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Avnet Inc. Reports Operating Results (10-Q)

January 25, 2013 | About:
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10qk

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Avnet Inc. (AVT) filed Quarterly Report for the period ended 2012-12-29.

Avnet Inc has a market cap of $4.69 billion; its shares were traded at around $34.4 with a P/E ratio of 9.6 and P/S ratio of 0.2.

Highlight of Business Operations:

Consolidated operating income margin was 2.9% as compared with 3.5% in the prior year second quarter. Both periods included restructuring, integration and other charges. Excluding these charges from both periods, operating income margin was 3.3% of sales in the second quarter of fiscal 2013 as compared to 4.0% of sales in the prior year second quarter. EM operating income margin decreased 105 basis points year over year to 3.8%. This decline in EM operating income margin was primarily due to lower gross profit margin as previously mentioned, combined with lower profitability in the western regions, offset partially by the benefits of cost reduction actions taken. TS operating income margin decreased 27 basis points year over year to 3.6% due primarily to recent acquisitions as the related cost synergies have not yet been attained, in particular in Europe, and which are not expected to be fully achieved for several quarters while the integration work is in process. On a sequential basis, TS operating

Consolidated gross profit and gross profit margins were $1.45 billion and 11.6%, respectively, for the first half of fiscal 2013 as compared with $1.54 billion and 11.7%, respectively, for the first half of fiscal 2012. For the first half of fiscal 2013, EM gross profit margin decreased 53 basis points year over year and TS gross profit margin increased 17 basis points year over year driven largely by the same factors as discussed in the quarterly gross profit margin analysis.

Selling, general and administrative expenses (“SG&A expenses”) were $548.0 million in the second quarter of fiscal 2013, an increase of $29.2 million, or 5.6%, from the prior year second quarter. This increase consisted of (i) an increase of approximately $65 million related to expenses from businesses acquired, partially offset by (ii) a decrease of approximately $29 million related to recent cost reduction actions in existing businesses and (iii) a decrease of approximately $7 million related to the translation impact of changes in foreign currency exchange rates. Metrics that management monitors with respect to its operating expenses are SG&A expenses as a percentage of sales and as a percentage of gross profit. In the second quarter of fiscal 2013, SG&A expenses as a percentage of sales were 8.2% and as a percentage of gross profit were 71.3% as compared with 7.7% and 66.2%, respectively, in the second quarter of fiscal 2012. SG&A expenses as a percentage of gross profit at TS increased 410 basis points year over year due primarily to recent acquisitions as the related cost synergies have not yet been attained, in particular in Europe, and which are not expected to be fully achieved for several quarters while the integration work is in process. The SG&A expenses as a percentage of gross profit at EM increased 595 basis points year over year, primarily due to the decline in gross profit as previously mentioned. SG&A expenses for the first half of fiscal 2013 were $1.09 billion, or 8.7% of consolidated sales, as compared with $1.05 billion, or 8.0% of consolidated sales, in the first half of fiscal 2012. SG&A expenses were 75.4% of gross profit in the first half of fiscal 2013 as compared with 68.2% in the first half of 2012.

Severance charges recorded in the first six months of fiscal 2013 related to over 800 employees in sales, administrative and finance functions in connection with the cost reduction actions taken in all three regions in both operating groups with employee reductions of approximately 560 in EM, 225 in TS and the remaining in business support functions. Facility exit costs for vacated facilities related to fourteen facilities in the Americas, ten in EMEA, and five in Asia and consisted of reserves for remaining lease liabilities and the write-down of fixed assets. The Company estimates that these actions, in combination with prior actions taken

During periods of weakening demand in the electronic component and enterprise computer solutions industry, the Company typically generates cash from operating activities. Conversely, the Company is also more likely to use operating cash flows for working capital requirements during periods of higher growth. During the second quarter and first half of fiscal 2013, the Company generated $326.4 million and $407.4 million, respectively, of cash from operations as revenue declined and has generated $690.3 million of cash from operations over the trailing twelve month period. Management believes that Avnet s borrowing capacity, its current cash availability and the Company s expected ability to generate operating cash flows in the future are sufficient to meet its projected financing needs.

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