Avnet Reports Q4 and Fiscal Year 2015 Results

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Avnet, Inc. today announced results for the fourth quarter fiscal year 2015 ended June 27, 2015.

• Sales for the fiscal year increased 1.5% from the prior year (5.4% in constant currency) to $27.92 billion
• Adjusted operating income of $972.5 million increased 4.4% year over year (11.0% in constant currency) and adjusted operating income margin of 3.5% increased 9 basis points year over year
• Adjusted net income of $623.1 million increased 4.9% from the prior year and adjusted diluted earnings per share of $4.49 increased 5.9% year over year
• Adjusted earnings per share was negatively impacted by $0.26, or 5.8%, by the impact of changes in foreign currency exchange rates
• Cash flow from operations increased 146% year over year to $584 million and the Company returned $247.3 million of cash to shareholders through dividends and share repurchases

Rick Hamada, Chief Executive Officer, commented, “Despite the significant strengthening of the U.S. Dollar throughout fiscal 2015, the Avnet team delivered consistent improvement in our financial performance as revenue grew year over year and adjusted operating income margin expanded in all four quarters. As a result, reported revenue of $27.9 billion represented a 5.4% year-over-year increase in constant currency and adjusted operating income grew 11.0% in constant currency to $972.5 million. The improvement in profitability was led by our EMEA region where both operating groups grew operating income double digits and operating income margin increased by greater than 50 basis points despite the currency headwinds that negatively impacted our reported results. This increase in profitability, combined with continued discipline on working capital management, drove cash flow from operations up 146% from fiscal 2014 to $584 million, and return on working capital increased to 21.6%. During the year, we paid out $87 million in dividends and returned another $160 million to shareholders via our share repurchase program. We continue to apply our disciplined portfolio management across our business and redirect investment to higher growth opportunities, including embedded systems, converged infrastructure and the multiple opportunities being created by the Industrial Internet of Things. With our strong financial position, we enter fiscal 2016 well positioned to deliver continued organic growth and progress toward our financial goals.”

Q4 Fiscal 2015 Results

• Sales for the quarter ended June 27, 2015 increased 3.1% on a constant currency basis and reported sales decreased 3.6% year over year to $6.80 billion
• Adjusted operating income of $243.8 million was essentially flat year over year (increased 10% in constant currency) and adjusted operating income margin of 3.6% increased 12 basis points year over year
• Adjusted net income of $159.5 million was essentially flat with the year ago quarter and adjusted diluted earnings per share of $1.16 increased 1.8% year over year
• Adjusted earnings per share was negatively impacted by $0.11, or 9.5%, by the impact of changes in foreign currency exchange rates

Mr. Hamada said, “Similar to the March quarter, our results were negatively impacted by the strong dollar as organic revenue growth of 3.1% year over year in constant currency translated into a 3.6% decline as reported. High single digit organic growth in our Electronics Marketing (EM) business in our EMEA and Asia regions was offset by a decline in our computing components business at Technology Solutions (TS). Our reported earnings were also negatively impacted by a stronger dollar as a 10.0% year-over-year growth in our adjusted operating income in local currencies was reduced to a 0.4% decrease. Even though currency had a negative impact on our reported results, our team executed well and generated leverage on organic growth. If you exclude the impact of changes in foreign currency exchange rates, in the June quarter we grew operating income 3.3 times faster than revenue."

Avnet Electronics Marketing Results

• Sales increased 7.2% in constant currency and reported sales were essentially flat year over year at $4.32 billion
• Operating income margin was flat year over year at 4.8% as an improvement in the EMEA region was offset by a regional mix shift to the lower margin Asia region
• Working capital (defined as receivables plus inventories less accounts payables) decreased 1.9% from the year ago quarter in reported dollars but increased 6.9% in constant currency primarily to support organic sales growth
• Return on working capital (ROWC) was essentially flat with the year ago quarter and increased 177 basis points sequentially

Mr. Hamada added, “EM closed out the year with another strong quarter as high single digit organic growth in our EMEA and Asia regions drove total revenue up over 7% year over year in constant currency. EM EMEA delivered another quarter of strong leverage as operating income in local currencies grew 3.1 times faster than revenue for both the fourth quarter and full fiscal year. At EM Asia, where double digit growth in fiscal 2015 was driven by high volume supply chain engagements, return on working capital increased 82 basis points and economic profit grew 2.3 times faster than revenue. In our Americas region, which has been dealing with a sluggish growth environment all year, fiscal 2015 revenue grew 1.6% year over year and operating income margin was consistent with the prior year. These strong organic results were significantly reduced at the EM global level on a reported basis due to the stronger dollar. EM’s operating income decreased 0.5% year over year in reported dollars in the fourth fiscal quarter but increased 6.6% for the full fiscal year.”

Outlook for First Quarter of Fiscal 2016 Ending on October 3, 2015

• EM sales are expected to be in the range of $4.15 billion to $4.45 billion and TS sales are expected to be in the range of $2.25 billion to $2.55 billion, both of which include the impact of the extra week in the first fiscal quarter
• Avnet sales are expected to be in the range of $6.40 billion and $7.00 billion
• Adjusted diluted earnings per share is expected to be in the range of $0.97 to $1.07 per share
• The guidance assumes 137 million average diluted shares outstanding and a tax rate of 27% to 31%

The above guidance excludes the amortization of intangibles and any potential restructuring, integration and other expenses. In addition, the above guidance assumes that the average U.S. Dollar to Euro currency exchange rate for the first quarter of fiscal 2016 is $1.09 to €1.00. This compares with an average exchange rate of $1.33 to €1.00 in the first quarter of fiscal 2015 and $1.11 to €1.00 in the fourth quarter of fiscal 2015.

Fiscal Year 2015

Items impacting fiscal 2015 consisted of the following:

• Restructuring, integration and other expenses of $90.8 million before tax consisted of $25.9 million for severance, $8.8 million for facility exit costs, $18.2 million of asset impairment related costs, $5.8 million for other restructuring costs, $19.1 million for integration-related costs, $13.7 million for other costs, and net reversals of $0.7 million to adjust estimates for prior period restructuring liabilities. Restructuring, integration and other expenses after tax was $65.9 million;
• Amortization expense and other substantially all of which related to acquired intangible assets of $54.0 million before tax and $36.6 million after tax; and
• Loss on foreign currency due to changes in the currency exchange mechanisms available in Venezuela included within other income (expense) of $3.7 million before and after tax; and
• An income tax benefit, net of $55.1 million primarily related to certain items impacting the effective income tax rate in fiscal 2015 primarily due to the release of a valuation allowance.

Fourth Quarter Fiscal 2015

Items impacting the fourth quarter of fiscal 2015 consisted of the following:

• Restructuring, integration and other expenses of $43.7 million before tax consisted of $16.4 million for severance, $0.4 million for facility exit costs, $15.8 million for asset impairment related costs, $0.6 million for other restructuring costs, $3.6 million for integration-related costs, $7.6 million for other costs, and net reversals of $0.7 million to adjust estimates for prior period restructuring liabilities. Restructuring, integration and other expenses after tax was $30.5 million;
• Amortization expense and other substantially all of which related to acquired intangible assets of $19.6 million before tax and $12.3 million after tax; and
• Loss on foreign currency due to changes in the currency exchange mechanisms available in Venezuela included within other income (expense) of $3.7 million before and after tax; and
• An income tax benefit, net of $45.8 million primarily related to certain items impacting the effective income tax rate in the fourth quarter of fiscal 2015 primarily related to the release of a valuation allowance.

Third Quarter Fiscal 2015

• Items impacting the third quarter of fiscal 2015 consisted of the following:
• Restructuring, integration and other expenses of $15.5 million before tax consisted of $3.6 million for severance, $0.7 million for facility exit and asset impairment related costs, $3.8 million for other restructuring costs, $5.3 million for integration-related costs, $2.4 million for other costs, and net reversals of $0.3 million to adjust estimates for prior period restructuring liabilities. Restructuring, integration and other expenses after tax was $12.0 million;
• Amortization expense and other substantially all of which related to acquired intangible assets of $11.2 million before tax and $7.7 million after tax; and
• An income tax expense, net of $2.2 million primarily related to certain items impacting the effective income tax rate in the third quarter of fiscal 2015.

About Avnet

From components to cloud and design to disposal, Avnet (NYSE: AVT) accelerates the success of customers who build, sell and use technology, globally by providing them with a comprehensive portfolio of innovative products, services and solutions. Avnet is a Fortune 500 company with revenues of $27.9 billion for the fiscal year 2015. For more information, visit www.avnet.com.