Avnet, Inc. (AVT) recently reported revenues of $4.36 billion for the first quarter of fiscal 2010, down 3.1% from a year ago. Excluding the negative impact of foreign currency exchange rates, revenues declined 0.6%.
Management stated that the impact of global slowdown led to the year-over-year decline, but the business environment is improving.
On a segment basis, Electronics Marketing (EM) sales came in at $2.44 billion, down 9.8% year over year (down 8.0% when adjusted to exclude the impact of changes in foreign currency exchange rates). The rate of revenue decline moderated in the reported quarter and management is encouraged by pace of bookings for this segment in recent months.
Technology Solutions (TS) generated sales of $1.92 billion, up 6.9% year over year (up 10.5% when adjusted to exclude the impact of changes in foreign currency exchange rates), driven by growth in Americas and Europe, Middle East and Asia (EMEA).
The company recently acquired a controlling interest in Vanda Group from Hutchinson Whampoa Limited in a strategic move to expand its presence and customer base across China. The transaction will provide the Technology Group with a strong foothold in the banking and financial sector, where Vanda’s flagship product, VisionBanking Suite, is a well-known solution.
Operating margin came in at 2.46%, compared to 2.26% in the previous quarter. Net income declined 33.9% year over year to $67.2 million. Earnings per share (EPS) of 44 cents easily beat the Zacks Consensus Estimate of 34 cents.
During the reported quarter, Avnet generated $6.2 million of cash flow from operations. As a result, Avnet ended the quarter with $987 million of cash and cash equivalents and net debt (total debt less cash and cash equivalents) of $20 million.
Going forward, management expects revenues between $4.10 billion and $4.70 billion in the second quarter of fiscal 2010. Earnings per Share (EPS) are expected between 52 cents and 60 cents.
Earlier, rival Arrow Electronics (ARW) reported a small profit and provided a disappointing forecast. Profit narrowed significantly at Arrow due to restructuring charges. The company provided a conservative guidance for the fourth quarter, due to limited visibility.
Though the early signs of recovery improve business sentiments, IT spending is yet to pick up. The recovery is expected to be slow and steady and visibility is not clear – at least in the near-term. Orders are yet to return to normal levels.
Most of the growth for the company is coming from low margin Asian region.
We would like to be on sidelines before becoming positive on Avnet, Inc.
Based in Phoenix, Avnet is one of the largest distributors of electronic components, computer products and embedded technology serving customers in more than 70 countries worldwide.
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