Avnet (AVT) Q4 2005 earnings summary

Executive summary

• FY05 sales rose 8.0% to $11.07B; operating income reached $321.3M and net income was $168.2M, with stronger profitability despite a soft first-half component market.

• Record Technology Solutions sales and profit offset slower Electronics Marketing growth amid a mid-cycle inventory correction; results improved sequentially in the second half.

• The July 5, 2005 Memec acquisition added a $2.29B-sales semiconductor distributor, expanding regional reach and opening the Japanese market.

Financial highlights

• Sales were $11,066.8M, up 8.0% YoY; normalized for FY04's extra week, sales increased 10.1%. FX translation contributed an estimated $250M of growth.

• Gross profit was $1,459.0M at a 13.2% margin, versus $1,364.9M and 13.3% in FY04; operating income rose to $321.3M from $202.2M.

• Net income was $168.2M and diluted EPS $1.39, versus $72.9M and $0.60 in FY04; FY04 included $55.6M restructuring charges and $16.4M debt-extinguishment costs, pre-tax.

• Operating cash flow was $461.8M and net free cash flow $425.7M; working capital generated $121.0M of cash, including $166.4M from receivables, inventory and payables combined.

Outlook and guidance

• Management expected Memec integration by FY06 year-end, with a substantial portion completed by Q2; more than $120M of annualized operating-cost synergies was targeted.

• Gross margins were expected to remain more stable as component demand recovered; Memec's design-chain services mix was expected to lift consolidated gross margin in FY06.

• Positive bookings across regions and second-half EM growth supported expectations for continued growth, though industry visibility extended only about three to four months.