Avnet: Fiscal 2Q12 Financial Results

Avnet, Inc. announced results for the second quarter fiscal year 2012 ended December 31, 2011.

• Sales for the quarter ended December 31, 2011 declined slightly year over year, both on a reported and pro forma basis, to $6.69 billion
• Adjusted operating income of $265.4 million increased 3.4% from the year ago quarter and adjusted operating income margin increased 17 basis points to 3.96%
• Adjusted diluted earnings per share was $1.15, up 7.5% year over year
• Revenue increased 1.0% year over year to $3.6 billion while pro forma revenue was down 3.5% in constant dollars
• Operating income margin decreased 30 basis points year over year to 4.9% due primarily to lower revenue most notably in the higher margin EMEA region
• Working capital (defined as receivables plus inventory less accounts payables) decreased 9% sequentially, with inventory declining by 5%

Rick Hamada, Chief Executive Officer, commented: "While the macro environment presented some top line challenges, our team did a good job adjusting to market conditions and delivered another strong quarter with improvements across many parts of our business. Improved profitability at TS, higher prices for hard disk drives and a lower share count helped propel adjusted earnings per share up 28% sequentially and 7% year over year. The improvement at TS and another solid performance at EM drove our return on capital employed back within our target range of 14% to 16% while cash flow from operations for the quarter was strong at $450 million. With EM expected to return to more normalized seasonal growth in the March quarter and an outlook for continued investments in IT data centers, we remain confident we can continue to grow earnings organically and supplement that growth with investments in value-creating M&A and our share repurchase program."

Hamada added: "EM revenue came in as expected while the supply chain correction resulted in the second consecutive quarter of below seasonal revenue growth. Despite these challenges, operating income margin came in better than expected due to higher pricing for hard disk drives as a result of supply constraints coupled with expense reductions implemented in light of business conditions. Working capital declined over 9% sequentially with inventory down 5% in reported dollars and 4% after adjusting for acquisitions and currency. With the book to bill ratio approaching parity for the quarter and all three regions showing sequential improvement, we expect revenue growth to return to more seasonal trends in the March quarter, excluding the impact of foreign currency exchange rates. Although the cyclical inventory correction has negatively impacted our results for the past two quarters, on a trailing twelve month basis, EM operating income margin is at the high end of our target range and its ROCE is exceeding our long-range target."

He added: "TS leveraged the typical year-end seasonality into improved profitability, both sequentially and year over year, with all three regions contributing meaningfully. In EMEA, our continuing focus on profitable growth and restructuring initiatives combined to drive operating income up 30% and operating income margin up 92 basis points year over year, even as pro forma revenue declined 5% in constant currency. In Asia, where we have increased our emphasis on returns, pro forma revenue increased 14% over the year ago quarter, while operating income was up over 100% and operating income margin grew more than 60 basis points both sequentially and year over year. In the Americas, operating income margin and return on capital employed remained above our targets as we continued with solid execution in North America and benefitted from our recent investments in Latin America. With a strong position in developed markets and an expanded footprint in higher growth markets, TS remains well positioned to translate continued demand for datacenter solutions into higher earnings and returns across the portfolio."

Cash Flow/Buyback

• Cash from operations was $450 million for the quarter and $715 million for the last four quarters
• Cash and cash equivalents at the end of the quarter was $969 million; net debt (total debt less cash and cash equivalents) was $1.02 billion
• During the quarter, 4.61 million of shares were repurchased under the recently authorized $500 million share repurchase program for an aggregate cost of $135.1 million. Since the program started in mid-August 2011 through the end of the second quarter, 8.06 million shares have been repurchased for an aggregate cost of $225.9 million

Ray Sadowski, Chief Financial Officer, stated: "A strong operating income performance and solid working capital management contributed to $450 million of cash being generated from operations during the quarter. We also continued investing in value-creating acquisitions and took advantage of an attractive stock valuation to repurchase 4.6 million shares of our stock in the second quarter."

Outlook For 3rd Quarter of Fiscal 2012
Ending on March 31, 2012

• EM sales are expected to be in the range of $3.55 billion to $3.85 billion and TS sales are expected to be between $2.40 billion and $2.70 billion
• Consolidated sales are forecasted to be between $5.95 billion and $6.55 billion
• Adjusted diluted earnings per share is expected to be in the range of $0.94 to $1.02 per share
• The adjusted diluted EPS guidance above assumes 148.1 million average diluted shares outstanding used to determine earnings per share and a tax rate of 29% to 31%