Avnet (AVT) Q3 Earnings Top Estimates, Revenues Increase Y/Y

Avnet Inc. (NYSE:T) reported third-quarter fiscal 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

The company reported fiscal third-quarter adjusted earnings of $1.02 per share, beating the Zacks Consensus Estimate of 96 cents and increasing 15.9% from the year-ago quarter. The figure also exceeded the high-end of the guided range of 90 cents to $1 per share.

Before delving into the financial results, it should be noted that Avnet changed its reportable segments during fourth-quarter fiscal 2017, which comprised the Electronic Components and Premier Farnell operating groups.

The change in reportable segment was done to reflect the company’s actual business, post completion of the divestiture of the Technology Solutions business to Tech Data Corporation (NYSE:T) , as well as the closure of the much-awaited acquisition of Premier Farnell plc in the first quarter of fiscal 2017.

Quarter Details

Avnet’s quarterly revenues of $4.795 billion increased 8% year over year but fell short of the Zacks Consensus Estimate of $4.798 billion. Revenues came within the guidance of $4.65-$4.95 billion (mid-point $4.8 billion).

Avnet’s Electronics Components segment’s revenues increased 7.7% year over year to $4.404 billion. Premier Farnell segment revenues were up 11.4% to $391 million.

Geographically, Americas sales declined 3.9% to $1.274 billion. On the other hand, EMEA and Asia sales increased 12.2% and 14% to $1.812 billion and $1.706 billion, respectively.

The company reported a year-over-year increase of 3.7% in gross profit, reaching $653.5 million. However, gross profit margin contracted 60 basis points (bps) to 13.6%.

Adjusted operating income increased 1.5% from the year-earlier quarter to $174.9 million. Adjusted operating margin came in at 3.7%, contracting 23 bps from the year-ago quarter.

However, adjusted operating margin increased 43 bps sequentially on the back of stellar performance of the Premier Farnell business.

Avnet exited the fiscal third quarter with cash and cash equivalents and marketable securities of $505.1 million compared with $726 million recorded in the previous quarter. Long-term debt was $1.488 billion. During the first nine months fiscal 2018, the company generated $77 million of cash from operational activities.

Avnet paid dividend worth $66.2 million during the first three quarters. The company repurchased 1.7 million shares worth $209.4 million during the first three quarters.

Guidance

For fiscal fourth-quarter 2018, the company estimates sales in the range of $4.65-$4.95 billion (mid-point $4.8 billion). Currently, the Zacks Consensus Estimate is pegged at $4.78 billion.

Adjusted earnings per share are estimated in the range of 91 cents to $1.01 (mid-point 96 cents). The Zacks Consensus Estimate is pegged at 97 cents.

Our Take

Avnet’s fiscal third-quarter 2018 results were backed by both its Electronic Components and Premier Farnell operating groups.

The company has been taking major restructuring steps to streamline its business for the last one year. In doing so, Avnet divested its Technology Solution business and currently deals in Electronics Marketing.

Notably, the divestment of its troubled Technology Solution business has allowed Avnet to focus on high growth areas such as marketing electronic components and related products in the supply chain. We believe its efforts are paying off as reflected in the last few quarterly results. Benefits from these initiatives are expected to continue and positively impact the company’s results over the long run.

Furthermore, the company’s initiatives in the Internet of Things (IoT) space through acquisitions and partnerships are likely to be conducive to its upcoming quarterly results. The company’s collaborations with AT&T (NYSE:T) are worth mentioning in this respect. The company also launched its IoTConnect platform, which leverages Microsoft (NYSE:T) Azure’s hybrid cloud computing for data distribution and analysis across cloud-based and on-premise storage systems.

Notably, management is optimistic about its cost-efficient initiatives and new go-to market strategies. The company is planning to invest more into CRM related solutions with a cloud-based CRM model in the pipeline. Additionally, the application of advanced analytics to come up with solutions is another tailwind for the company.

Zacks Rank

Avnet has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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