Avnet Unveils Pricing of Senior Notes to Boost Cash Position
Avnet Inc. AVT priced its 4.625% Senior Notes with an aggregate principal amount of $550 million, due to mature in 2026. The company expects the offering to be completed by March 29, 2016, upon the fulfilment of certain customary conditions. We believe these Notes will provide the company financial flexibility to drive long-term growth.
Book-running managers currently acting for this notes offering are J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Mitsubishi UFJ Securities (USA). The net proceeds from the offering shall be used to repay a part of the company’s outstanding debt.
Avnet reported second-quarter fiscal 2016 adjusted earnings of $1.22 per share, which missed the Zacks Consensus Estimate of $1.25 per share. Earnings also were down 3.9% on a year-over-year basis. Revenues of $6.848 billion not only decreased 9.3% from the year-ago quarter but also missed the Zacks Consensus Estimate of $7.189 billion. The year-over-year decrease was primarily due to lower-than-expected sales in the Technology Solutions (TS) and Electronics Marketing (EM) business.
Avnet exited the quarter with cash and cash equivalents of $916.1 million compared with $824.7 million in the previous quarter. Avnet’s long-term debt was $1.07 billion. The company generated $84.2 million cash in operating activities during the first half of fiscal 2016.
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 assist the company to bring down its cost of capital.
For third-quarter fiscal 2016, the company projects consolidated sales in the range of $6 billion to $6.6 billion. Adjusted earnings per share (excluding restructuring and integration charges related to costs reductions and acquisitions and amortization of intangibles) are expected within 93 cents to $1.03. The Zacks Consensus Estimate of earnings is pegged at 99 cents.
A significant portion of the company’s revenues comes from the sale of semiconductors, which is a cyclical industry, characterized by changes in technology and manufacturing capacity and is hence subject to significant market upturns and downturns.
Nonetheless, Avnet’s leading position in electronics distribution, continuous cost cutting initiatives and acquisition synergies are encouraging. However, competition from Arrow Electronics Inc. ARW and Ingram Micro IM remains a headwind.
Currently, Avnet has a Zacks Rank #4 (Sell).
However, a better-ranked stock in the technology space is Lexmark International Inc. LXK, with a Zacks Rank #1 (Strong Buy).
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