reaffirmed fiscal 2018 outlook.

The divestment of the Technology Solution division will allow Avnet to focus on high-growth areas such as marketing electronic components and related products in the supply chain. The company intends to use its resources to make investments in embedded solutions, IoT and critical digital platforms as well as expand its footprint in newer markets.

In Oct 2016, Avnet completed the much-awaited acquisition of Premier Farnell plc in a total cash deal worth approximately £691 million. U.K.-based Premier Farnell is engaged in the distribution of technology products and solutions, particularly engineering solutions to the electronic system design, maintenance and repair communities.

With its business spread across Europe, North America and Asia Pacific regions, the company operates in about 36 countries. Further, it believes that the acquisition will strengthen its worldwide digital footprint.

In our opinion, the acquisition will strategically fit with Avnet’s policy of focusing on high growth electronic component business.

Nonetheless, a significant portion of Avnet’s revenues comes from the sale of semiconductors, which is a cyclical industry, characterized by changes in technology and manufacturing capacity and subject to significant market upturns and downturns. Intensifying competition from Arrow Electronics Inc. ARW also remains a headwind.

Currently, Avnet carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering in the broader technology sector is Applied Optoelectronics, Inc. AAOI, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Optoelectronics has an expected long-term EPS growth rate of 18.75%.

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