Avnet (AVT) Q4 2006 earnings summary

Executive summary

• FY06 sales reached a record $14.25B, up 28.8% YoY; pro forma growth including Memec in the prior period was 6.8% reported and 8.3% excluding currency translation.

• Operating income was $430.5M, or 3.0% of sales; net income was $204.5M and diluted EPS was $1.39, unchanged YoY despite $0.57/share of identified charges.

Financial highlights

• Gross profit rose to $1.84B, while gross margin was 12.9% versus 13.2% in FY05; SG&A fell to 9.4% of sales from 10.3%.

• FY06 charges totaled $115.9M pretax and $83.9M after tax, or $0.57 diluted EPS, including restructuring/integration, stock compensation, intangible amortization, divestiture losses and debt extinguishment.

• Operating cash flow was negative $19.1M and free cash flow was negative $326.5M, mainly reflecting working-capital use and acquisition/integration outlays.

Outlook and guidance

• Management expected Asia to continue growing in volume and share of sales, while cautioning that recent robust growth rates may not persist.

• Integration actions removed ~$150M of annualized operating expenses by FY06 year-end, exceeding the initial ~$120M target; efficiency and working-capital velocity remain priorities.

• Management cited only three to four months of customer and supplier forecast visibility; borrowing capacity, cash and expected operating cash flow were considered sufficient for projected financing needs.