8-K
AVNET INC (AVT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT PURSUANTTO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
__________________
Date of Report (Date of earliest event reported) January 27, 2021
AVNET, INC.
(Exact name of registrant as specified in its charter)
| New York | 1-4224 | 11-1890605 |
|---|---|---|
| (State or other jurisdiction | (Commission | (IRS Employer |
| of incorporation) | File Number) | Identification No.) |
| 2211 South 47th Street , Phoenix , Arizona | 85034 |
|---|---|
| (Address of principal executive offices) | (Zip Code) |
(480) 643-2000
(Registrant’s telephone number, including area code.)
N/A
(Former name or former address, if changed since last report.)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered: |
|---|---|---|
| Common stock, par value $1.00 per share | AVT | NASDAQ Global Select Market |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On January 27, 2021, Avnet, Inc. (the “Company”) issued a press release announcing its second quarter results of operations for fiscal 2021. A copy of the press release is attached hereto as Exhibit 99.1.
The information in this Current Report on Form 8-K and the exhibit attached hereto are being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933 except as shall be expressly set forth in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following materials are attached as exhibits to this Current Report on Form 8-K:
| ExhibitNumber | Description | |
|---|---|---|
| 99.1 | Press Release, dated January 27, 2021. | |
| | | |
| 104 | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | | | | |
|---|---|---|---|---|
| Date: January 27, 2021 | | AVNET, INC. | ||
| | | | ||
| | | | ||
| | | By: | | /s/ Thomas Liguori |
| | | | | Name: Thomas Liguori |
| | | | | Title: Chief Financial Officer |
| | | | | |
Exhibit 99.1
Avnet Reports Second Quarter Fiscal 2021 Financial Results
$4.7 billion in sales, $0.19 EPS and $0.48 adjusted EPS exceeded guidance
Third consecutive quarter of operating margin improvement
PHOENIX – January 27, 2021 – Avnet, Inc. (Nasdaq: AVT) today announced results for its second quarter ended January 2, 2021.
Fiscal Second Quarter Key Financial Highlights:
| ● | Sales of $4.7 billion up from $4.5 billion in the prior year quarter, supported by record sales in Asia of $2.2 billion, up 16% year over year. |
|---|---|
| o | On constant currency basis, organic sales increased 4.8% after adjusting for 14 weeks of activity in the prior quarter. |
| --- | --- |
| ● | GAAP diluted earnings per share of $0.19, compared with a GAAP diluted loss per share of $0.19 in the prior quarter, a 200% increase. |
| --- | --- |
| o | Non-GAAP adjusted diluted earnings per share of $0.48, compared with $0.36 in the prior quarter, a 33% increase. |
| --- | --- |
| ● | Farnell operating margins increased sequentially 97 basis points to 4.5%. |
| --- | --- |
| ● | GAAP operating income margin of 1.2%, compared with 0.4% the prior quarter, and an adjusted operating income margin of 1.7%, compared with 1.4% in the prior quarter. |
| --- | --- |
| ● | Achieved net working capital of 75 days, generating $85 million of cash flow from operations. |
| --- | --- |
| ● | Sales of Texas Instruments (TI) products were $50 million compared with $399 million in the prior year. |
| --- | --- |
| o | When excluding TI, organic sales grew 9.3% year over year on a constant currency basis. |
| --- | --- |
CEO Commentary
“Improvements in our Farnell, EMEA and Americas businesses, complemented by a record revenue quarter in Asia, reflect our continued progress in driving operational efficiencies and enhancing key business lines through strategic investments. We’ve seen tangible results from this back to the basics strategy over the past two quarters with increased sales, improving returns on capital and a stronger balance sheet. As a result, we are better positioned today to manage our backlog and working capital to navigate uncertainties resulting from COVID-19,” said Avnet Chief Executive Officer Phil Gallagher. “I am incredibly proud of our team’s resilience amidst the challenges this past year. They’ve delivered significant value in providing uninterrupted service at a global scale and in working collaboratively with our customers and suppliers to manage forecasts, navigate current market dynamics and mitigate supply chain risk.”
Key Financial Metrics
($ in millions, except per share data)
| | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Second Quarter Results (GAAP) | | ||||||||||||||||||
| | | Dec – 20 | **** | Dec – 19 | **** | Change Y/Y | **** | Sep – 20 | **** | Change Q/Q | | ||||||||
| Sales | | $ | 4,668.2 | | | $ | 4,534.8 | | | 2.9 | % | | $ | 4,723.1 | | | (1.2) | % | |
| Operating Income | | | 57.2 | | | | 46.5 | | | 23.1 | % | | | 18.5 | | | 209.3 | % | |
| Operating Income Margin | | | 1.2 | % | | | 1.0 | % | | 21 | bps | | | 0.4 | % | | 84 | bps | |
| Diluted Earnings (Loss) Per Share (EPS) | | $ | 0.19 | | | $ | 0.05 | | | 280.0 | % | | $ | (0.19) | | | 200.0 | % | |
| Second Quarter Results (Non-GAAP)(1) | | ||||||||||||||||||
| | | Dec – 20 | **** | Dec – 19 | **** | Change Y/Y | **** | Sep – 20 | **** | Change Q/Q | | ||||||||
| Sales | | $ | 4,668.2 | | | $ | 4,534.8 | | | 2.9 | % | | $ | 4,723.1 | | | (1.2) | % | |
| Adjusted Operating Income | | | 79.6 | | | | 82.2 | | | (3.2) | % | | | 65.1 | | | 22.3 | % | |
| Adjusted Operating Income Margin | | | 1.7 | % | | | 1.8 | % | | (11) | bps | | | 1.4 | % | | 32 | bps | |
| Adjusted Diluted Earnings Per Share (EPS) | | $ | 0.48 | | | $ | 0.40 | | | 20.0 | % | | $ | 0.36 | | | 33.3 | % | |
| Segment and Geographical Mix | | ||||||||||||||||||
| | | Dec – 20 | **** | Dec – 19 | **** | Change Y/Y | | Sep – 20 | **** | Change Q/Q | | ||||||||
| Electronic Components (EC) Sales | | $ | 4,342.4 | | | $ | 4,203.6 | | | 3.3 | % | | $ | 4,382.2 | | | (0.9) | % | |
| EC Operating Income Margin | | | 2.4 | % | | | 2.2 | % | | 17 | bps | | | 1.9 | % | | 46 | bps | |
| Farnell Sales | | $ | 325.8 | | | $ | 331.2 | | | (1.6) | % | | $ | 340.9 | | | (4.4) | % | |
| Farnell Operating Income Margin | | | 4.5 | % | | | 6.0 | % | | (155) | bps | | | 3.5 | % | | 97 | bps | |
| Americas Sales | | $ | 1,101.5 | | | $ | 1,186.6 | | | (7.2) | % | | $ | 1,205.7 | | | (8.7) | % | |
| EMEA Sales | | | 1,346.3 | | | | 1,425.8 | | | (5.6) | % | | | 1,480.7 | | | (9.1) | % | |
| Asia Sales | | | 2,220.4 | | | | 1,922.4 | | | 15.5 | % | | | 2,036.7 | | | 9.0 | % | |
| TI Sales | | ||||||||||||||||||
| | | Dec – 20 | **** | Dec – 19 | **** | Change Y/Y | | Sep – 20 | **** | Change Q/Q | | ||||||||
| Sales of TI Products | | $ | 49.6 | | | $ | 399.2 | | | (87.6) | % | | $ | 241.0 | | | (79.4) | % | |
| (1) | A reconciliation of non-GAAP financial measures to GAAP financial measures is presented in the “Non-GAAP Financial Information” section of this press release. |
|---|
CFO Commentary
“During the second quarter, we delivered sales of $4.7 billion and adjusted diluted earnings per share of $0.48, driven by strong execution and a streamlined cost structure that has allowed us to achieve increased revenue without adding significant operating expense. Our year over year top line growth and careful working capital management enabled us to achieve our goal of 75 net working capital days,” said Avnet CFO Tom Liguori. “Our $75 million operating expense reduction plan was fully implemented in the quarter, driving our ninth consecutive quarter of positive operating cash flows. We remain on track to achieve our $245 million operating expense reduction plan by the end of fiscal year 2022. We are delivering improved financial and competitive performance, building Avnet’s core distribution business while still strategically investing in Farnell, where we see tremendous opportunity to deliver profitable growth.”
Additional Second Quarter Fiscal 2021 Updates
| ● | Returned $21 million to shareholders with dividends paid during the quarter. |
|---|---|
| ● | Achieved highest quarterly transportation revenue in 6 quarters in the Americas and Asia. |
| --- | --- |
| ● | Farnell selected as the authorized global distributor for National Instruments (NI). |
| --- | --- |
| ● | Avnet rejoined the Electronic Components Industry Association (ECIA) as a distributor member. |
|---|---|
| ● | Named Infineon’s Best Performance GC Distribution Partner, Greater China PSS and Industrial Power Control Greater China. |
| --- | --- |
| ● | Named Micron’s Top EBU Demand Creation and Leading Automotive Tier One. |
| --- | --- |
Outlook for the Third Quarter of Fiscal 2021 Ending on April 3, 2021
| | | | | |
|---|---|---|---|---|
| | Guidance Range | Midpoint | ||
| Sales | | $4.3B – $4.7B | | $4.5B |
| Non-GAAP Diluted EPS^(1)^ | | $0.52 – $0.58 | | $0.55 |
| (1) | A reconciliation of non-GAAP guidance to GAAP guidance is presented in the “Non-GAAP Financial Information” section of this press release. |
|---|
The above guidance is based upon market conditions existing as of today, seasonally lower revenues in Asia, gross margin improvement due to the mix shift from Asia to Americas and EMEA, and ongoing cost reduction programs. It excludes amortization of intangibles, any potential restructuring, integration, and other expenses and certain income tax adjustments. The above sales guidance assumes approximately $50 million in lower sales of Texas Instruments products as compared to the second quarter of fiscal 2021. The above guidance assumes 100 million average diluted shares outstanding and average U.S. Dollar to Euro and GBP currency exchange rates are as shown below:
| | | | | | | |
|---|---|---|---|---|---|---|
| | | Q3 Fiscal | | | | |
| | | 2021 | | Q2 Fiscal | | Q3 Fiscal |
| | | Guidance | 2021 | 2020 | ||
| Euro | | $1.21 | | $1.19 | | $1.10 |
| GBP | | $1.36 | | $1.32 | | $1.28 |
Today’s Conference Call and Webcast Details
Avnet will host a quarterly webcast and teleconference today at 1:30 p.m. PDT and 4:30 p.m. EDT to discuss its financial results and provide a corporate update. The webcast can be accessed via Avnet’s Investor Relations web page at: https://ir.avnet.com/events-presentations.
Those who would still like to participate in the live call can dial 877-407-8112 or 201-689-8840. A replay of the conference call will be available for 90 days, through April 27, 2021 at 5:00 p.m. EDT, and can be accessed by dialing: 877-660-6853 or 201-612-7415 and using Conference ID: 13713922.
Forward-Looking Statements
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the financial condition, results of operations and business of the Company. You can find many of these statements by looking for words like “believes,” “plans,” “expects,” “anticipates,” “should,” “will,” “may,” “estimates” or similar expressions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. You should understand that the following important factors, in addition to those discussed elsewhere in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2020 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, could affect the Company’s future results of operations, and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements: the scope and duration of the COVID-19 pandemic and its impact on global economic systems, access to financial markets and the Company’s employees, operations, customers, and supply chain; competitive pressures among distributors of electronic components; an industry down-cycle in semiconductors; relationships with key suppliers and allocations of products by suppliers; risks relating to the Company’s international sales and operations, including risks relating to the ability to repatriate cash, foreign currency fluctuations, duties and taxes, and compliance with international and U.S. laws; risks relating to acquisitions, divestitures and investments; adverse effects on the Company’s supply chain, operations of its distribution centers, shipping costs, third-party service providers, customers and suppliers, including as a result of issues caused by natural and weather-related disasters, pandemics and health related crisis, social unrest or warehouse modernization and relocation efforts; risks related to cyber-attacks and the Company’s information systems, including related to current or future implementations; general economic and business conditions (domestic, foreign and global) affecting the Company’s operations and financial performance and, indirectly, the Company’s credit ratings, debt covenant compliance, and liquidity and access to financing; geopolitical events, including the uncertainty caused by the United Kingdom’s exit from, and agreement for a new partnership with, the European Union; and legislative or regulatory changes affecting the Company’s businesses.
Any forward-looking statement speaks only as of the date on which that statement is made. Except as required by law, the Company assumes no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.
About Avnet
Avnet is a global electronic components distributor with extensive design, product, marketing and supply chain expertise for customers and suppliers at every stage of the product lifecycle. For the past 100 years, Avnet has helped its customers and suppliers around the world realize the transformative possibilities of technology. Learn more about Avnet at www.avnet.com. (AVT_IR)
Investor Relations Contacts
Joe Burke, 480-643-7431
Joseph.Burke@avnet.com
Media Relations Contact
Jeanne Forbis, 480-643-7499
jeanne.forbis@avnet.com
AVNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Second Quarters Ended | | Six Months Ended | **** | ||||||||
| | January 2, | December 28, | January 2, | December 28, | **** | ||||||||
| | | 2021 | | 2019 | | 2021 | | 2019 | **** | ||||
| | | (Thousands, except per share data) | **** | ||||||||||
| Sales | | $ | 4,668,172 | | $ | 4,534,806 | | $ | 9,391,232 | | $ | 9,164,814 | |
| Cost of sales | | 4,156,919 | | 4,009,193 | | 8,363,899 | | 8,095,362 | | ||||
| Gross profit | | 511,253 | | 525,613 | | 1,027,333 | | 1,069,452 | | ||||
| Selling, general and administrative expenses | | 442,084 | | 464,873 | | 913,241 | | 921,377 | | ||||
| Restructuring, integration and other expenses | | 11,948 | | 14,265 | | 38,369 | | 38,863 | | ||||
| Operating income | | 57,221 | | 46,475 | | 75,723 | | 109,212 | | ||||
| Other (expense) income, net | | (1,333) | | (1,963) | | (20,831) | | 2,969 | | ||||
| Interest and other financing expenses, net | | (21,485) | | (33,904) | | (43,787) | | (67,535) | | ||||
| Income before taxes | | 34,403 | | 10,608 | | 11,105 | | 44,646 | | ||||
| Income tax expense (benefit) | | 15,240 | | 6,940 | | 10,831 | | (774) | | ||||
| Net income | | $ | 19,163 | | $ | 3,668 | | $ | 274 | | $ | 45,420 | |
| | | | | | | | | | | | | | |
| Earnings per share: | | | | | | | | | | | | | |
| Basic | | $ | 0.19 | | $ | 0.04 | | $ | 0.00 | | $ | 0.45 | |
| Diluted | | $ | 0.19 | | $ | 0.04 | | $ | 0.00 | | $ | 0.44 | |
| | | | | | | | | | | | | | |
| Shares used to compute earnings per share: | | | | | | | | | | | | | |
| Basic | | 98,937 | | 100,431 | | 98,917 | | 101,781 | | ||||
| Diluted | | 99,932 | | 101,302 | | 99,897 | | 102,839 | | ||||
| Cash dividends paid per common share | | $ | 0.21 | | $ | 0.21 | | $ | 0.42 | | $ | 0.42 | |
| | | | | | | | | | | | | | |
AVNET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | January 2, | June 27, | **** | ||||
| | | 2021 | | 2020 | **** | ||
| | | (Thousands) | **** | ||||
| ASSETS | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 376,333 | | $ | 477,038 | |
| Receivables, net | | 3,105,317 | | 2,928,386 | | ||
| Inventories | | 2,816,421 | | 2,731,988 | | ||
| Prepaid and other current assets | | 156,375 | | 191,394 | | ||
| Total current assets | | 6,454,446 | | 6,328,806 | | ||
| Property, plant and equipment, net | | 403,270 | | 404,607 | | ||
| Goodwill | | 834,795 | | 773,734 | | ||
| Intangible assets, net | | 38,812 | | 65,437 | | ||
| Operating lease assets | | | 284,886 | | | 275,917 | |
| Other assets | | 248,104 | | 256,696 | | ||
| Total assets | | $ | 8,264,313 | | $ | 8,105,197 | |
| | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
| Current liabilities: | | | | | | | |
| Short-term debt | | $ | 311,800 | | $ | 51 | |
| Accounts payable | | 1,935,661 | | 1,754,078 | | ||
| Accrued expenses and other | | | 520,463 | | | 472,924 | |
| Short-term operating lease liabilities | | 58,400 | | 53,313 | | ||
| Total current liabilities | | 2,826,324 | | 2,280,366 | | ||
| Long-term debt | | 895,639 | | 1,424,791 | | ||
| Long-term operating lease liabilities | | | 259,599 | | | 253,719 | |
| Other liabilities | | 372,018 | | 419,923 | | ||
| Total liabilities | | | 4,353,580 | | | 4,378,799 | |
| Shareholders’ equity | | 3,910,733 | | 3,726,398 | | ||
| Total liabilities and shareholders’ equity | | $ | 8,264,313 | | $ | 8,105,197 | |
| | | | | | | | |
AVNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | Six Months Ended | **** | ||||
| | January 2, 2021 | December 28, 2019 | **** | ||||
| | | (Thousands) | **** | ||||
| Cash flows from operating activities: | | | | | | | |
| Net income | | $ | 274 | | $ | 45,420 | |
| | | | | | | | |
| Non-cash and other reconciling items: | | | | | | | |
| Depreciation | | 44,002 | | 49,822 | | ||
| Amortization | | 30,474 | | 41,257 | | ||
| Amortization of operating lease assets | | | 28,111 | | 31,354 | | |
| Deferred income taxes | | (311) | | (15,518) | | ||
| Stock-based compensation | | 15,331 | | 14,503 | | ||
| Asset impairment expense | | | 15,166 | | | — | |
| Other, net | | 17,004 | | 22,157 | | ||
| Changes in (net of effects from businesses acquired and divested): | | | | | | | |
| Receivables | | (94,831) | | 185,598 | | ||
| Inventories | | 51,185 | | 94,182 | | ||
| Accounts payable | | 130,768 | | (52,711) | | ||
| Accrued expenses and other, net | | (29,779) | | (71,858) | | ||
| Net cash flows provided by operating activities | | 207,394 | | 344,206 | | ||
| | | | | | | | |
| Cash flows from financing activities: | | | | | | | |
| Borrowings (repayments) under accounts receivable securitization, net | | 11,800 | | (35,400) | | ||
| Repayments under senior unsecured credit facility, net | | (239,430) | | (1,376) | | ||
| Repayments under bank credit facilities and other debt, net | | | (1,480) | | | (1,301) | |
| Repurchases of common stock | | — | | (198,630) | | ||
| Dividends paid on common stock | | (41,512) | | (42,426) | | ||
| Other, net | | | (2,301) | | | (4,887) | |
| Net cash flows used for financing activities | | (272,923) | | (284,020) | | ||
| | | | | | | | |
| Cash flows from investing activities: | | | | | | | |
| Purchases of property, plant and equipment | | (30,022) | | (44,252) | | ||
| Acquisitions of assets | | (18,371) | | (51,509) | | ||
| Other, net | | 725 | | (13,098) | | ||
| Net cash flows used for investing activities | | (47,668) | | (108,859) | | ||
| Effect of currency exchange rate changes on cash and cash equivalents | | 12,492 | | (8,622) | | ||
| Cash and cash equivalents: | | | | | | | |
| — decrease | | | (100,705) | | | (57,295) | |
| — at beginning of period | | 477,038 | | 546,105 | | ||
| — at end of period | | $ | 376,333 | | $ | 488,810 | |
| | | | | | | | |
Non-GAAP Financial Information
In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the United States (“GAAP”), the Company also discloses certain non-GAAP financial information including (i) adjusted operating income, (ii) adjusted operating expenses, (iii) adjusted other income (expense), (iv) adjusted income tax expense, (v) adjusted income from continuing operations, (vi) adjusted diluted earnings per share from continuing operations, and (vii) sales adjusted for the impact of significant acquisitions and other items (as defined in the Organic Sales section of this document).
There are also references to the impact of foreign currency in the discussion of the Company’s results of operations. When the U.S. Dollar strengthens and the stronger exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens and the weaker exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is an increase in U.S. Dollars of reported results. In the discussion of the Company’s results of operations, results excluding this impact are referred to as “constant currency.” Management believes organic sales and sales in constant currency are useful measures for evaluating current period performance as compared with prior periods and for understanding underlying trends. In order to determine the translation impact of changes in foreign currency exchange rates on sales, income or expense items for subsidiaries reporting in currencies other than the U.S. Dollar, the Company adjusts the average exchange rates used in current periods to be consistent with the average exchange rates in effect during the comparative period.
Management believes that operating income and operating expenses adjusted for restructuring, integration and other expenses, goodwill and intangible asset impairment expenses and amortization of acquired intangible assets and other, are useful measures to help investors better assess and understand the Company’s operating performance. This is especially the case when comparing results with previous periods or forecasting performance for future periods, primarily because management views the excluded items to be outside of Avnet’s normal operating results or non-cash in nature. Management analyzes operating income and operating expenses without the impact of these items as an indicator of ongoing margin performance and underlying trends in the business. Management also uses these non-GAAP measures to establish operational goals and, in most cases, for measuring performance for compensation purposes. Management measures operating income for its reportable segments excluding restructuring, integration and other expenses, goodwill and intangible asset impairment expenses and amortization of acquired intangible assets and other.
Additional non-GAAP metrics management uses is adjusted operating income margin, which is defined as adjusted operating income (as defined above) divided by sales.
Management also believes income tax expense (benefit), net income and diluted earnings (loss) per share adjusted for the impact of the items described above and certain items impacting other income (expense) and income tax expense (benefit) are useful to investors because they provide a measure of the Company’s net profitability on a more comparable basis to historical periods and provide a more meaningful basis for forecasting future performance. Adjustment to income tax expense (benefit) and
the effective income tax rate include the effect of changes in tax laws including recent tax law changes in the U.S., certain changes in valuation allowances and unrecognized tax benefits, income tax audit settlements and adjustments to the adjusted interim effective tax rate based upon the expected annual adjusted effective tax rate. Additionally, because of management’s focus on generating shareholder value, of which net profitability is a primary driver, management believes income from continuing operations and diluted earnings (loss) per share from continuing operations excluding the impact of these items provides an important measure of the Company’s net profitability for the investing public.
Any analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, results presented in accordance with GAAP. All amounts below relate to Avnet’s continuing operations.
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | | Fiscal | | Quarters Ended | ||||
| | | | Year to Date | | January 2, | | October 3, | ||
| | | 2021* | 2021 | | 2020 | ||||
| | | | ( in thousands, except per share amounts) | ||||||
| | | | | | | | | | |
| GAAP selling, general and administrative expenses | | | | $ | 442,084 | | $ | 471,158 | |
| Amortization of intangible assets and other | | | | | | (10,417) | | | (20,175) |
| Adjusted operating expenses | | | | | | 431,667 | | | 450,983 |
| | | | | | | | | | |
| GAAP operating income | | | | $ | 57,221 | | $ | 18,502 | |
| Restructuring, integration and other expenses | | | | | | 11,948 | | | 26,420 |
| Amortization of intangible assets and other | | | | | | 10,417 | | | 20,175 |
| Adjusted operating income | | | | | | 79,586 | | | 65,097 |
| | | | | | | | | | |
| GAAP income (loss) before income taxes | | | | $ | 34,403 | | $ | (23,297) | |
| Restructuring, integration and other expenses | | | | | | 11,948 | | | 26,420 |
| Amortization of intangible assets and other | | | | | | 10,417 | | | 20,175 |
| Other expenses - equity investment impairments | | | | | | 51 | | | 15,223 |
| Adjusted income before income taxes | | | | | | 56,819 | | | 38,521 |
| | | | | | | | | | |
| GAAP income tax expense (benefit) | | | | $ | 15,240 | | $ | (4,408) | |
| Restructuring, integration and other expenses | | | | | | 2,577 | | | 4,601 |
| Amortization of intangible assets and other | | | | | | 2,037 | | | 5,029 |
| Other expenses - equity investment impairments | | | | | | 26 | | | 26 |
| Income tax expense items, net | | | | | | (10,788) | | | (2,710) |
| Adjusted income tax expense | | | | | | 9,092 | | | 2,538 |
| | | | | | | | | | |
| GAAP net income (loss) | | | | $ | 19,163 | | $ | (18,889) | |
| Restructuring, integration and other expenses (net of tax) | | | | | | 9,371 | | | 21,819 |
| Amortization of intangible assets and other (net of tax) | | | | | | 8,380 | | | 15,146 |
| Other expenses - equity investment impairments (net of tax) | | | | | | 25 | | | 15,197 |
| Income tax expense items, net | | | | | | 10,788 | | | 2,710 |
| Adjusted net income | | | | | | 47,727 | | | 35,983 |
| | | | | | | | | | |
| GAAP diluted earnings (loss) per share | | | | $ | 0.19 | | $ | (0.19) | |
| Restructuring, integration and other expenses (net of tax) | | | | | | 0.09 | | | 0.22 |
| Amortization of intangible assets and other (net of tax) | | | | | | 0.09 | | | 0.15 |
| Other expenses - equity investment impairments (net of tax) | | | | | | - | | | 0.15 |
| Income tax expense items, net | | | | | | 0.11 | | | 0.03 |
| Adjusted diluted EPS | | | | | | 0.48 | | | 0.36 |
All values are in US Dollars.
^*^ May not foot/cross foot due to rounding and differences in average diluted shares between quarterly periods compared to the fiscal year to date.
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Quarters Ended | ||||||||||
| | Fiscal Year | | June 27, | | March 28, | | December 29, | | September 29, | ||||
| | 2020* | 2020* | | 2020* | | 2019* | | 2019* | |||||
| | ( in thousands, except per share amounts) | ||||||||||||
| GAAP selling, general and administrative expenses | | $ | 451,099 | | $ | 469,646 | | $ | 464,873 | | $ | 456,503 | |
| Amortization of intangible assets and other | | | | (18,952) | | | (21,071) | | | (21,454) | | | (20,078) |
| Adjusted operating expenses | | | | 432,147 | | | 448,576 | | | 443,419 | | | 436,426 |
| | | | | | | | | | | | | | |
| GAAP operating (loss) income | | $ | 1,920 | | $ | (115,760) | | $ | 46,475 | | $ | 62,738 | |
| Restructuring, integration and other expenses | | | | 23,796 | | | 19,211 | | | 14,265 | | | 24,598 |
| Goodwill and intangible asset impairment expenses (benefits) | | | | (1,744) | | | 145,836 | | | - | | | - |
| Amortization of intangible assets and other | | | | 18,952 | | | 21,071 | | | 21,454 | | | 20,078 |
| Adjusted operating income | | | | 42,924 | | | 70,358 | | | 82,194 | | | 107,414 |
| | | | | | | | | | | | | | |
| GAAP (loss) income before income taxes | | $ | (16,144) | | $ | (158,086) | | $ | 12,086 | | $ | 34,038 | |
| Restructuring, integration and other expenses | | | | 23,796 | | | 19,211 | | | 14,265 | | | 24,598 |
| Goodwill and intangible asset impairment expenses (benefits) | | | | (1,744) | | | 145,836 | | | - | | | - |
| Amortization of intangible assets and other | | | | 18,952 | | | 21,071 | | | 21,454 | | | 20,078 |
| Other expenses and early debt redemption | | | | 2,054 | | | 15,526 | | | 4,002 | | | - |
| Adjusted income before income taxes | | | | 26,914 | | | 43,558 | | | 51,807 | | | 78,713 |
| | | | | | | | | | | | | | |
| GAAP income tax expense (benefit) | | $ | (68,304) | | $ | (29,425) | | $ | 6,870 | | $ | (7,714) | |
| Restructuring, integration and other expenses | | | | 4,659 | | | 4,372 | | | 3,377 | | | 6,240 |
| Goodwill and intangible asset impairment expenses | | | | 207 | | | 6,226 | | | - | | | - |
| Amortization of intangible assets and other | | | | 3,613 | | | 4,307 | | | 3,964 | | | 4,235 |
| Other expenses and early debt redemption | | | | 506 | | | 4,992 | | | 740 | | | - |
| Income tax benefit (expense) items, net | | | | 22,996 | | | 15,119 | | | (4,071) | | | 13,611 |
| Adjusted income tax (benefit) expense | | | | (36,323) | | | 5,591 | | | 10,880 | | | 16,372 |
| | | | | | | | | | | | | | |
| GAAP net (loss) income | | $ | 52,160 | | $ | (128,661) | | $ | 5,216 | | $ | 41,752 | |
| Restructuring, integration and other expenses (net of tax) | | | | 19,137 | | | 14,839 | | | 10,888 | | | 18,358 |
| Goodwill and intangible asset impairment expenses (benefits) (net of tax) | | | | (1,951) | | | 139,610 | | | - | | | - |
| Amortization of intangible assets and other (net of tax) | | | | 15,339 | | | 16,764 | | | 17,490 | | | 15,843 |
| Other expenses and early debt redemption (net of tax) | | | | 1,548 | | | 10,534 | | | 3,262 | | | - |
| Income tax (benefit) expense items, net | | | | (22,996) | | | (15,119) | | | 4,071 | | | (13,611) |
| Adjusted net income | | | | 63,237 | | | 37,967 | | | 40,927 | | | 62,341 |
| | | | | | | | | | | | | | |
| GAAP diluted (loss) earnings per share | | $ | 0.53 | | $ | (1.29) | | $ | 0.05 | | $ | 0.40 | |
| Restructuring, integration and other expenses (net of tax) | | | | 0.19 | | | 0.15 | | | 0.11 | | | 0.18 |
| Goodwill and intangible asset impairment expenses (benefits) (net of tax) | | | | (0.02) | | | 1.39 | | | - | | | - |
| Amortization of intangible assets and other (net of tax) | | | | 0.15 | | | 0.17 | | | 0.17 | | | 0.15 |
| Other expenses and early debt redemption (net of tax) | | | | 0.02 | | | 0.11 | | | 0.03 | | | - |
| Income tax (benefit) expense items, net | | | | (0.23) | | | (0.15) | | | 0.04 | | | (0.13) |
| Adjusted diluted EPS | | | | 0.64 | | | 0.38 | | | 0.40 | | | 0.60 |
All values are in US Dollars.
^*^ May not foot/cross foot due to rounding and differences in average diluted shares between quarterly periods compared to the fiscal year to date.
Sales of TI Products
In December, the termination of the Company’s electronic components distribution agreement with Texas Instruments (“TI”) was completed. Sales of TI products by quarter are outlined in the following table:
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Second Quarter | | First Quarter | | Fourth Quarter | | Third Quarter | | Second Quarter | |||||
| | | January 2, | | October 3, | | June 27, | | March 28, | | December 28, | |||||
| | | 2021 | | 2020 | | 2020 | | 2020 | | 2019 | |||||
| | | (in millions) | |||||||||||||
| Sales of TI Products | | $ | 49.6 | | $ | 241.0 | | $ | 322.5 | | $ | 400.6 | | $ | 399.2 |
Organic Sales
Organic sales is defined as sales adjusted for the impact of significant acquisitions, divestitures and other items by adjusting Avnet’s prior and current periods (if necessary) to include the sales of acquired businesses and exclude the sales of divested businesses as if the acquisitions and divestitures had occurred at the beginning of the earliest period presented. Additionally, fiscal 2021 sales are adjusted for the estimated impact of the extra week of sales in the first quarter of fiscal 2021 due to the 14-week fiscal first quarter and the 53-week fiscal year. Organic sales in constant currency is defined as organic sales (as defined above) excluding the impact of changes in foreign currency exchange rates.
As a result of declining sales due to the termination of the TI distribution agreement discussed further above, organic sales growth rates have also been adjusted to exclude sales of TI products.
The following table presents the reconciliation of reported sales to organic sales for the second quarter and first six months of fiscal 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Quarter Ended | | Six Months Ended | |||||||||||||||||||||
| | | Sales | | | | | Organic | | | | | | | | | | | | | Organic | ||||
| | | As Reported | | | | Sales | | Sales | | | | Organic | | | | Sales | ||||||||
| | | and Organic | | TI Sales | | Adj for TI | | As Reported | | Estimated | | Sales | | TI Sales | | Adj for TI | ||||||||
| | | Q2-Fiscal | | Q2-Fiscal | | Q2-Fiscal | | Q2-Fiscal | | Extra | | Q2-Fiscal | | Q2-Fiscal | | Q2-Fiscal | ||||||||
| | 2021 | 2021^(1)^ | 2021^(1)^ | 2021 | Week^(2)^ | 2021 | 2021^(1)^ | 2021^(1)^ | ||||||||||||||||
| | | (in millions) | ||||||||||||||||||||||
| Avnet | | $ | 4,668.2 | | $ | 49.6 | | $ | 4,618.6 | | $ | 9,391.2 | | $ | 306.0 | | $ | 9,085.2 | | $ | 290.6 | | $ | 8,794.6 |
| Avnet by region | | | | | | | | | | | | | | | | | | | | | | | | |
| Americas | | $ | 1,101.5 | | $ | 14.0 | | $ | 1,087.5 | | $ | 2,307.1 | | $ | 77.0 | | $ | 2,230.1 | | $ | 82.5 | | $ | 2,147.6 |
| EMEA | | 1,346.3 | | 20.8 | | 1,325.5 | | 2,827.0 | | 97.0 | | 2,730.0 | | 123.7 | | 2,606.3 | ||||||||
| Asia | | 2,220.4 | | 14.8 | | 2,205.6 | | 4,257.1 | | 132.0 | | 4,125.1 | | 84.4 | | 4,040.7 | ||||||||
| Avnet by segment | | | | | | | | | | | | | | | | | | | | | | |||
| EC | | $ | 4,342.4 | | $ | 49.6 | | $ | 4,292.8 | | $ | 8,724.5 | | $ | 284.0 | | $ | 8,440.5 | | $ | 290.6 | | $ | 8,149.9 |
| Farnell | | 325.8 | | — | | 325.8 | | 666.7 | | 22.0 | | 644.7 | | — | | 644.7 |
| (1) | Sales adjusted for the impact of the termination of the TI distribution contract. |
|---|---|
| (2) | The impact of the additional week of sales in the first quarter of fiscal 2021 is estimated. |
| --- | --- |
The following table presents reported and organic sales growth rates for the second quarter and first six months of fiscal 2021 compared to fiscal 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Quarter Ended | | Six Months Ended | | |||||||||||||||||||
| | | | | | Sales | | Organic | | | | | | | | | | | | Organic | |||||
| | | | | | As Reported | | Sales | | | | | Sales | | | | | Organic | | Sales | |||||
| | | Sales | | | and Organic | | Adj for TI | | | | | As Reported | | | | | Sales | | Adj for TI | |||||
| | | As Reported | | Year-Year % | | Year-Year % | | Sales | | Year-Year % | | Organic | | Year-Year % | | Year-Year % | ||||||||
| | | and Organic | | Change in | | Change in | | As Reported | | Change in | | Sales | | Change in | | Change in | ||||||||
| | | Year-Year | | Constant | | Constant | | Year-Year | | Constant | | Year-Year | | Constant | | Constant | ||||||||
| | % Change | Currency | Currency^(1)^ | % Change | Currency | % Change | Currency | Currency^(1)^ | ||||||||||||||||
| Avnet | | 2.9 | % | | 0.7 | % | | 9.3 | % | | 2.5 | % | | 0.7 | % | | (0.9) | % | (2.7) | % | 3.7 | % | ||
| Avnet by region | | | | | | | | | | | | | | | | | | | | | | | | |
| Americas | | (7.2) | % | | (7.2) | % | | (0.5) | % | | (4.0) | % | | (4.0) | % | | (7.2) | % | (7.2) | % | (2.7) | % | ||
| EMEA | | (5.6) | | | (11.4) | | | (4.5) | | | (2.4) | | | (7.4) | | | (5.8) | | (10.8) | | (6.2) | | ||
| Asia | | 15.5 | | | 14.6 | | | 25.7 | | | 10.1 | | | 9.6 | | | 6.7 | | 6.2 | | 15.1 | | ||
| Avnet by segment | | | | | | | | | | | | | | | | | | | | | | |||
| EC | | 3.3 | % | | 1.1 | % | | 10.5 | % | | 2.7 | % | | 0.9 | % | | (0.7) | % | (2.4) | % | 4.5 | % | ||
| Farnell | | (1.6) | | | (4.5) | | | (4.5) | | | (0.1) | | | (2.5) | | | (3.3) | | (5.8) | | (5.8) | |
| (1) | Sales growth rates excluding the impact of the termination of the TI distribution agreement. |
|---|
Historical Segment Financial Information
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | | | Fiscal 2021 | |||||
| | | Fiscal | | Second Quarter | | First Quarter | |||
| | | Year to Date | | January 2, | | October 3, | |||
| | | 2021* | | 2021 | | 2020 | |||
| | | (in millions) | |||||||
| Sales: | | | | | | | | | |
| Electronic Components | | $ | 8,724.5 | | $ | 4,342.4 | | $ | 4,382.2 |
| Farnell | | | 666.7 | | | 325.8 | | | 340.9 |
| Avnet sales | | $ | 9,391.2 | | $ | 4,668.2 | | $ | 4,723.1 |
| | | | | | | | | | |
| Operating income: | | | | | | | | | |
| Electronic Components | | $ | 188.4 | | $ | 103.9 | | $ | 84.4 |
| Farnell | | | 26.6 | | | 14.6 | | | 12.0 |
| | | | 215.0 | | | 118.5 | | | 96.4 |
| Corporate expenses | | | (70.3) | | | (39.0) | | | (31.3) |
| Restructuring, integration and other expenses | | | (38.4) | | | (11.9) | | | (26.4) |
| Amortization of acquired intangible assets and other | | | (30.6) | | | (10.4) | | | (20.2) |
| Avnet operating income | | $ | 75.7 | | $ | 57.2 | | $ | 18.5 |
| | | | | | | | | | |
| Sales by geographic area: | | | | | | | | | |
| Americas | | $ | 2,307.1 | | $ | 1,101.5 | | $ | 1,205.7 |
| EMEA | | | 2,827.0 | | | 1,346.3 | | | 1,480.7 |
| Asia | | | 4,257.1 | | | 2,220.4 | | | 2,036.7 |
| Avnet sales | | $ | 9,391.2 | | $ | 4,668.2 | | $ | 4,723.1 |
* May not foot/cross foot due to rounding
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Fiscal Year 2020 | |||||||||||
| | | | | Quarters Ended | |||||||||||
| | | | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | |||||
| | | Fiscal Year | | June 27, | | March 28, | | December 28, | | September 28, | |||||
| | | 2020* | | 2020* | | 2020* | | 2019 | | 2019 | |||||
| | | (in millions) | |||||||||||||
| Sales: | | | | | | | | | | | | | | | |
| Electronic Components | | $ | 16,340.1 | | $ | 3,867.6 | | $ | 3,974.7 | | $ | 4,203.6 | | $ | 4,294.2 |
| Farnell | | | 1,294.2 | | | 292.1 | | | 335.1 | | | 331.2 | | | 335.8 |
| Avnet | | $ | 17,634.3 | | $ | 4,159.7 | | $ | 4,309.8 | | $ | 4,534.8 | | $ | 4,630.0 |
| | | | | | | | | | | | | | | | |
| Operating income (loss): | | | | | | | | | | | | | | | |
| Electronic Components | | $ | 349.1 | | $ | 58.9 | | $ | 84.8 | | $ | 93.1 | | $ | 112.3 |
| Farnell | | | 75.5 | | | 10.4 | | | 23.4 | | | 20.0 | | | 21.8 |
| | | | 424.6 | | | 69.3 | | | 108.2 | | | 113.1 | | | 134.1 |
| Corporate expenses | | | (121.6) | | | (26.3) | | | (37.8) | | | (30.9) | | | (26.7) |
| Restructuring, integration and other expenses | | | (81.9) | | | (23.8) | | | (19.2) | | | (14.3) | | | (24.6) |
| Goodwill and intangible asset impairment expenses | | | (144.1) | | | 1.7 | | | (145.8) | | | - | | | - |
| Amortization of acquired intangible assets and other | | | (81.6) | | | (19.0) | | | (21.1) | | | (21.4) | | | (20.1) |
| Avnet operating (loss) income | | $ | (4.6) | | $ | 1.9 | | $ | (115.8) | | $ | 46.5 | | $ | 62.7 |
| | | | | | | | | | | | | | | | |
| Sales by geographic area: | | | | | | | | | | | | | | | |
| Americas | | $ | 4,755.3 | | $ | 1,149.3 | | $ | 1,203.6 | | $ | 1,186.6 | | $ | 1,215.8 |
| EMEA | | | 5,753.4 | | | 1,344.2 | | | 1,512.5 | | | 1,425.8 | | | 1,470.9 |
| Asia | | | 7,125.6 | | | 1,666.2 | | | 1,593.7 | | | 1,922.4 | | | 1,943.3 |
| Avnet | | $ | 17,634.3 | | $ | 4,159.7 | | $ | 4,309.8 | | $ | 4,534.8 | | $ | 4,630.0 |
* May not foot/cross foot due to rounding
Guidance Reconciliation
The following table presents the reconciliation of non-GAAP adjusted diluted earnings per share guidance to the expected GAAP diluted earnings per share guidance for the third quarter of fiscal 2021.
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | Low End of | | High End of | | ||
| | Guidance Range | Guidance Range | |||||
| | | | | | | | |
| Adjusted diluted earnings per share guidance | | $ | 0.52 | | $ | 0.58 | |
| Restructuring, integration and other expense (net of tax) | | (0.12) | | (0.08) | | ||
| Amortization of intangibles and other (net of tax) | | (0.09) | | (0.07) | | ||
| Income tax expense adjustments | | | (0.05) | | | 0.05 | |
| GAAP diluted earnings per share guidance | | $ | 0.26 | | $ | 0.48 | |