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Avnet, Inc. Reports Fourth Quarter and Fiscal Year 2009 Results

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Press release

Generates $1.1 Billion+ in Cash From Operations for Fiscal 2009

PHOENIX--(BUSINESS WIRE)-- Avnet, Inc. (NYSE:AVT) today reported revenue of $3.77 billion for the fourth quarter fiscal 2009 ended June 27, 2009, representing a decrease of 19.5% over the fourth quarter fiscal 2008 and 14.7% excluding the impact of changes in foreign currency exchange rates. On a pro forma (organic) basis, as defined in the Non-GAAP Financial Information Section, revenue declined 24.7% over the prior year fourth quarter. Net loss for the fourth quarter fiscal 2009 was $30.9 million, or $0.20 per share, as compared with net income of $144.1 million, or $0.95 per share on a diluted basis, for the fourth quarter last year. Included in the current quarter are impairment charges and restructuring, integration and other items amounting to $78.9 million after-tax, or $0.52 per share. Included in the prior year quarter is income of $15.9 million, or $0.10 per share on a diluted basis, related to the gain on the sale of Calence LLC, partially offset by restructuring, integration and other charges. Details on these items are more fully described in the Non-cash Impairment Charges section and the Non-GAAP Financial Information section of this release. Excluding these items in both periods, net income for the current year fourth quarter was $48.0 million, or $0.32 per share, as compared with $128.2 million, or $0.85 per share on a diluted basis, in the prior year period.

Operating loss for the fourth quarter fiscal 2009 was $20.5 million as compared with operating income of $170.6 million in the year-ago quarter. Included in the current quarter are goodwill impairment charges of $62.3 million related to additional goodwill recognized in two reporting units for which goodwill was determined to be impaired as of the end of the second quarter of fiscal 2009 (see the Non-cash Impairment Charges section for further details) and restructuring, integration and other items amounting to $43.5 million. Included in the prior year quarter are restructuring, integration and other charges amounting to $28.1 million. Excluding these charges, operating income for the fourth quarter fiscal 2009 was $85.3 million as compared with $198.7 million in last year's fourth quarter. Operating income as a percentage of sales, excluding the items noted above, was 2.26% in the current year quarter as compared with 4.25% last year.

Roy Vallee, Chairman and Chief Executive Officer, commented, "Business conditions remained challenged in the fourth quarter but I am pleased that we were able to grow revenue sequentially in both operating groups, significantly reduce expenses, achieve near-record working capital velocity and generate $330 million in cash from operations. Although our bottom line results were negatively impacted by a larger than expected decline in gross profit margin due primarily to business mix and market conditions, the combination of stabilizing operating income margin and substantially improved working capital velocity allowed us to improve return on working capital by 189 basis points sequentially. We remain committed to our return on working capital goals by group and by region and believe that our previously announced actions have the Company well positioned to optimize shareholder value. Although the markets we serve appear to be stabilizing, we will continue to monitor incoming order rates and manage our business appropriately."

Revenue for fiscal 2009 was $16.23 billion, down 9.6% over fiscal 2008 revenue of $17.95 billion and down 6.5% excluding the impact of changes in foreign currency exchange rates. Organic revenue was down 15.6% over the prior year. Net loss for fiscal 2009 was $1.12 billion, or $7.44 per share, as compared with net income of $499.1 million, or $3.27 per share on a diluted basis, in fiscal 2008.

During fiscal 2009, the Company recorded goodwill and intangible asset impairment charges amounting to $1.38 billion after tax, or $9.13 per share. The Company also recorded restructuring, integration and other items amounting to $34.9 million after tax, or $0.23 per share primarily related to the Company's previously announced cost reduction actions of $225 million. Excluding certain items noted above, which are more fully described in the Non-cash Impairment Charges section and the Non-GAAP Financial Information section of this release, net income and earnings per share for fiscal 2009 were $289.4 million and $1.92, respectively, as compared with $484.4 million and $3.18 per diluted share in the prior fiscal year.

Operating Group Results

Electronics Marketing (EM) sales of $2.13 billion for the fourth quarter fiscal 2009 were down 22.2% year over year on a reported basis and down 17.8% when adjusted to exclude the impact of changes in foreign currency exchange rates. On a pro forma basis, EM fourth quarter revenue decreased 27.3% year over year. EM sales in the Americas, EMEA and Asia regions decreased 27.2%, 31.2% and 3.5%, respectively, year over year on a reported basis with EMEA's revenue down 19.2% excluding the impact of changes in foreign currency exchange rates. On a pro forma basis, EM sales in the Americas, EMEA and Asia for the fourth quarter fiscal 2009 decreased 28.5%, 39.8% and 7.4%, respectively, year over year. EM's operating income was $57.1 million and operating income margin was 2.69% for the fourth quarter fiscal 2009 as compared with operating income of $154.0 million and operating income margin of 5.64% in the prior year fourth quarter.

Mr. Vallee added, "We are encouraged by EM's 20% sequential growth in Asia led by Greater China. Additionally, EM's global book to bill ratio turned slightly positive for the June quarter and was very strong for the month of July with all regions in positive territory. Gross margin declined more than anticipated at EM due primarily to regional mix and the challenging late cycle business environment. However, as gross margin declined our EM team did an excellent job improving working capital velocity in the June quarter resulting in a sequential improvement in ROWC. With EM's inventory turns near record levels, the bulk of our inventory reduction appears to be behind us. Furthermore, we believe that inventory throughout the supply chain is now reasonably well aligned with stable end demand."

Technology Solutions (TS) sales of $1.64 billion for the fourth quarter fiscal 2009 were down 15.8% year over year on a reported basis and down 10.3% when adjusted to exclude the impact of changes in foreign currency exchange rates. On a pro forma basis, TS fourth quarter revenue was down 20.9% year over year. On a reported basis, the fourth quarter sales in the Americas and EMEA were down 17.6% and 20.8%, respectively, year over year, while Asia was up 23.3%. Excluding the impact of changes in foreign currency exchange rates, EMEA revenue was down 4.8%. On a pro forma basis for the fourth quarter fiscal 2009, sales in EMEA decreased 34.4%, while sales in Asia increased 21.6% year over year. TS's operating income was $41.2 million and operating income margin was 2.52% for the fourth quarter fiscal 2009, as compared with operating income of $61.8 million and operating income margin of 3.18% for the prior year fourth quarter.

Mr. Vallee further added, "Technology Solutions met its revenue expectations for the second consecutive quarter furthering our belief that the markets we serve have reached bottom. The combination of stabilizing operating income margin and higher working capital velocity led to improved return on working capital (ROWC) both sequentially and year over year. For the June quarter, Technology Solutions' ROWC was above our targeted hurdle rate of 30% globally due to the strong performance of our TS Americas team. "

Cash Flow

During the fourth quarter of fiscal 2009, the Company generated cash flow from operations of $330 million and for the full fiscal year 2009 generated in excess of $1.1 billion. As a result, the Company ended the quarter with $944 million of cash and cash equivalents and net debt (total debt less cash and cash equivalents) of $26 million.

Ray Sadowski, Chief Financial Officer, stated, "During the quarter, we delivered significant cash flow generation driven by diligent management of our inventory and accounts receivable around the globe. For the quarter, working capital velocity reached near-record levels with a 21% sequential improvement. Our ability to continue to generate positive cash flow has further improved our liquidity position and affords us the flexibility to continue to invest in organic growth and take advantage of value-creating acquisitions when they are available."

Outlook

For Avnet's first quarter fiscal year 2010, management expects normal seasonality at both EM and TS, and including the impact of the extra week due to the Company's fiscal calendar, anticipates EM sales to be in the range of $2.05 billion to $2.35 billion and sales for TS to be between $1.55 billion and $1.85 billion. Therefore, Avnet's consolidated sales are forecasted to be between $3.60 billion and $4.20 billion for the first quarter fiscal year 2010. Management expects first quarter fiscal year 2010 earnings to be in the range of $0.29 to $0.37 per share. First quarter fiscal 2010 guidance includes approximately $0.07 per share related to the expensing of stock-based compensation as compared with $0.02 and $0.05 per share, respectively, in the fourth and first quarters of fiscal 2009. The above EPS guidance does not include any potential restructuring charges or integration charges related to acquisitions that have closed or will close in the September quarter. In addition, the above guidance assumes that the average Euro to U.S. Dollar currency exchange rate for the first fiscal quarter is $1.43 to €1.00. This compares with an average exchange rate of $1.51 to €1.00 in the prior year first quarter and $1.36 to €1.00 in the prior sequential quarter.