2008-08-06 07:00:00
Avnet, Inc. Reports Fourth Quarter and Fiscal Year 2008 Results
Record Sales and EPS for the Fiscal Year
PHOENIX–(EMWNews)–Avnet, Inc. (NYSE:AVT) today reported revenue of $4.68 billion for
fourth quarter fiscal 2008 ended June 28, 2008, representing an increase
of 10.4% over fourth quarter fiscal 2007 and 5.4% excluding the impact
of changes in foreign currency exchange rates. Pro forma (organic)
revenue growth, as defined in the Non-GAAP Financial Information
Section, was 4.2% over the prior year fourth quarter. Net income for
fourth quarter fiscal 2008 was $144.1 million, or $0.95 per share on a
diluted basis, as compared with net income of $124.7 million, or $0.81
per share, for the fourth quarter last year. Excluding certain items in
both periods as noted below, net income in the current year fourth
quarter was $128.2 million, or $0.85 per share on a diluted basis, as
compared with $123.9 million, or $0.81 per share, in the prior year. The
Company’s effective tax rate for the 2008
fiscal year, excluding certain items, was 30.6%, thereby positively
impacting its fourth quarter results by approximately $0.02 per share
relative to the Company’s earlier projection.
Last year’s fourth quarter also had a similar
benefit of approximately $0.02 per share.
Operating income for fourth quarter fiscal 2008 was $170.6 million, down
13.4% as compared with operating income of $196.9 million in the
year-ago quarter. Excluding certain items in both periods as noted
below, operating income for the fourth quarter fiscal 2008 was $198.7
million, up 1.5% as compared with operating income of $195.8 million in
last year’s fourth quarter. Operating income
as a percentage of sales, excluding the items noted below, was 4.25% in
the current year quarter, down 37 basis points as compared with 4.62%
last year.
Roy Vallee, Chairman and Chief Executive Officer, commented, “We
are pleased with our better than expected fourth quarter results.
Excluding certain items, our sequential performance improved
significantly with operating income growing roughly 12% while return on
capital employed improved by 113 basis points.”
Record revenue of $17.95 billion for fiscal 2008 was up 14.5% over
fiscal 2007 revenue of $15.68 billion. Organic revenue growth, as
defined in the Non-GAAP Financial Information section, was 4.9% over the
prior year. Net income for fiscal 2008 was a record $499.1 million, or
$3.27 per share on a diluted basis, as compared with net income of
$393.1 million, or $2.63 per share on a diluted basis, in fiscal 2007.
Excluding certain items noted below, net income and diluted earnings per
share also reached record levels for fiscal 2008 up 17.3% and 15.2% to
$484.4 million and $3.18, respectively, as compared with fiscal 2007.
Fiscal 2008 operating income grew 4.7% to $710.4 million as compared
with fiscal 2007 operating income of $678.3 million. Excluding certain
items in both fiscal years, operating income grew 9.3% year over year to
$749.3 million and operating income as a percent of sales was 4.2%.
Mr. Vallee also noted, “In fiscal 2008, our
focus on value-based management and value-creating M&A resulted in
record financial results despite the challenging macro-economic forces
impacting our markets. During fiscal year 2008, we completed seven
acquisitions and in early fiscal 2009 we added three more to our
portfolio that expanded our geographic coverage and enhanced our
competitive position. This disciplined acquisition activity combined
with a strong operating performance from our global team resulted in a
slight improvement in return on capital and economic profit volume year
over year. We decided to take some targeted corrective actions in the
second half of fiscal 2008, but we are also continuing to invest in
organic strategies and value-creating M&A that positions Avnet for
stronger future growth while remaining committed to achieving our
long-term financial goals.”
Certain Items Impacting Results
The results for the fourth quarter and fiscal year of fiscal 2008 and
2007 include certain items as described herein, the mention of which
management believes is useful to investors when comparing operating
performance with prior periods. More detail on the reasons for providing
this information are set forth in the Non-GAAP Financial Information
section which appears herein. The items affecting the current year
fourth quarter and fiscal year are described below and the items
affecting the prior year quarter and fiscal year are described herein.
Fourth Quarter and Fiscal Year 2008:
-
Restructuring, integration and other charges amounted to $28.1 million
pre-tax ($23.9 million after tax) in the fourth quarter consisted of
(i) restructuring, integration and other charges of $19.1 million
pre-tax ($14.4 million after tax) related to further cost-reduction
initiatives across the Company as well as integration-related costs
associated with various acquisitions, (ii) settlement of an
indemnification amounting to $6.0 million pre-tax ($7.7 million after
tax) paid to a former executive of an acquired company as a result of
the tax settlement described below, and (iii) additional costs of $3.0
million pre-tax ($1.8 million after tax) associated with long
outstanding environmental matters. Pre-tax restructuring, integration
and other charges for the fiscal year ended 2008 amounted to $38.9
million pre-tax ($31.5 million after tax) and consisted of the $28.1
million pre-tax ($23.9 million after tax) recorded in the fourth
quarter as described above and $10.8 million pre-tax ($7.6 million
after tax) of restructuring, integration and other charges recorded in
the prior quarters of fiscal 2008.
-
Gain on sale of the Company’s investment in
Calence LLC in the fourth quarter amounting to $42.4 million pre-tax
($25.9 million after tax). In addition to this gain, included in the
fiscal 2008 results are a gain of $4.5 million pre-tax ($4.5 million
after tax) on the sale of a building and an additional $3.0 million
pre-tax ($1.8 million after tax) gain resulting from the receipt of
contingent purchase price proceeds related to a prior sale of a
business.
-
Income tax net benefit of $13.9 million from the settlement of a tax
audit and adjustment to tax contingencies.
|
|
|
Fourth Quarter Ended Fiscal 2008 |
|
Fiscal Year Ended 2008 |
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Op Income |
Pre-tax |
Net Income |
Diluted |
Op Income |
Pre-tax |
Net Income |
Diluted |
||||||||||||||||||||||||
|
|
$ in thousands, except per share data |
||||||||||||||||||||||||||||||
|
GAAP results |
$ |
170,567 |
$ |
194,760 |
$ |
144,094 |
$ |
0.95 |
$ |
710,383 |
$ |
708,955 |
$ |
499,081 |
$ |
3.27 |
|||||||||||||||
|
Restructuring, integration and other |
28,085 |
28,085 |
23,946 |
0.16 |
38,942 |
38,942 |
31,469 |
0.21 |
|||||||||||||||||||||||
|
Gain on sale of assets |
– |
(42,426 |
) |
(25,924 |
) |
(0.17 |
) |
– |
(49,903 |
) |
(32,244 |
) |
(0.21 |
) |
|||||||||||||||||
|
Net reduction in tax reserves |
|
– |
|
– |
|
|
(13,897 |
) |
|
(0.09 |
) |
|
– |
|
– |
|
|
(13,897 |
) |
|
(0.09 |
) |
|||||||||
|
Total adjustments |
|
28,085 |
|
(14,341 |
) |
|
(15,875 |
) |
|
(0.10 |
) |
|
38,942 |
|
(10,961 |
) |
|
(14,672 |
) |
|
(0.09 |
) |
|||||||||
|
Adjusted results |
$ |
198,652 |
$ |
180,419 |
|
$ |
128,219 |
|
$ |
0.85 |
|
$ |
749,325 |
$ |
697,994 |
|
$ |
484,409 |
|
$ |
3.18 |
|
|||||||||
Operating Group Results
Electronics Marketing (EM) sales of $2.73 billion in the fourth quarter
fiscal 2008 were up 10.8% year over year on a reported basis and up 5.3%
when adjusted to exclude the impact of changes in foreign currency
exchange rates. On a pro forma basis, EM revenue increased 7.3% year
over year. EM sales in the Americas, EMEA and Asia regions increased
2.4%, 20.8% and 10.3%, respectively, year over year on a reported basis
with EMEA’s revenue up 5.0% excluding the
impact of changes in foreign currency exchange rates. On a pro forma
basis, EM sales in EMEA and Asia in the fourth quarter fiscal 2008
increased 15.6% and 3.7%, respectively, as compared with last year. EM
operating income of $154.0 million for fourth quarter fiscal 2008 was up
7.3% over the prior year fourth quarter operating income of $143.6
million and operating income margin of 5.64% was down 18 basis points as
compared with the prior-year quarter.
Mr. Vallee added, “Electronics Marketing
delivered another solid quarter of year over year revenue growth as its
diversified account base and limited exposure to consumer products
mitigated some of the macro-economic headwinds. More importantly, our EM
team has well managed our portfolio of businesses within the current
business conditions as evidenced by the consistent year over year
increase in quarterly return on capital employed (ROCE) throughout
fiscal 2008. In the June quarter, EM’s return
on capital employed increased 73 basis points over the year-ago quarter
and for fiscal 2008 this important metric was improved by 117 basis
points.”
Technology Solutions (TS) sales of $1.95 billion in the fourth quarter
fiscal 2008 were up 9.9% year over year on a reported basis and up 5.6%
when adjusted to exclude the impact of changes in foreign currency
exchange rates. On a pro forma basis, TS revenue was flat year over
year. On a reported basis, fourth quarter fiscal 2008 sales in EMEA and
Asia were up 43.1% and 1.6%, respectively, year over year, while the
Americas was essentially flat. EMEA revenue was up 26.4% excluding the
impact of changes in foreign currency exchange rates. On a pro forma
basis, EMEA fourth quarter fiscal 2008 sales increased by 4.2% year over
year while pro forma sales in Asia declined 11.3% due primarily to lower
sales of microprocessors. TS operating income was $61.8 million in the
fourth quarter fiscal 2008, a 10% decrease as compared with fourth
quarter fiscal 2007 operating income of $68.7 million, and operating
income margin of 3.18% decreased by 70 basis points versus the prior
year fourth quarter.
Mr. Vallee further added, “Technology
Solutions rebounded from the disappointing March quarter as double-digit
sequential growth in servers, storage, and software along with higher
gross margin drove an 88 basis point improvement in operating income
margin. In the Americas region, both operating income margin and return
on capital employed were at the high end of our long-range business
model. The cost reduction initiatives at certain TS business units that
we announced last quarter are essentially complete and we expect the
full savings to be realized in the September quarter. With the recently
completed acquisitions of Horizon Technologies and Ontrack Solutions, TS
is continuing to build out its international footprint while also
investing in new organic growth opportunities.”
Cash Flow
During the fourth quarter of fiscal 2008, the Company generated cash
flow from operations of $257.2 million and for the full year of fiscal
2008 generated $453.6 million. As a result, the Company ended the
quarter with $640.4 million of cash and cash equivalents and net debt
(total debt less cash and cash equivalents) of $584.9 million.
Ray Sadowski, Chief Financial Officer, stated, “Our
disciplined approach of managing our business to drive return on capital
and create shareholder value is enabling us to work through this soft
economic environment while maintaining a strong balance sheet and
generating significant cash flow. For fiscal 2008, we improved working
capital velocity, reduced our cash cycle by two days and generated
substantial cash from operations. This performance gives us the
financial flexibility to continue to invest in value-creating M&A that
supplements our growth and adds to our global scale and scope.”
Outlook
For Avnet’s first quarter fiscal year 2009,
management expects normal seasonality at both EM and TS with EM sales
anticipated to be in the range of $2.65 billion to $2.75 billion and
sales for TS to be between $1.88 billion and $1.98 billion. Therefore,
Avnet’s consolidated sales are forecasted to
be between $4.53 billion and $4.73 billion for the first quarter fiscal
year 2009. Management expects first quarter fiscal year 2009 earnings to
be in the range of $0.70 to $0.74 per share. First quarter 2009 guidance
includes approximately $0.05 per share related to the expensing of
stock-based compensation as compared with $0.02 and $0.04 per share,
respectively, in the fourth and first quarters of fiscal 2008. The above
EPS guidance does not include the amortization of intangible assets or
integration charges related to acquisitions that have closed or will
close in the September quarter and anticipated restructuring charges.
Forward Looking Statements
This press release 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,” “expect,”
believe,” and “should,”
and other words and terms of similar meaning in connection with any
discussions of future operating or financial performance or business
prospects. Actual results may vary 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: the Company’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, any significant and unanticipated
sales decline, 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,
allocations of products by suppliers, 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 the Company’s
reports on Form 10-K, Form 10-Q and Form 8-K. Avnet is under no
obligation to update any forward-looking statements, whether as a result
of new information, future events or otherwise.
Non-GAAP Financial Information
In addition to disclosing financial results that are determined in
accordance with generally accepted accounting principles (“GAAP”),
the Company also discloses in this press release certain non-GAAP
financial information including adjusted operating income, adjusted net
income and adjusted diluted earnings per share. The Company also
discloses revenue adjusted for the impact of acquisitions and the change
to net revenue accounting treatment of sales of supplier service
contracts (“pro forma revenue”
or “organic revenue”).
Management believes pro forma revenue is a useful measure for evaluating
current period performance as compared with prior periods and
understanding underlying trends.
Management believes that operating income adjusted for restructuring,
integration and other charges is a useful measure to help investors
better assess and understand the Company’s
operating performance, especially when comparing results with previous
periods or forecasting performance for future periods, primarily because
management views the excluded items to be outside of Avnet’s normal
operating results. Management analyzes operating income without the
impact of restructuring, integration and other charges as an indicator
of ongoing margin performance and underlying trends in the business.
Management also uses these non-GAAP measures to establish operational
goals and, in some cases, for measuring performance for compensation
purposes.
Management believes net income and diluted earnings per share adjusted
for the impact of restructuring, integration and other charges and gain
on sale of assets is useful to investors because it provides a measure
of the Company’s net profitability on a more
comparable basis to historical periods and provides a more meaningful
basis for forecasting future performance. Additionally, because of
management’s focus on generating shareholder
value, of which net profitability is a primary driver, management
believes net income and diluted EPS excluding the impact of these items
provides an important measure of the Company’s
net results of operations for the investing public. Other metrics
management monitors in its assessment of business performance include
return on working capital (ROWC), return on capital employed (ROCE) and
economic profit. ROWC is defined as annualized operating income,
excluding restructuring, integration and other items, divided by the
monthly average balances of trade receivables and inventory less
accounts payable. ROCE is defined as annualized tax effected operating
income, excluding restructuring, integration and other items, divided by
the monthly average balances of interest-bearing debt and equity less
cash and cash equivalents (“average capital”).
Economic profit is defined as tax effected operating income, excluding
restructuring, integration and other items, less a capital charge
(assumed to be 10%) on average capital. However, analysis of results and
outlook on a non-GAAP basis should be used as a complement to, and in
conjunction with, data presented in accordance with GAAP.
Fourth Quarter and Fiscal Year 2007
-
Restructuring, integration and other items amounted to a pre-tax
benefit in the fourth quarter of $1.2 million, which consisted of (i)
a prior year acquisition-related benefit of $12.5 million, net of (ii)
restructuring, integration and other charges of $11.3 million related
to further cost-reduction initiatives across the Company as well as
Access integration-related costs. Pre-tax restructuring, integration
and other items for the fiscal year ended 2007 amounted to $7.4
million and consisted of $19.9 million of restructuring, integration
and other charges, net of the acquisition-related benefit of $12.5
million.
-
Gain on sale of assets for the fiscal year ended 2007 resulted from
the receipt of contingent purchase price proceeds related to a prior
sale of a business.
-
Debt extinguishment costs for the fiscal year ended 2007 related to
the Company’s election to redeem all of its
outstanding 9¾% Notes due February 15, 2008
during the first quarter.
|
|
Fourth Quarter Ended Fiscal 2007 |
|
Fiscal Year Ended 2007 |
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Op Income |
Pre-tax |
Net Income |
Diluted |
Op Income |
Pre-tax |
Net Income |
Diluted |
||||||||||||||||||||||||
|
$ in thousands, except per share data |
|||||||||||||||||||||||||||||||
|
GAAP results |
$ |
196,927 |
$ |
180,769 |
$ |
124,657 |
$ |
0.81 |
$ |
678,273 |
$ |
586,619 |
$ |
393,067 |
$ |
2.63 |
|||||||||||||||
|
Restructuring, integration and other |
(1,168 |
) |
(1,168 |
) |
(722 |
) |
(0.00 |
) |
7,353 |
7,353 |
5,289 |
0.03 |
|||||||||||||||||||
|
Gain on sale of assets |
– |
– |
– |
– |
– |
(3,000 |
) |
(1,814 |
) |
(0.01 |
) |
||||||||||||||||||||
|
Debt extinguishment costs |
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
– |
|
27,358 |
|
|
16,538 |
|
|
0.11 |
|
||||||||
|
Total adjustments |
|
(1,168 |
) |
|
(1,168 |
) |
|
(722 |
) |
|
(0.00 |
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