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By | Paul Kunert 24th January 2013 17:01

Avnet CEO: Sales flat, profit down... but 'outlook' is better

800 staff shown the door as cost-cutting takes effect

Avnet's CEO says the distributor is moving in the right direction after reporting fiscal Q2 numbers that were dramatically better than the opening three months of its new financial year.

Sales came in essentially flat on a year ago period at $6.7bn but contain the financials of four firms acquired in October and November including Magirus. However these separate numbers were not broken down.

Things still weren't great on the distie bottom line - operating profit was down 15.3 per cent to $195.6m, and net profit fell 6.5 per cent to $137.5m for the quarter ended 29 December.

But they could have been worse had Avnet not taken earlier cost-cutting actions; it shed some 800 jobs in the first half of fiscal 2013 as it cut costs to match tough market conditions.

The distributor confirmed fiscal Q2 financials include restructuring, integration and severance charges of $34.5m pre-tax.

The one-off charges related to a reduction in sales, administration, and support staff across all three geographies and both the Technology Solutions (TS) and Electronics Marketing (EM) divisions.

Roughly 560 left the EM arm and 225 moved out of TS, costing $19.8m in severance, while Avnet coughed $7.4m for existing facilities including 14 in the Americas, 10 in EMEA and five in Asia.

CEO Rick Hamada said the firm had experienced a "stronger than expected performance despite some continuing concerns on the longer term macroeconomic environment".

The EM unit grew sales 2.2 per cent to $3.67bn and operating profit fell by nearly a fifth to $140.1m.

The operating margin collapsed by 105 basis points from 4.9 per cent to 3.8 per cent. This was down to the fact that the booster from early last year - shortages on HDD that led to higher prices - was not repeated.

The revenues decline at the EM division was "in line with normal seasonality", said Hamada.

The TS arm saw sales decline 2.3 per cent to £3bn but quarter-on-quarter they rose 36 per cent. Operating profits dropped 9.2 per cent year-on-year to $108m.

"Revenue growth was higher than expected as customers were more willing to spend their IT budget dollars after two quarters of below seasonal growth," said Hamada.

He added the quarter-on-quarter revenue growth, "when coupled with expense actions taken in prior quarters, combined to drive sequential operating income dollars and margin up 214 per cent and 202 basis points, respectively".

So basically Hamada reckons things are getting better and that acquisitions made in the quarter, including Magirus, Genilogix and Brightstar Partners, will sharpen its competitive edge.

"While macroeconomic uncertainties could continue to weigh on IT spending, we feel strongly that our competitive position and focus on solution selling positions us to leverage future growth," he added.

The markets seem to agree with Hamada's sentiments - at the time of writing, Avnet's share price had gone up more than 7 per cent since the financials were filed. ®

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