Avnet, Inc. (NYSE:AVT) today reported revenue of $4.75 billion for second quarter fiscal 2008 ended December 29, 2007, representing an increase of 22.2% over second quarter fiscal 2007. Pro forma revenue growth, as defined in the Non-GAAP Financial Information Section, was 6.3% over the prior year second quarter. Net income for second quarter fiscal 2008 was $142.2 million, or $0.93 per share on a diluted basis, as compared with net income of $99.1 million, or $0.67 per share, for the second quarter last year. Included in the current quarter results are a one-time gain on the sale of a building and an additional gain from a prior sale of a business resulting from the receipt of a contingent payment.
Excluding these items, net income and diluted earnings per share were $135.9 million and $0.89, respectively, representing an increase of 37.1% and 32.8% over the year ago period. Included in these results is stock compensation expense of $0.02 per diluted share in the current and prior year quarters.
Operating income for second quarter fiscal 2008 was a record $207.9 million, up 26.9% as compared with operating income of $163.8 million in the year ago quarter. Operating income as a percent of sales was 4.4%, up 16 basis points from last year's second quarter.
Roy Vallee, Chairman and Chief Executive Officer, commented, "Our results continue to demonstrate the positive impact that our value-based management strategy, augmented by value-creating acquisitions, is having on our business. While sequential sales growth reflected normal seasonal trends, our year-over-year growth of 22% was bolstered by seven value-creating acquisitions that span both operating groups and all three regions. In addition to the top line growth, we increased year-over-year operating income 27% and, excluding the gain on the sale of assets, increased EPS 33% while driving return on capital employed to a record 12.8%."
Operating Group Results
Electronics Marketing (EM) sales of $2.48 billion in the second quarter fiscal 2008 were up 6.2% year over year on a reported basis and up 2.4% when adjusted to exclude the impact of changes in foreign currency exchange rates. EM sales in the Americas, EMEA and Asia regions increased 3.7%, 7.2% and 8.5%, respectively, year over year. EM operating income of $126.6 million for second quarter fiscal 2008 was up 6.4% over the prior year second quarter operating income of $119.1 million and operating income margin of 5.1% was flat as compared with the prior year quarter.
Mr. Vallee added, "Electronics Marketing's revenue growth was above our expectations and represents the third consecutive quarter of moderate acceleration in year-over-year growth. The Americas region grew sequentially and returned to positive year-over-year growth follow-ing four quarters of negative growth. EM had another strong performance in its interconnect, passive and electromechanical (IP&E) product line which grew revenue at a double digit rate over the year ago quarter. Since the beginning of the fiscal year, we closed three IP&E inter-national acquisitions, which should increase EM's global revenue for its IP&E business to roughly 15% of total revenue exiting this fiscal year, as compared with 10% just a year ago.
Technology Solutions (TS) sales of $2.27 billion in the second quarter fiscal 2008 were up 46.0% year over year on a reported basis and up 6.9% on a pro forma basis, as defined in the Non-GAAP Financial Information section. On a pro forma basis, second quarter fiscal 2008 sales in the Americas, EMEA and Asia were up 6.6%, 1.9%, and 45.6%, respectively, year over year. TS operating income was $99.4 million in the second quarter fiscal 2008, a 55.3% increase as compared with second quarter fiscal 2007 operating income of $64.0 mil-lion, and operating income margin of 4.4% increased by 26 basis points over the prior year second quarter benefited by the change to net revenue accounting on the sales of supplier service contracts.
Mr. Vallee further added, "Technology Solutions revenue was above the high end of our guid-ance range as we delivered a strong December quarter aided by better than expected sales in the final week. Despite the well publicized concerns with the U.S. economy, our Americas region experienced better than normal sequential growth in our seasonally strong December quarter and year-over-year pro forma growth of 6.6%. We also achieved strong sequential growth in the EMEA and Asia regions. With solid revenue growth, both organically and through our value-creating acquisitions, TS delivered record operating income for the quar-ter."
Cash Flow
During the second quarter of fiscal 2008, the Company generated $83.8 million of cash flow from operations and on a rolling four quarter basis generated $553.6 million. As a result, the Company ended the quarter with $417.1 million of cash and cash equivalents and net debt (total debt less cash and cash equivalents) of $863.0 million.
Ray Sadowski, Chief Financial Officer, stated, "We had a solid quarter of cash flow genera-tion which further strengthened our credit statistics and our overall balance sheet. We achieved record levels of working capital velocity due to business mix and EM's year-over-year improvement in inventory turns and net days. This improvement in velocity, combined with the year-over-year growth in operating income margin, drove return on working capital 336 basis points above last year's second quarter."
Outlook
For Avnet's third quarter fiscal 2008, management expects normal seasonality at both operat-ing groups with sales at EM anticipated to be in the range of $2.64 billion to $2.74 billion and sales for TS to be between $1.73 billion and $1.83 billion. Therefore, Avnet's consolidated sales are forecasted to be between $4.37 billion and $4.57 billion for the third quarter of fiscal 2008. Management expects third quarter earnings to be in the range of $0.85 to $0.89 per share, up 16.4% - 21.9% as compared with last year's third quarter. 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 March quarter.
Forward Looking Statements
This press release contains certain "forward-looking statements" within the meaning of Sec-tion 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 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, 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.
Excluding these items, net income and diluted earnings per share were $135.9 million and $0.89, respectively, representing an increase of 37.1% and 32.8% over the year ago period. Included in these results is stock compensation expense of $0.02 per diluted share in the current and prior year quarters.
Operating income for second quarter fiscal 2008 was a record $207.9 million, up 26.9% as compared with operating income of $163.8 million in the year ago quarter. Operating income as a percent of sales was 4.4%, up 16 basis points from last year's second quarter.
Roy Vallee, Chairman and Chief Executive Officer, commented, "Our results continue to demonstrate the positive impact that our value-based management strategy, augmented by value-creating acquisitions, is having on our business. While sequential sales growth reflected normal seasonal trends, our year-over-year growth of 22% was bolstered by seven value-creating acquisitions that span both operating groups and all three regions. In addition to the top line growth, we increased year-over-year operating income 27% and, excluding the gain on the sale of assets, increased EPS 33% while driving return on capital employed to a record 12.8%."
Operating Group Results
Electronics Marketing (EM) sales of $2.48 billion in the second quarter fiscal 2008 were up 6.2% year over year on a reported basis and up 2.4% when adjusted to exclude the impact of changes in foreign currency exchange rates. EM sales in the Americas, EMEA and Asia regions increased 3.7%, 7.2% and 8.5%, respectively, year over year. EM operating income of $126.6 million for second quarter fiscal 2008 was up 6.4% over the prior year second quarter operating income of $119.1 million and operating income margin of 5.1% was flat as compared with the prior year quarter.
Mr. Vallee added, "Electronics Marketing's revenue growth was above our expectations and represents the third consecutive quarter of moderate acceleration in year-over-year growth. The Americas region grew sequentially and returned to positive year-over-year growth follow-ing four quarters of negative growth. EM had another strong performance in its interconnect, passive and electromechanical (IP&E) product line which grew revenue at a double digit rate over the year ago quarter. Since the beginning of the fiscal year, we closed three IP&E inter-national acquisitions, which should increase EM's global revenue for its IP&E business to roughly 15% of total revenue exiting this fiscal year, as compared with 10% just a year ago.
Technology Solutions (TS) sales of $2.27 billion in the second quarter fiscal 2008 were up 46.0% year over year on a reported basis and up 6.9% on a pro forma basis, as defined in the Non-GAAP Financial Information section. On a pro forma basis, second quarter fiscal 2008 sales in the Americas, EMEA and Asia were up 6.6%, 1.9%, and 45.6%, respectively, year over year. TS operating income was $99.4 million in the second quarter fiscal 2008, a 55.3% increase as compared with second quarter fiscal 2007 operating income of $64.0 mil-lion, and operating income margin of 4.4% increased by 26 basis points over the prior year second quarter benefited by the change to net revenue accounting on the sales of supplier service contracts.
Mr. Vallee further added, "Technology Solutions revenue was above the high end of our guid-ance range as we delivered a strong December quarter aided by better than expected sales in the final week. Despite the well publicized concerns with the U.S. economy, our Americas region experienced better than normal sequential growth in our seasonally strong December quarter and year-over-year pro forma growth of 6.6%. We also achieved strong sequential growth in the EMEA and Asia regions. With solid revenue growth, both organically and through our value-creating acquisitions, TS delivered record operating income for the quar-ter."
Cash Flow
During the second quarter of fiscal 2008, the Company generated $83.8 million of cash flow from operations and on a rolling four quarter basis generated $553.6 million. As a result, the Company ended the quarter with $417.1 million of cash and cash equivalents and net debt (total debt less cash and cash equivalents) of $863.0 million.
Ray Sadowski, Chief Financial Officer, stated, "We had a solid quarter of cash flow genera-tion which further strengthened our credit statistics and our overall balance sheet. We achieved record levels of working capital velocity due to business mix and EM's year-over-year improvement in inventory turns and net days. This improvement in velocity, combined with the year-over-year growth in operating income margin, drove return on working capital 336 basis points above last year's second quarter."
Outlook
For Avnet's third quarter fiscal 2008, management expects normal seasonality at both operat-ing groups with sales at EM anticipated to be in the range of $2.64 billion to $2.74 billion and sales for TS to be between $1.73 billion and $1.83 billion. Therefore, Avnet's consolidated sales are forecasted to be between $4.37 billion and $4.57 billion for the third quarter of fiscal 2008. Management expects third quarter earnings to be in the range of $0.85 to $0.89 per share, up 16.4% - 21.9% as compared with last year's third quarter. 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 March quarter.
Forward Looking Statements
This press release contains certain "forward-looking statements" within the meaning of Sec-tion 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 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, 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.
