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Avnet (AVT) Q2 Earnings & Revenues Meet Estimates, Up Y/Y

Zacks Equity Research

Avnet Inc. AVT reported second-quarter fiscal 2019 results, wherein both the top line and bottom line matched the Zacks Consensus Estimate.

The company delivered non-GAAP earnings of $1.04 per share, up 33% year over year. An unfavorable currency loss decreased the bottom line by 2 cents.

Avnet’s quarterly revenues of $5.1 billion increased 12% year over year on a reported basis and 13.1% on constant currency basis. Revenues came within the company’s guided range of $4.9-$5.3 billion.

The company’s solid results can be attributed to strength in vertical markets such as industrial, defense, aerospace and healthcare despite a slight slowdown in transportation demand. Continued transformation efforts and commitment to accelerate the Electronic Components business, including the replacement of revenues from supplier program changes, were key drivers.

Revenues from the sale of IP&E (interconnect, passives and electromechanical) devices also remained strong with the addition of two new global supply franchises to its line card and extension of four regional supply franchises. 

Avnet, Inc. Price, Consensus and EPS Surprise

Avnet, Inc. Price, Consensus and EPS Surprise | Avnet, Inc. Quote

Quarter Details

Healthy quarterly results were driven by continued strong worldwide demand for the Electronic Components segment, which grew 12.4% year over year to $4.7 billion.

Acceleration strategy execution in the Americas improved significantly and recorded 7.5% year-over-year growth to reach $1.3 billion. Notably, net promoter scores of the company increased considerably, indication an improvement in customer satisfaction.

Performance in the EMEA region continued to be healthy with 10.8% sales growth to reach $1.7 billion.

Asia recorded $2.1 billion in revenues, up 15.2% year over year. However, a slowdown in the book-to-bill ratio loomed over Asia’s quarterly performance

Premier Farnell segment’s revenues totaled $368.3 million, up 2.8% year over year. During the quarter, seven new global supply franchises were added despite softness in single board computing sales, which slowed growth of this segment.

Its IoT solutions continued to witness rapid expansion of revenue pipeline as a result of its initiatives in the space through acquisitions and partnerships.

In the quarter, Avnet closed a multi-million-dollar deal with a smart health company to provide self-designed hardware for getting the latter’s solution to market.

Notably, the company acquired Softweb Solutions to enhance its portfolio and IoT capabilities. Softweb has world-class AI data advisory and digital development services, which make it a perfect addition to the Avnet ecosystem.

Avnet continued to benefit from its partnership with Microsoft MSFT, which referred the solutions of the former to its IoT partners, the most notable being Starbucks, giving it attractive customer expansion opportunities.

During the quarter, Avnet also introduced the SmartEdge Agile to develop machine learning applications, such as predictive maintenance and remote monitoring, and SmartEdge Industrial IoT Gateway, designed for automation applications that need strong end-to-end security.

During the quarter, strong momentum was also displayed in the company’s e-commerce revenues, making management optimistic about its aim to hit $1 billion of e-commerce revenues in fiscal 2019.

Additionally, the company continued to focus on transformation, additional integration with Premier Farnell and low-cost regions to expand the business.

Margins

Avnet reported gross profit of $630 million, up 4.6% year over year. However, gross margin contracted 85 basis points (bps) to 12.5% as a result of higher revenue mix from Asia, which is a low-margin region.

Adjusted operating income increased 27.5% from the year-earlier quarter to $178.8 million. Adjusted operating margin came in at 3.5%, up 44 bps.

Balance Sheet and Cash Flow

Avnet exited the fiscal second quarter with cash and cash equivalents of $482.2 million compared with $365.9 million recorded in the previous quarter.

Long-term debt was $2 billion compared to $1.6 billion in the previous quarter.

The company returned $197 million to shareholders in the form of $175 million worth repurchased shares and $22 million worth dividend.

Guidance

For third-quarter fiscal 2019, the company estimates sales in the range of $4.5-$4.9 billion, representing year-over-year decline of 2% at mid-point of $4.7 billion, due to slowdown in Asia. Revenues from all other geographies are expected to be flat or higher sequentially.

Non-GAAP earnings per share are estimated in the range of $1.03 cents to $1.13, representing growth of 6% at mid-point of $1.08. Even with lower sales, sequential and year-over-year growth in non-GAAP earnings is expected due to continued cost optimization programs and lower share count.

Zacks Rank and Stocks to Consider

Avnet currently carries a Zacks Rank #3 (Hold).

A couple of stocks worth considering in the broader Computer and Technology sector are Logitech International S.A. LOGI and Xilinx, Inc. XLNX, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Logitech and Xilinx is projected to be 9% and 9.5%, respectively.

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