Avnet, Inc. — Form 10-Q Summary
Reporting period: Quarter ended April 3, 2021 (fiscal 2021 Q3), with nine-month results compared with the period ended March 28, 2020. Although the request metadata says “2020 Q3,” the filing covers 2021 Q3. Fiscal 2021 had 53 weeks; its first nine months included 40 weeks versus 39 weeks in the prior-year period.
Business context and results
Avnet distributes electronic components through its Electronic Components (EC) and Farnell segments, serving customers across the Americas, EMEA and Asia/Pacific.
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Sales | $4.917 billion | $4.310 billion | $14.308 billion | $13.475 billion |
| Gross profit | $568.4 million | $518.9 million | $1.596 billion | $1.588 billion |
| Gross margin | 11.6% | 12.0% | 11.2% | 11.8% |
| Operating income (loss) | $87.7 million | $(115.8) million | $163.4 million | $(6.5) million |
| Adjusted operating income | $110.5 million | $70.4 million | $255.2 million | $260.0 million |
| Net income (loss) | $107.5 million | $(128.7) million | $107.8 million | $(83.2) million |
| Diluted EPS | $1.07 | $(1.29) | $1.08 | $(0.82) |
Cash flow, balance sheet and liquidity
- Nine-month operating cash flow was $197.5 million, down from $442.6 million. Working capital used $112.0 million, primarily reflecting a $405.7 million increase in receivables, partly offset by a $224.2 million increase in payables and a $63.0 million inventory reduction.
- Investing cash outflow was $51.2 million, including $39.0 million of capital expenditures and $18.4 million for an asset acquisition. Financing cash outflow was $308.4 million, including $232.3 million of net credit-facility repayments and $62.4 million of dividends.
- Cash was $322.7 million at April 3, 2021, versus $477.0 million at June 27, 2020; $243.1 million was held outside the United States. Total assets were $8.366 billion and shareholders’ equity was $3.938 billion.
- Debt carrying value totaled approximately $1.196 billion: $300.0 million short-term and $895.9 million long-term, compared with $1.425 billion total at June 27, 2020. The $300 million of 3.75% notes due December 2021 was classified as short-term.
- Avnet reported approximately $1.61 billion of availability under its $1.25 billion revolving credit facility and $450 million receivables securitization program, with no quarter-end borrowings under either facility. It was in compliance with applicable covenants.
Changes and management commentary
- Q3 sales grew 14.1% reported and 10.7% excluding currency effects. Organic sales growth, adjusted for the TI distribution agreement termination, was 22.0% in constant currency. Growth reflected stronger demand, notably in EC Asia and transportation and industrial markets, and improved Farnell demand.
- Q3 sales rose 36.2% in Asia, 4.8% in EMEA and declined 3.5% in the Americas. EC sales grew 13.7% reported; Farnell sales grew 18.2% reported.
- Q3 gross margin fell 48 basis points, primarily due to geographic mix and, to a lesser extent, product and customer mix. SG&A declined 1.4% year over year; its share of sales fell to 9.4% from 10.9%.
- Q3 adjusted operating income increased 57.1%, supported by sales growth and lower SG&A. Nine-month adjusted operating income declined 1.8%, as lower gross margin more than offset sales growth and cost savings. Prior-year reported operating results included $145.8 million of goodwill and long-lived asset impairment expense.
- Reported Q3 and nine-month net income benefited from tax benefits; the effective tax benefit rates were 53.3% and 32.7%, respectively. Q3 earnings also reflect a quarter with no goodwill impairment charge.
Outlook, risks and unusual items
- The filing provides no specific sales or earnings guidance. Management said it expected adequate liquidity from operating cash flow and available borrowing capacity, and expected to refinance the $300 million notes committed for early redemption on April 30, 2021. The redemption was expected to generate an approximately $5 million debt-extinguishment loss.
- Management reported no meaningful Q3 financial impact from COVID-19, but warned that the pandemic’s duration and economic effects remain uncertain. Risks cited include supply-chain and logistics disruption, semiconductor industry cycles, supplier allocations, competition, foreign exchange, cyber and systems risks, geopolitical developments, and regulatory changes.
- Avnet recorded $39.9 million of fiscal 2021 restructuring expense in the first nine months, relating to reductions or planned reductions of more than 300 employees. It expected more than $7 million in annual operating expense savings from Q3 restructuring actions and expected most remaining restructuring payments by fiscal year-end. Share repurchases were suspended; $469 million remained authorized.
- Other notable items included a $15.2 million equity-investment impairment in nine-month other expense and an $8.2 million legal-settlement gain recorded against restructuring, integration and other expenses. Estimated liabilities for certain compliance-related matters were $14.7 million; management said outcomes could materially affect an individual period’s results, though it did not expect a material adverse effect on financial position or liquidity.
Important facts for investors to verify
- Whether sales momentum and the reported organic growth rate persist, particularly after accounting for currency, the extra fiscal week and the TI agreement termination.
- Whether gross-margin pressure from regional, product and customer mix continues, and whether restructuring savings offset it.
- Whether operating cash flow recovers as receivables and working-capital needs evolve.
- Completion and funding of the notes’ early redemption, including the expected refinancing and make-whole cost.
- Developments in COVID-19, supply-chain constraints, compliance matters and other cited risks; also the unusually favorable tax effects supporting reported earnings.