Why Is Avnet (AVT) Down 1.2% Since Its Last Earnings Report?

A month has gone by since the last earnings report for Avnet, Inc. (NASDAQ:AVT) . Shares have lost about 1.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is AVT due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Avnet Q3 Earnings Top Estimates, Revenues Increase Y/Y

Avnet 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, 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). Adjusted earnings per share are estimated in the range of 91 cents to $1.01 (mid-point 96 cents).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.

VGM Scores

At this time, AVT has an average Growth Score of C, however its Momentum is doing a bit better with a B. The stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value and momentum investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, AVT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.