Avnet, Inc. (NYSE:AVT) today reported revenue of $4.10 billion for first quarter fiscal 2008, ended September 29, 2007, representing an increase of 12.3% over first quarter fiscal 2007. Net income for first quarter fiscal 2008 was $105.5 million, or $0.69 per share on a diluted basis, as compared with net income of $64.1 million, or $0.44 per share on a diluted basis, for the first quarter last year. Excluding debt extinguishment costs that negatively impacted the prior year quarter, net income and diluted earnings per share increased 31% and 25%, respectively, over the year-ago period. Included in these results is stock compensation expense of $0.05 per diluted share in the current year first quarter as compared with $0.03 per share in the same period last year.
Operating income for first quarter fiscal 2008 was $165.2 million, up 14.0% as compared with operating income of $145.0 million in the year ago quarter. Operating income as a percent of sales was 4.0%, up 6 basis points from last year's first quarter, with both operating groups contributing to the improvement. This represents the eighth consecutive quarter of year-over- year operating income margin expansion, excluding certain charges in prior periods.
Roy Vallee, Chairman and Chief Executive Officer, commented, 'Once again, our highly diversified revenue base contributed to our solid performance as better than expected growth from the Asia region offset weaker sales in the Americas. While year-over-year organic revenue growth slowed to 2.3% this quarter, positive contributions from acquisitions contributed to continued year over year improvement in key quarterly financial metrics including operating income, EPS and return on capital employed (ROCE). With another $700+ million of annual revenue from acquisitions completed or announced in the current quarter, our acquisition strategy continues to broaden our revenue base, create cross selling opportunities and add further operating leverage to our business model going forward.'
Operating Group Results
Electronics Marketing (EM) sales of $2.49 billion in the first quarter fiscal 2008 were up 2.3% year over year on a reported basis and essentially flat when adjusted to exclude the impact of changes in foreign currency exchange rates. EM sales in the EMEA and Asia regions increased 4.6% and 9.5%, respectively, year over year, while the Americas decreased 4.8%. Excluding the impact of changes in foreign currency exchange rates, year-over-year revenue at EM EMEA was down 2.7%. EM operating income of $130.2 million for first quarter fiscal 2008 was up 3.6% over the prior year first quarter operating income of $125.6 million and operating income margin of 5.2% was up 7 basis points over the prior year quarter.
Mr. Vallee added, 'EM's results were a reflection of the seasonally slower September quarter, but were better than our expectations as inventories throughout the supply chain continue to decline. Even though sales in the lower margin Asia region increased to 30% of total EM as compared with 28% in the year ago quarter, EM's global operating income margin improved year over year for the eighth consecutive quarter. Our Asia team's disciplined approach to profitable growth with higher asset velocity translated 9.5% year over year top line growth into a 48 basis point improvement in operating income margin and a 673 basis point improvement in return on working capital, resulting in record quarterly sales and profits for the region.
Technology Solutions (TS) sales of $1.61 billion in the first quarter fiscal 2008 were up 32.5% year over year on a reported basis and up 2.6% on a pro forma basis, as defined in the Non-GAAP Financial Information section. On a pro forma basis, first quarter fiscal 2008 sales in Asia and EMEA were up 31.6% and 20.1%, respectively, year over year while sales in the Americas were down 5.1%. Excluding the impact of changes in foreign currency exchange rates, TS EMEA's pro forma year over year revenue growth was 11.0%. TS operating income was $58.5 million in the first quarter fiscal 2008, a 50.1% increase as compared with first quarter fiscal 2007 operating income of $39.0 million, and operating income margin of 3.6% increased by 42 basis points over the prior year first quarter due to the change to net revenue accounting treatment of the sales of supplier service contracts.
Mr. Vallee further added, 'Technology Solutions performance in the first quarter of fiscal 2008 was further evidence of the leverage that we are achieving through value-creating acquisitions. Year over year, TS operating income grew 1.5 times faster than revenue as both the Access and Azure acquisitions contributed to operating margin expansion in our enterprise computer product business. With the Magirus and Acal acquisitions in EMEA, TS will become the leading pan-European value-add distributor with roughly $2.5 billion of projected annual revenue in the region. These acquisitions will not only strengthen TS' competitive position in new markets, they will also further diversify our revenue base as TS will soon be generating close to 40% of its revenue from outside the Americas as compared with 30% just a year ago.'
Cash Flow
During the first quarter of fiscal 2008, the Company used $34 million of free cash flow (as defined later in this release), excluding cash used for acquisitions. As a result, the Company ended the quarter with $521 million of cash and cash equivalents and net debt (total debt less cash and cash equivalents) of $702 million. On a rolling four quarter basis, the Company generated $749 million of free cash flow, excluding cash used for acquisitions.
Ray Sadowski, Chief Financial Officer, stated, 'The continued improvement in our credit statistics allowed us to negotiate a new five-year credit facility with a bank group that includes 18 lenders.
The facility not only contains better terms and conditions than the one it supersedes, but also extends those terms an additional two years. With over $500 million in cash on hand and $950 million of standby lines of credit, we are in a strong position to continue pursuing growth opportunities that create additional shareholder value.'
Outlook
For Avnet's second quarter fiscal 2008, management expects normal seasonality at both operating groups with sales at EM to be in the range of $2.40 billion to $2.50 billion and anticipates sales for TS to be between $2.05 billion and $2.15 billion. Therefore, Avnet's consolidated sales are forecasted to be between $4.45 billion and $4.65 billion for the second quarter of fiscal 2008. Management expects the second quarter earnings to be in the range of $0.83 to $0.87 per share, up 24% - 30% as compared with last year's second quarter. The above EPS guidance does not include the amortization of intangibles or integration charges related to the acquisitions that have closed or will close in the December quarter.
Forward Looking Statements
This press release contains certain 'forward-looking statements' within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on management's current expectations and are subject to uncertainty and changes in factual 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, 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.
Operating income for first quarter fiscal 2008 was $165.2 million, up 14.0% as compared with operating income of $145.0 million in the year ago quarter. Operating income as a percent of sales was 4.0%, up 6 basis points from last year's first quarter, with both operating groups contributing to the improvement. This represents the eighth consecutive quarter of year-over- year operating income margin expansion, excluding certain charges in prior periods.
Roy Vallee, Chairman and Chief Executive Officer, commented, 'Once again, our highly diversified revenue base contributed to our solid performance as better than expected growth from the Asia region offset weaker sales in the Americas. While year-over-year organic revenue growth slowed to 2.3% this quarter, positive contributions from acquisitions contributed to continued year over year improvement in key quarterly financial metrics including operating income, EPS and return on capital employed (ROCE). With another $700+ million of annual revenue from acquisitions completed or announced in the current quarter, our acquisition strategy continues to broaden our revenue base, create cross selling opportunities and add further operating leverage to our business model going forward.'
Operating Group Results
Electronics Marketing (EM) sales of $2.49 billion in the first quarter fiscal 2008 were up 2.3% year over year on a reported basis and essentially flat when adjusted to exclude the impact of changes in foreign currency exchange rates. EM sales in the EMEA and Asia regions increased 4.6% and 9.5%, respectively, year over year, while the Americas decreased 4.8%. Excluding the impact of changes in foreign currency exchange rates, year-over-year revenue at EM EMEA was down 2.7%. EM operating income of $130.2 million for first quarter fiscal 2008 was up 3.6% over the prior year first quarter operating income of $125.6 million and operating income margin of 5.2% was up 7 basis points over the prior year quarter.
Mr. Vallee added, 'EM's results were a reflection of the seasonally slower September quarter, but were better than our expectations as inventories throughout the supply chain continue to decline. Even though sales in the lower margin Asia region increased to 30% of total EM as compared with 28% in the year ago quarter, EM's global operating income margin improved year over year for the eighth consecutive quarter. Our Asia team's disciplined approach to profitable growth with higher asset velocity translated 9.5% year over year top line growth into a 48 basis point improvement in operating income margin and a 673 basis point improvement in return on working capital, resulting in record quarterly sales and profits for the region.
Technology Solutions (TS) sales of $1.61 billion in the first quarter fiscal 2008 were up 32.5% year over year on a reported basis and up 2.6% on a pro forma basis, as defined in the Non-GAAP Financial Information section. On a pro forma basis, first quarter fiscal 2008 sales in Asia and EMEA were up 31.6% and 20.1%, respectively, year over year while sales in the Americas were down 5.1%. Excluding the impact of changes in foreign currency exchange rates, TS EMEA's pro forma year over year revenue growth was 11.0%. TS operating income was $58.5 million in the first quarter fiscal 2008, a 50.1% increase as compared with first quarter fiscal 2007 operating income of $39.0 million, and operating income margin of 3.6% increased by 42 basis points over the prior year first quarter due to the change to net revenue accounting treatment of the sales of supplier service contracts.
Mr. Vallee further added, 'Technology Solutions performance in the first quarter of fiscal 2008 was further evidence of the leverage that we are achieving through value-creating acquisitions. Year over year, TS operating income grew 1.5 times faster than revenue as both the Access and Azure acquisitions contributed to operating margin expansion in our enterprise computer product business. With the Magirus and Acal acquisitions in EMEA, TS will become the leading pan-European value-add distributor with roughly $2.5 billion of projected annual revenue in the region. These acquisitions will not only strengthen TS' competitive position in new markets, they will also further diversify our revenue base as TS will soon be generating close to 40% of its revenue from outside the Americas as compared with 30% just a year ago.'
Cash Flow
During the first quarter of fiscal 2008, the Company used $34 million of free cash flow (as defined later in this release), excluding cash used for acquisitions. As a result, the Company ended the quarter with $521 million of cash and cash equivalents and net debt (total debt less cash and cash equivalents) of $702 million. On a rolling four quarter basis, the Company generated $749 million of free cash flow, excluding cash used for acquisitions.
Ray Sadowski, Chief Financial Officer, stated, 'The continued improvement in our credit statistics allowed us to negotiate a new five-year credit facility with a bank group that includes 18 lenders.
The facility not only contains better terms and conditions than the one it supersedes, but also extends those terms an additional two years. With over $500 million in cash on hand and $950 million of standby lines of credit, we are in a strong position to continue pursuing growth opportunities that create additional shareholder value.'
Outlook
For Avnet's second quarter fiscal 2008, management expects normal seasonality at both operating groups with sales at EM to be in the range of $2.40 billion to $2.50 billion and anticipates sales for TS to be between $2.05 billion and $2.15 billion. Therefore, Avnet's consolidated sales are forecasted to be between $4.45 billion and $4.65 billion for the second quarter of fiscal 2008. Management expects the second quarter earnings to be in the range of $0.83 to $0.87 per share, up 24% - 30% as compared with last year's second quarter. The above EPS guidance does not include the amortization of intangibles or integration charges related to the acquisitions that have closed or will close in the December quarter.
Forward Looking Statements
This press release contains certain 'forward-looking statements' within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on management's current expectations and are subject to uncertainty and changes in factual 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, 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.
