Avnet Prices Senior Notes

Zacks

Avnet Inc. (AVT) declared senior notes pricing of its 4.875% Notes with a principal amount of $350 million, due to mature in 2022. The company expects the offering to be completed by November 27, 2012, upon the fulfillment of certain customary conditions.

Book-running managers currently acting for this notes offering are Merrill Lynch, Pierce, Fenner & Smith Incorporated and RBS Securities Inc. The net proceeds from the offering shall be used to repay a part of the company’s outstanding debt.

Avnet reported an adjusted net income of $83.9 million or 59 cents per share in the first quarter of fiscal 2013 (ended September 30, 2012) compared to $139.0 million or 90 cents per share in the year-earlier quarter, which surpassed the Zacks Consensus Estimate of 55 cents per share. Sales declined 8.7% year over year to $5.87 billion, missing the Zacks Consensus Estimate of $5.89 billion.

Avnet exited the first quarter of fiscal 2013 with cash and cash equivalents of $1.0 billion, which remained flat year over year. As of September 29, 2012, long-term debt was $1.4 billion compared to $1.3 billion at the end of the previous quarter. During the quarter, the company generated $81 million of cash from operating activities. Capital spending in the quarter amounted to $24.4 million.

In the stringent regulatory landscape, this offering is expected to further enhance the company’s balance sheet as well as support its future growth. Additionally, it will also assist the company to bring down its cost of capital.

For the second quarter of fiscal 2013, the company projects consolidated sales in the range of $5.95 billion to $6.65 billion. Adjusted EPS (excluding restructuring charges, acquisitions charges and post-closing integration activities) is likely to be within 79 cents to 89 cents per share along with a tax rate of 27% - 31%.

Avnet’s domestic and foreign operations are subject to significant competitive pressures. It faces stiff competition from Arrow Electronics Inc. (ARW) and WESCO International Inc. (WCC), both of whom are Avnet’s fiercely formidable rivals. Arrow’s operating unit, Arrow Enterprise Computing Solutions (:ECS), recently signed a distribution agreement with Emerson Network Power. The venture undertaken is to directly distribute Emerson’s real-time infrastructure optimization Trellis portal in order to improve the efficacy of the data center. Hence, Avnet must excel in terms of product quality and innovation, customer service, technical and computing capabilities and price competitiveness.

The current Zacks Consensus Estimates for the second quarter of fiscal 2013 and for fiscal 2013 are 83 cents and $3.13, representing year-over-year growth of (27.73) and (22.9%), respectively. The company currently retains a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ rating. However, we are maintaining a long-term ‘Underperform’ recommendation on the stock.

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