I had recently covered Ingram Micro (IM, Financial) and Arrow Electronic (ARW, Financial), here and here. Avnet Inc., (AVT, Financial) is a company in the same league as the other two and distributes electronic components, enterprise computer and storage products, IT solutions and services, and embedded subsystems in the Americas, EMEA, and the Asia-Pacific. The company operates through two segments –Â Electronics Marketing, or EM, and Technology Solutions, or TS. The company posted third-quarter 2015 results and missed consensus estimates on both bottom and top line.
Looking back
Like its peers, Avnet was also affected by the Forex market headwinds. It may seem that the results were dismal as it missed both on top and bottom line. However, much of this was attributable to the negative impact of currency translations, and this is understandable as the company has global presence –Â 40% Americas, 30% EMEA, and 30% APAC.
The third-quarter revenues were at the lower end of the company’s own guidance and clocked $6.74 billion. This represented a miniscule year-over-year growth of 0.8% and missed consensus estimates of $6.86 billion. As against this, Ingram’s top line grew 2.5% year over year and Arrow’s top line grew 1.6%
The top-line growth was primarily on the back of robust performance of the EM segment of the company, which registered a gain of 2.1% from the year-ago quarter to $4.22 billion. EM segment registered eight consecutive quarter of year-over-year growth. Gross profit decreased 3.8% year over year due to higher cost of sales.
Earnings came in at $1.04 per share, missing consensus estimate of $1.09 per share. However, the company managed to hit earnings within its guided range of $1.04 per share to $1.14 per share and inched up 1% versus the year-ago quarter.
Avnet exited the quarter with cash and cash equivalents of $803.5 million versus $903.3 million in the year-ago quarter. The company paid a dividend of $0.16 per share and had unutilized funds of $318.3 million under its stock repurchase program.
Acquisitions for growth
Like its peer Arrow, Avnet has been actively pursuing growth and increase in geographical footprint through acquisitions. Over the past five years alone, the company has spent close to $1.5 billion on multiple acquisitions, and I am confident that it shall continue to do so in the future also, as and when opportunity arises.
On the back of its global presence across all major markets, Avnet can continue to grow on the back of its strategy of shopping for growth. Avnet’s low debt, with debt-to-equity ratio of under 0.4, and strong cash position will allow it to do this, going forward.
Looking ahead
In the fourth quarter fiscal 2015, Avnet expects revenues to be in the range of $6.6 billion to $7.2 billion, with a mid-point of 6.9 billion. Consensus estimate for the fourth-quarter revenue is pegged at $7.06 billion.
At mid-point of guidance of $1.02 - $1.12, earnings per share is expected to be $1.07 versus consensus estimate of $1.17 per share.
Final words
Avnet has low debt-to-equity ratio and good cash position. On constant currency terms, the company has done well, indicating that its growth trajectory is intact. Its current fiscal EPS has one upward revision and no downward revision during the last 30 days.
For the next five years, CAGR is pegged at 5.66% versus 3.11% during the past five years. The forward P/E of 9.5 compares favorably with trailing P/E of 10.43, signifying growth in earnings going forward.
