Avnet reports first quarter fiscal 2020 financial results
Phoenix--(business wire)--avnet, inc. (nasdaq: avt) today announced results for the first quarter ended september 28, 2019. fiscal first quarter key financials sales of $4.6 billion were in line with guidance, compared with $5.1 billion a year ago, as industry-wide softness over the past year has impacted historical seasonality, spanning all geographies. gaap diluted earnings per share from continuing operations totaled $0.40; on an adjusted basis, diluted earnings per share was $0.60. gaap operating income margin was 1.4%; adjusted operating income margin was 2.3%. cash flow from operations totaled $196 million. returned $133 million to shareholders including $112 million in stock buybacks and $21 million in dividends. ceo commentary “in the first quarter we achieved results within our guidance by managing the business effectively as we worked through an ongoing industry-wide slowdown,” said bill amelio, chief executive officer of avnet. “while echoing the short-term caution in our industry, we took steps to position avnet for long-term growth in our higher margin businesses. we further strengthened our capabilities by broadening our reach and offerings through a strategic iot acquisition and by forming alliances around the world. we are confident these actions will benefit both our business and our shareholders by laying the groundwork for an accelerated, positive return on investment when the industry rebounds.” key financial metrics ($ in millions, except per share data) first quarter results (gaap) sep – 19 sep – 18 change y/y jun – 19 change q/q sales $ 4,630.0 $ 5,089.9 (9.0) % $ 4,680.9 (1.1) % operating income (loss) 62.7 146.8 (57.3) % (30.0) 308.9 % operating income (loss) margin 1.4 % 2.9 % (152) bps (0.6) % 200 bps diluted earnings (loss) per share $ 0.40 $ 0.72 (44.4) % $ (0.33) 221.2 % first quarter results (non-gaap)(1) sep – 19 sep – 18 change y/y jun – 19 change q/q sales $ 4,630.0 $ 5,089.9 (9.0) % $ 4,680.9 (1.1) % adjusted operating income 107.4 182.5 (41.2) % 156.3 (31.3) % adjusted operating income margin 2.3 % 3.6 % (127) bps 3.3 % (102) bps adjusted diluted earnings per share $ 0.60 $ 1.03 (41.7) % $ 0.95 (36.8) % segment and geographical mix sep – 19 sep – 18 change y/y jun – 19 change q/q electronic components (ec) sales $ 4,294.2 $ 4,710.8 (8.8) % $ 4,337.5 (1.0) % ec operating income margin 2.6 % 3.4 % (83) bps 3.3 % (65) bps farnell sales $ 335.8 $ 379.1 (11.4) % $ 343.4 (2.2) % farnell operating income margin 6.5 % 10.8 % (427) bps 9.7 % (318) bps americas sales $ 1,215.8 $ 1,271.8 (4.4) % $ 1,266.3 (4.0) % emea sales 1,470.9 1,714.9 (14.2) % 1,638.5 (10.2) % asia sales 1,943.3 2,103.2 (7.6) % 1,776.1 9.4 % (1) a reconciliation of non-gaap financial measures to gaap financial measures is presented in the “non-gaap financial information” section of this press release. cfo commentary “the $196 million of cash flow from operations avnet generated this quarter brings our total operating cash flow for the last three quarters to nearly $800 million, enabling us to continue our share repurchase and dividend programs as well as broaden our internal capabilities with acquisitions, including our pending purchase of witekio,” said tom liguori, chief financial officer of avnet. “we are on track to pull forward $50 million of operating expense reductions that are part of our $245 million cost reduction plan. we expect to have the $50 million fully implemented by the end of the march quarter. these actions, along with others we have put in place, will help us achieve improved operating income margins when industry growth returns to previous levels.” additional first quarter fiscal 2020 highlights and key developments the board approved a $500 million increase in avnet’s share repurchase authorization and a 5% increase in avnet’s quarterly cash dividend to $0.21 per share. working capital days improved 4 days sequentially, contributing to the strong operating cash flow performance. announced the pending acquisition of witekio, which will strengthen avnet’s software and iot capabilities at the device level. avnet announced its distribution relationship with texas instruments will be ended by december 2020. as a result, avnet will implement $35 million in incremental annual cost reductions as the decline in ti product sales occur. formed a strategic alliance with trusted objects to secure the industrial iot through an end-to-end security solution for low-power devices, reinforcing avnet’s strategy of streamlining and scaling iot security. formed a strategic partnership with schneider electric, the leader in digital transformation of energy management and automation. introduced avnet’s rfsoc development kit using the xilinx zynq ultrascale+, which enables wireless system architects to accelerate the path to production in wireless. adopted the new lease accounting standard that has resulted in avnet’s balance sheet now reflecting a $279 million operating lease asset and a $301 million operating lease liability. awards and notable recognition received during the quarter avnet asia, avnet silica and ebv elektronik received the nexperia gold billionaires award. avnet india was awarded the highest achievement in business growth year over year for enterprise business by western digital india. avnet silica was named distributor of the year by elektronik magazine for passive components and delivery performance. outlook for the second quarter of fiscal 2020 ending on december 28, 2019 guidance range midpoint sales $4.2b – $4.6b $4.4b non-gaap diluted eps(1) $0.35 – $0.45 $0.40 estimated annual tax rate 19% – 23% 21% (1) avnet’s second quarter fiscal 2020 guidance reflects a sequential decline in sales in the americas and emea regions and stable business trends in asia, and continued pricing pressure in all businesses. the above guidance is based upon market conditions existing as of today, and excludes any acquisitions, results of discontinued operations, amortization of intangibles, accelerated depreciation, any potential restructuring, integration, and other expenses and certain income tax adjustments including certain impacts of the recent tax law changes in the u.s. the above guidance assumes 102 million average diluted shares outstanding and average u.s. dollar to euro and gbp currency exchange rates are as shown below: q2 fiscal 2020 q1 fiscal q2 fiscal guidance 2020 2019 usd to euro $1.10 $1.11 $1.14 usd to gbp $1.26 $1.23 $1.29 today’s conference call and webcast details to participate in the live call, dial 877-407-8112 or 201-689-8840. to access the slides, follow the webcast link below. the slides can also be accessed via avnet’s investor relations web page at: www.ir.avnet.com. a replay of the conference call will be available for 30 days, through november 24 at 5:00 p.m. et, and can be accessed by dialing: 877-660-6853 or 201-612-7415 and using conference id: 13695085. the live webcast can be accessed from the following link: avnet earnings call webcast and slides and will be available for 90 days. forward-looking statements this document 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,” “intend,” “estimate,” “forecast,” “expect,” “feel,” “believe,” “should,” and other words and terms of similar meaning in connection with any discussions of future operating or financial performance, business prospects or market conditions. actual results may differ 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: avnet’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, implementing and maintaining it systems, supplier losses and changes to supplier programs, an industry down-cycle in electronic components including semiconductors, declines in sales, 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 price discounts by suppliers, and 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 avnet’s reports on form 10-k, form 10-q and form 8-k. except as required by law, avnet is under no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. about avnet avnet is a global technology solutions provider with an extensive ecosystem delivering design, product, marketing and supply chain expertise for customers at every stage of the product lifecycle. we transform ideas into intelligent solutions, reducing the time, cost and complexities of bringing products to market. for nearly a century, avnet has helped its customers and suppliers around the world realize the transformative possibilities of technology. learn more about avnet at www.avnet.com. (avt_ir) avnet, inc. consolidated statements of operations (unaudited) first quarters ended september 28, september 29, 2019 2018 (thousands, except per share data) sales $ 4,630,009 $ 5,089,879 cost of sales 4,086,170 4,453,129 gross profit 543,839 636,750 selling, general and administrative expenses 456,503 475,146 restructuring, integration and other expenses 24,598 14,788 operating income 62,738 146,816 other income (expense), net 4,931 (1,892) interest and other financing expenses, net (33,631) (30,093) income from continuing operations before taxes 34,038 114,831 income tax (benefit) expense (7,714) 31,302 income from continuing operations, net of tax 41,752 83,529 income from discontinued operations, net of tax — 195 net income $ 41,752 $ 83,724 earnings per share - basic: continuing operations $ 0.40 $ 0.73 discontinued operations — — net income per share basic $ 0.40 $ 0.73 earnings per share - diluted: continuing operations $ 0.40 $ 0.72 discontinued operations — — net income per share diluted $ 0.40 $ 0.72 shares used to compute earnings per share: basic 103,130 115,260 diluted 104,377 116,471 cash dividends paid per common share $ 0.21 $ 0.20 avnet, inc. condensed consolidated balance sheets (unaudited) september 28, june 29, 2019 2019 (thousands) assets current assets: cash and cash equivalents $ 664,108 $ 546,105 receivables, net 3,129,387 3,168,369 inventories 3,025,980 3,008,424 prepaid and other current assets 169,471 153,438 total current assets 6,988,946 6,876,336 property, plant and equipment, net 437,467 452,171 goodwill 858,656 876,728 intangible assets, net 120,139 143,520 operating lease assets 278,570 — other assets 229,559 215,801 total assets $ 8,913,337 $ 8,564,556 liabilities and shareholders’ equity current liabilities: short-term debt $ 638,402 $ 300,538 accounts payable 2,025,518 1,864,342 accrued expenses and other 418,230 413,696 short-term operating lease liabilities 55,149 — total current liabilities 3,137,299 2,578,576 long-term debt 1,191,975 1,419,922 long-term operating lease liabilities 245,406 — other liabilities 380,586 425,585 total liabilities 4,955,266 4,424,083 shareholders’ equity 3,958,071 4,140,473 total liabilities and shareholders’ equity $ 8,913,337 $ 8,564,556 avnet, inc. consolidated statements of cash flows (unaudited) first quarters ended september 28, 2019 september 29, 2018 (thousands) cash flows from operating activities: net income $ 41,752 $ 83,724 less: income from discontinued operations, net of tax — 195 income from continuing operations 41,752 83,529 non-cash and other reconciling items: depreciation 24,669 25,389 amortization 19,911 20,810 amortization of operating lease asset 15,839 — deferred income taxes (3,970) 36,830 stock-based compensation 7,218 9,044 other, net 8,034 14,994 changes in (net of effects from businesses acquired and divested): receivables (6,703) (19,292) inventories (64,194) (269,649) accounts payable 189,746 95,119 accrued expenses and other, net (36,660) (81,753) net cash flows provided (used) for operating activities - continuing operations 195,642 (84,979) net cash flows provided (used) for operating activities 195,642 (84,979) cash flows from financing activities: borrowings (repayments) under accounts receivable securitization, net 110,800 (40,000) repayments under senior unsecured credit facility, net (1,100) (1,217) repayments under bank credit facilities and other debt, net (745) (50,330) repurchases of common stock (110,805) (149,094) dividends paid on common stock (21,451) (22,932) other, net 548 17,328 net cash flows used for financing activities - continuing operations (22,753) (246,245) net cash flows used for financing activities (22,753) (246,245) cash flows from investing activities: purchases of property, plant and equipment (29,864) (41,007) other, net (12,515) 65 net cash flows used for investing activities - continuing operations (42,379) (40,942) net cash flows provided by investing activities - discontinued operations — 120,000 net cash flows (used) provided by investing activities (42,379) 79,058 effect of currency exchange rate changes on cash and cash equivalents (12,507) (3,107) cash and cash equivalents: — increase (decrease) 118,003 (255,273) — at beginning of period 546,105 621,125 — at end of period $ 664,108 $ 365,852 non-gaap financial information in addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the united states (“gaap”), the company also discloses certain non-gaap financial information including (i) adjusted operating income, (ii) adjusted operating expenses, (iii) adjusted other income (expense), (iv) adjusted income tax expense, (v) adjusted income from continuing operations, (vi) adjusted diluted earnings per share from continuing operations, and (vii) sales adjusted for the impact of acquisitions and other items (as defined in the organic sales section of this document). there are also references to the impact of foreign currency in the discussion of the company’s results of operations. when the u.s. dollar strengthens and the stronger exchange rates of the current year are used to translate the results of operations of avnet’s subsidiaries denominated in foreign currencies, the resulting impact is a decrease in u.s. dollars of reported results. conversely, when the u.s. dollar weakens and the weaker exchange rates of the current year are used to translate the results of operations of avnet’s subsidiaries denominated in foreign currencies, the resulting impact is an increase in u.s. dollars of reported results. in the discussion of the company’s results of operations, results excluding this impact are referred to as “constant currency.” management believes organic sales and sales in constant currency are useful measures for evaluating current period performance as compared with prior periods and for understanding underlying trends. in order to determine the translation impact of changes in foreign currency exchange rates on sales, income or expense items for subsidiaries reporting in currencies other than the u.s. dollar, the company adjusts the average exchange rates used in current periods to be consistent with the average exchange rates in effect during the comparative period. management believes that operating income and operating expenses adjusted for restructuring, integration and other expenses, goodwill impairment expense and amortization of acquired intangible assets and other, are useful measures to help investors better assess and understand the company’s operating performance. this is especially the case 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 or non-cash in nature. management analyzes operating income and operating expenses without the impact of these items as well as other income (expense) excluding certain amounts 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 many cases, for measuring performance for compensation purposes. management measures operating income for its reportable segments excluding restructuring, integration and other expenses, goodwill impairment expense and amortization of acquired intangible assets and other. additional non-gaap metrics management uses is adjusted operating income margin, which is defined as adjusted operating income (as defined above) divided by sales. management also believes income tax expense, income from continuing operations and diluted earnings per share from continuing operations adjusted for the impact of the items described above and certain items impacting other income (expense) and income tax expense are useful to investors because they provide a measure of the company’s net profitability on a more comparable basis to historical periods and provide a more meaningful basis for forecasting future performance. adjustments to income tax expense and the effective income tax rate include the effect of changes in tax laws including recent tax law changes in the u.s., changes in valuation allowances and unrecognized tax benefits, income tax audit settlements and adjustments to the adjusted interim effective tax rate based upon the expected annual adjusted effective tax rate. additionally, because of management’s focus on generating shareholder value, of which net profitability is a primary driver, management believes income from continuing operations and diluted earnings per share from continuing operations excluding the impact of these items provides an important measure of the company’s net profitability for the investing public. any analysis of results and outlook on a non-gaap basis should be used as a complement to, and in conjunction with, results presented in accordance with gaap. all amounts below relate to avnet’s continuing operations. quarter ended september 28, 2019* ($ in thousands, except per share amounts) gaap selling, general and administrative expenses - continuing operations $ 456,503 amortization of intangible assets and other - continuing operations (20,078) adjusted operating expenses - continuing operations 436,426 gaap operating income - continuing operations $ 62,738 restructuring, integration and other expenses - continuing operations 24,598 amortization of intangible assets and other - continuing operations 20,078 adjusted operating income - continuing operations 107,414 gaap income before income taxes- continuing operations $ 34,038 restructuring, integration and other expenses - continuing operations 24,598 amortization of intangible assets and other - continuing operations 20,078 adjusted income before income taxes - continuing operations 78,713 gaap income tax expense (benefit) - continuing operations $ (7,714) restructuring, integration and other expenses - continuing operations 6,240 amortization of intangible assets and other - continuing operations 4,235 income tax benefit items, net - continuing operations 13,611 adjusted income tax expense - continuing operations 16,372 gaap income - continuing operations $ 41,752 restructuring, integration and other expenses (net of tax) - continuing operations 18,358 amortization of intangible assets and other (net of tax) - continuing operations 15,843 income tax benefit items, net - continuing operations (13,611) adjusted income - continuing operations 62,341 gaap diluted earnings per share - continuing operations $ 0.40 restructuring, integration and other expenses (net of tax) - continuing operations 0.18 amortization of intangible assets and other (net of tax) - continuing operations 0.15 income tax benefit items, net - continuing operations (0.13) adjusted diluted eps - continuing operations 0.60 ___________________________ * may not foot due to rounding fiscal quarters ended year to date june 29, march 30, december 29, september 29, 2019* 2019* 2019* 2018* 2018 ($ in thousands, except per share amounts) gaap selling, general and administrative expenses - continuing operations $ 1,874,651 $ 459,611 $ 468,171 $ 471,723 $ 475,146 amortization of intangible assets and other - continuing operations (84,257) (20,737) (22,080) (20,513) (20,927) adjusted operating expenses - continuing operations 1,790,393 438,872 446,092 451,210 454,219 gaap operating income (loss) - continuing operations $ 365,911 $ (30,040) $ 153,085 $ 96,050 $ 146,816 restructuring, integration and other expenses - continuing operations 108,144 28,158 2,939 62,260 14,788 goodwill impairment expense - continuing operations 137,396 137,396 - - - amortization of intangible assets and other - continuing operations 84,257 20,737 22,080 20,513 20,927 adjusted operating income - continuing operations 695,708 156,252 178,103 178,823 182,531 gaap income (loss) before income taxes- continuing operations $ 242,268 $ (63,043) $ 125,563 $ 64,916 $ 114,831 restructuring, integration and other expenses - continuing operations 108,144 28,158 2,939 62,260 14,788 goodwill impairment expense - continuing operations 137,396 137,396 - - - amortization of intangible assets and other - continuing operations 84,257 20,737 22,080 20,513 20,927 other expenses - continuing operations 509 509 - - - adjusted income before income taxes - continuing operations 572,574 123,758 150,581 147,689 150,546 gaap income tax expense (benefit) - continuing operations $ 62,157 $ (27,915) $ 30,628 $ 28,141 $ 31,302 restructuring, integration and other expenses - continuing operations 26,746 7,455 306 15,665 3,320 goodwill impairment expense - continuing operations 18,566 18,566 - - - amortization of intangible assets and other - continuing operations 17,986 4,382 4,747 4,379 4,478 other expenses - continuing operations 57 57 - - - income tax (expense) benefit items, net - continuing operations (8,143) 20,896 (4,059) (16,742) (8,238) adjusted income tax expense - continuing operations 117,369 23,441 31,622 31,443 30,862 gaap income (loss) - continuing operations $ 180,111 $ (35,128) $ 94,935 $ 36,775 $ 83,529 restructuring, integration and other expenses (net of tax) - continuing operations 81,398 20,703 2,633 46,595 11,468 goodwill impairment expense (net of tax) - continuing operations 118,830 118,830 - - - amortization of intangible assets and other (net of tax) - continuing operations 66,271 16,355 17,333 16,134 16,449 other expenses (net of tax) - continuing operations 452 452 - - - income tax expense (benefit) items, net - continuing operations 8,143 (20,896) 4,059 16,742 8,238 adjusted income - continuing operations 455,205 100,316 118,960 116,246 119,684 gaap diluted earnings (loss) per share - continuing operations $ 1.63 $ (0.33) $ 0.87 $ 0.33 $ 0.72 restructuring, integration and other expenses (net of tax) - continuing operations 0.74 0.20 0.02 0.42 0.10 goodwill impairment expense (net of tax) - continuing operations 1.07 1.13 - - - amortization of intangible assets and other (net of tax) - continuing operations 0.60 0.15 0.16 0.14 0.14 other expenses (net of tax) - continuing operations - - - - - income tax expense (benefit) items, net - continuing operations 0.07 (0.20) 0.04 0.15 0.07 adjusted diluted eps - continuing operations 4.11 0.95 1.09 1.04 1.03 ___________________________ * may not foot/cross foot due to rounding organic sales organic sales is defined as sales adjusted for the impact of significant acquisitions, divestitures and other items by adjusting avnet’s prior and current (if necessary) periods to include the sales of acquired businesses and exclude the sales of divested businesses as if the acquisitions and divestitures had occurred at the beginning of the earliest period presented. organic sales is measured on a sales from continuing operations basis. organic sales in constant currency is defined as organic sales (as defined above) excluding the impact of changes in foreign currency exchange rates. the following table presents reported and organic sales growth rates for the first quarter of fiscal 2020 compared to fiscal 2019. first quarters ended as reported sales sales as reported and organic as reported as reported and year-year % and organic and organic organic change in fiscal fiscal year-year constant 2020 2019 % change currency (dollars in millions) avnet $ 4,630.0 $ 5,089.9 (9.0) % (7.8) % avnet by region americas $ 1,215.8 $ 1,271.8 (4.4) % (4.4) % emea 1,470.9 1,714.9 (14.2) (10.5) asia 1,943.3 2,103.2 (7.6) (7.7) avnet by segment ec $ 4,294.2 $ 4,710.8 (8.8) % (7.7) % farnell 335.8 379.1 (11.4) (9.0) historical segment financial information first quarter september 28, 2019 (in millions) sales: electronic components $ 4,294.2 farnell 335.8 avnet sales $ 4,630.0 operating income: electronic components $ 112.3 farnell 21.8 134.1 corporate expenses (26.7) restructuring, integration and other expenses (24.6) amortization of acquired intangible assets and other (20.1) avnet operating income $ 62.7 sales by geographic area: americas $ 1,215.8 emea 1,470.9 asia 1,943.3 avnet sales $ 4,630.0 fiscal year 2019 quarters ended fourth quarter third quarter second quarter first quarter fiscal year june 29, march 30, december 29, september 29, 2019* 2019 2019 2018 2018 (in millions) sales: electronic components $ 18,060.3 $ 4,337.5 $ 4,331.3 $ 4,680.7 $ 4,710.8 farnell 1,458.3 343.4 367.5 368.3 379.1 avnet sales $ 19,518.6 $ 4,680.9 $ 4,698.8 $ 5,049.0 $ 5,089.9 operating income: electronic components $ 614.9 $ 141.1 $ 153.3 $ 158.6 $ 161.9 farnell 159.3 33.2 45.7 39.6 40.8 774.2 174.3 199.0 198.2 202.7 corporate expenses (78.5) (18.0) (20.9) (19.4) (20.2) restructuring, integration and other expenses (108.1) (28.2) (2.9) (62.3) (14.8) goodwill impairment expense (137.4) (137.4) - - - amortization of acquired intangible assets and other (84.3) (20.7) (22.1) (20.5) (20.9) avnet operating income (loss) $ 365.9 $ (30.0) $ 153.1 $ 96.0 $ 146.8 sales by geographic area: americas $ 5,135.8 $ 1,266.3 $ 1,297.2 $ 1,300.4 $ 1,271.8 emea 6,762.9 1,638.5 1,740.9 1,668.6 1,714.9 asia 7,619.9 1,776.1 1,660.7 2,080.0 2,103.2 avnet sales $ 19,518.6 $ 4,680.9 $ 4,698.8 $ 5,049.0 $ 5,089.9 ___________________________ * may not foot/cross foot due to rounding guidance reconciliation the following table presents the reconciliation of non-gaap adjusted diluted earnings per share guidance to the expected gaap diluted earnings per share guidance for the second quarter of fiscal 2020. low end of high end of guidance range guidance range adjusted diluted earnings per share guidance $ 0.35 $ 0.45 restructuring, integration and other expense (net of tax) (0.10) (0.07) amortization of intangibles and other (net of tax) (0.16) (0.14) income tax expense adjustments (0.05) 0.05 gaap diluted earnings per share guidance $ 0.04 $ 0.29
