Avnet Tops Zacks Consensus - Analyst Blog

Avnet, Inc. (AVT) reported sales of $4.76 billion in the third quarter of fiscal 2010, up 25% year over year. Based in Phoenix, AZ, Avnet is one of the world’s largest distributors of electronic components and computer products. 

On a segment basis, Electronics Marketing (EM) reported sales of $2.9 billion, up 37.7% from a year ago and up 15% sequentially driven by growth in all geographic regions. Sales in EMEA grew 27% sequentially. Although a part of the revenue growth was due to inventory restocking, the combination of continued strong bookings in all regions and lean inventories throughout the technology supply chain indicates that end-demand is quite strong globally. 

Technology Solutions (TS) reported sales of $1.8 billion, up 16.6% from a year ago as demand was better-than-expected. Recovery in IT spending is better-than-expected in the Americas and Asian regions. However, demand remains weak in the EMEA. 

Management stated that the pace of recovery in the markets served by Avnet continues to be strong as year-over-year growth rates have accelerated revenue thereby exceeding expectations at both operating groups for the third consecutive quarter. 

Gross margin came in at 12.2%, up from 11.4% in the prior quarter but slightly down from 12.5% in the year-ago quarter. Operating margin came in at 3.7% compared to 3.4% in the previous quarter and 2.4% in the previous quarter. Net income for the quarter was $114.5 million, or 75 cents per share compared to a net income of $15.8 million or 10 cents per share in the year-ago quarter. 

Excluding restructuring, integration and other charges, net income came in at $115.8 million or 76 cents per share, easily beating the Zacks Consensus Estimate of 64 cents. 

During the quarter, Avnet used $63 million of cash from operations to fund the increase in working capital to support robust sales growth. Avnet ended the quarter with cash and equivalents of $755 million. 

Guidance 

Going forward, management projects sales between $4.70 billion and $5.30 billion for the fourth quarter of 2010. EM sales are expected around $2.85 billion - $3.15 billion. TS sales are forecasted around $1.85 billion - $2.15 billion. Earnings per share (excluding any potential restructuring charges or any charges related to acquisitions and post-closing integrations) are projected at 76 cents - 84 cents. 

Given early signs of recovery, IT spending is expected to pick up. Although the recovery would be slow and steady, orders are expected to return to normal levels by end of calendar 2010. The recent acquisition of Bell Microproducts should further expand the scale of operations and provide cross-selling opportunities. 

Acquisition 

Meanwhile, the company recently announced that it would acquire Tallard Technologies (Tallard), part of Itautec S.A. – Grupo Itautec. Tallard distributes servers, software, peripherals, convergence equipment and enterprise integration services throughout Latin America. 

Management expects that the acquisition will further support its strategy to expand distribution of data center products into high-growth markets in Latin America. The operations of Tallard Technologies will be integrated into Avnet Technology Solutions, Americas. 

For 2009, Tallard generated revenue of approximately $250 million. The acquisition is expected to be immediately accretive to Avnet’s bottom-line.
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