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Effective Management of Working Capital
Results in $474 million of Cash From Operations
Phoenix -- Avnet, Inc. (NYSE:AVT) today reported revenue of $3.70 billion for the third quarter fiscal 2009 ended March 28, 2009, representing a decrease of 16.3% over the third quarter fiscal 2008 and 10.5% excluding the impact of changes in foreign currency exchange rates. On a pro forma (organic) basis, as defined in the Non-GAAP Financial Information Section, revenue was down 22.3% over the prior year third quarter. Net income for the third quarter fiscal 2009 was $18.0 million, or $0.12 per share on a diluted basis, as compared with net income of $107.2 million, or $0.71 per share on a diluted basis, for the third quarter last year. Included in the current quarter and year-ago quarter are restructuring, integration and other items amounting to $0.18 and $0.05 per share on a diluted basis, respectively, as more fully described in the Non-GAAP Financial Information section of this release. Excluding these charges in both periods, net income for the current year third quarter was $44.8 million, or $0.30 per share on a diluted basis, as compared with the prior year quarter's net income of $114.8 million, or $0.76 per share on a diluted basis.
Operating income for the third quarter fiscal 2009 was $55.5 million, down 67% as compared with operating income of $166.8 million in the year-ago quarter. Included in "Selling, general and administrative expenses" for the current and prior year third quarters are restructuring, integration and other charges amounting to $32.7 million and $10.9 million, respectively. Excluding these charges, operating income for the third quarter fiscal 2009 was $88.2 million, down 50.4% as compared with $177.6 million in last year's third quarter. Operating income as a percentage of sales, excluding the items noted above, was 2.4% in the current year quarter as compared with 4.0% last year. The charges in the current quarter are primarily related to restructuring costs incurred in connection with the Company's previously announced cost reduction actions.
These third quarter results, excluding the impact of charges noted above, were negatively impacted by $8.4 million of net expense in the "Other income (loss), net" category as compared with income of $6.2 million last year. The impact on net income of these higher-than-usual "other expenses" was partially offset by a lower effective tax rate.
Roy Vallee, Chairman and Chief Executive Officer, commented, "In our third fiscal quarter, revenues and profits continued to deteriorate at Electronics Marketing while our Technology Solutions operating group showed signs of stability. We continue to monitor the end markets across our portfolio and react appropriately to align our costs and working capital to market realities. In addition to the $200 million of annual cost reductions previously announced, we are initiating another $25 million of annualized expense reductions which we expect to complete by the end of September 2009, with the full benefit to be realized in the subsequent quarter. There are still many questions on the macro economy, but the unprecedented speed with which the technology supply chain reacted to the global demand slowdown suggests that we are getting closer to the bottom of this cycle. We believe that with the combination of our market position, value-based management culture and counter-cyclical balance sheet, we possess unique attributes that allow us to continue to invest and enhance our competitive position for the long term."
Operating Group Results
Electronics Marketing (EM) sales of $2.10 billion in the third quarter fiscal 2009 were down 20.1% year over year on a reported basis and down 15.1% when adjusted to exclude the impact of changes in foreign currency exchange rates. On a pro forma basis, EM revenue decreased 26.4% year over year. EM sales in the Americas, EMEA and Asia regions decreased 20.5%, 24.3% and 13.7%, respectively, year over year on a reported basis. Excluding the impact of changes in foreign currency exchange rates, revenue in the EMEA region was down 10.3% year over year. On a pro forma basis, EM sales in the Americas, EMEA and Asia in the third quarter fiscal 2009 decreased 22.1%, 35.7% and 17.7%, respectively, as compared with the year-ago quarter. EM operating income of $59.6 million for the third quarter fiscal 2009 was down 61.2% over the prior year third quarter operating income of $153.6 million and operating income margin of 2.8% was down 301 basis points as compared with the prior year quarter.
Mr. Vallee added, "The decline that we experienced at EM in the December quarter accelerated during the March quarter as the global slowdown negatively impacted the broad industrial markets that drive our Americas and EMEA regions. In Asia however, we experienced a pickup in orders following Chinese New Year that we believe was driven by a combination of inventory replenishment and the positive impact of China's stimulus package. While our cost reduction efforts are having their expected beneficial impact, the dramatic rate of decline in revenue in the Americas and EMEA - our most profitable regions - were major factors in the year-over-year decline in our operating income dollars and margin for the quarter. Despite these challenges, our EM team did an excellent job managing working capital as inventory declined 6% sequentially, and 10% on a pro forma basis adjusted to exclude the impact of changes in foreign currency exchange rates and the inventory increase associated with the acquisitions of Abacus and NDI."
Technology Solutions (TS) sales of $1.60 billion in the third quarter fiscal 2009 were down 10.8% year over year on a reported basis and down 3.8% when adjusted to exclude the impact of changes in foreign currency exchange rates. On a pro forma basis, TS revenue was down 16.2% year over year. On a reported basis year over year, third quarter fiscal 2009 sales in Americas and EMEA were down 11.1% and 15.7%, respectively, while sales in Asia were up 19.2%. EMEA revenue was up 2.3% excluding the impact of changes in foreign currency exchange rates. On a pro forma basis, third quarter fiscal 2009 sales in the Americas and EMEA declined by 11.1% and 28.8%, respectively, while sales in Asia were up 15.8% as compared with last year's third quarter. TS operating income was $42.2 million in the third quarter fiscal 2009, an increase of 2.0% as compared with the third quarter fiscal 2008 operating income of $41.3 million, and operating income margin of 2.6% increased by 33 basis points versus the prior year third quarter.
Mr. Vallee further added, "Technology Solutions met our expectations for both revenue and operating income as business spending in the markets we serve, while still tepid, appears to have stabilized over the past two quarters. We continued to see relative strength in software and services and are also pleased with our solutions and vertical market practices that address higher growth opportunities in the marketplace. TS year-over-year improvement in both operating income dollars and margin was driven by an improvement in gross profit margin and benefits from our previously announced cost reduction actions. Although we are reducing costs in response to the market slowdown, we continue to invest in higher-growth emerging markets, new product lines, and tools and resources that expand our solution practices and enhance the value we bring to the marketplace."
Cash Flow
During the third quarter of fiscal 2009, the Company generated $474 million of cash from operations and on a trailing twelve month basis has generated more than $1.0 billion. As a result, the Company ended the quarter with $686 million of cash and cash equivalents and net debt (total debt less cash and cash equivalents) of $354 million.
Ray Sadowski, Chief Financial Officer, stated, "As a result of the outstanding work of our team around the globe, we significantly grew our cash flow from operations which allowed us to pay off the $300 million of convertible notes that were put to us in March with cash on hand. In addition, this strong cash flow generation, combined with our already strong liquidity position, gives us the strategic flexibility to invest in our business, whether organically or through acquisitions to create long-term shareholder value. We will continue to actively manage working capital in an effort to keep our investments aligned with the expectations for growth in the market."
Outlook
For Avnet's fourth quarter fiscal year 2009, management expects less-than-normal seasonality at both EM and TS and is providing a wider range of forecasts due to the unpredictable nature of the current economic environment. EM sales are anticipated to be in the range of $1.90 billion to $2.20 billion and sales for TS are expected to be between $1.45 billion and $1.75 billion. Accordingly, Avnet's consolidated sales are forecasted to be between $3.35 billion and $3.95 billion for the fourth quarter fiscal year 2009. Management expects fourth quarter fiscal year 2009 earnings to be in the range of $0.30 to $0.38 per share. The above EPS guidance does not include anticipated restructuring and integration charges related to the cost reductions noted earlier in this release and the integration of businesses acquired. In addition, the above guidance assumes that the average Euro to U.S. Dollar currency exchange rate for the fourth fiscal quarter of the current fiscal year is $1.32 to €1.00. This compares with an average exchange rate of $1.56 to €1.00 in the fourth quarter of fiscal 2008.
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 ("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 these items 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 the items described above 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. 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.
Items included in "Selling, general and administrative expenses" impacting third quarter fiscal 2009 results totaled $32.7 million pre-tax, $22.3 million after tax, and $0.15 per share and consisted of restructuring and integration charges of $30.7 million pre-tax, and other charges of $2.0 million pre-tax. In addition, the Company recognized additional tax reserves of $4.5 million, $0.03 per share, for contingencies related to a prior acquisition partially offset by a tax benefit.
Items impacting third quarter fiscal 2008 consisted of restructuring and integration charges which totaled $10.9 million pre-tax, $7.5 million after-tax and $0.05 per share on a diluted basis.
Pro Forma (Organic) Revenue
Pro forma or Organic revenue is defined as revenue adjusted for the impact of acquisitions to include the revenue recorded by these businesses as if the acquisitions had occurred at the beginning of fiscal 2008. Prior period revenue adjusted for this impact is presented in the following table:
"Acquisition Revenue" as presented in the preceding table includes the following acquisitions:
Teleconference Webcast and Upcoming Events
Avnet will host a Webcast of its quarterly teleconference today at 2:00 p.m. Eastern Time. The live Webcast event, as well as other financial information including financial statement reconciliations of GAAP and non-GAAP financial measures, will be available through www.ir.avnet.com. Please log onto the site 15 minutes prior to the start of the event to register or download any necessary software. An archive copy of the presentation will also be available after the Webcast.
For a listing of Avnet's upcoming events and other information, please visit Avnet's investor relations website at www.ir.avnet.com.
About Avnet
Avnet, Inc. is one of the largest distributors of electronic components, computer products and embedded technology serving customers in more than 70 countries worldwide. Avnet accelerates its partners' success by connecting the world's leading technology suppliers with a broad base of more than 100,000 customers by providing cost-effective, value-added services and solutions. For the fiscal year ended June 28, 2008, Avnet generated revenue of $17.95 billion. For more information, visit www.avnet.com.
Investor Relations Contact:
Avnet, Inc.
Vincent Keenan
Investor Relations
(480) 643-7053
investorrelations@avnet.com
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