Press Release

Fourth quarter sales rose 10 percent year over year

Transformation delivered cash flow from operations of $236 million, the highest in five years

PHOENIX--(BUSINESS WIRE)--Aug. 8, 2018-- Avnet, Inc. (Nasdaq: AVT) today announced results for the fourth quarter and fiscal year ended June 30, 2018.

Fourth Quarter Key Financial Highlights

• Sales of $5.06 billion increased 9.8% year over year
  • Sales grew 6.7% year over year in constant currency
• GAAP operating income margin of 2.5%
  • Non-GAAP adjusted operating income margin improved year over year to 3.7%
• GAAP diluted EPS from continuing operations of $0.49
  • Non-GAAP diluted EPS of $0.99 increased 18% year over year
• Delivered the strongest adjusted operating income dollars and margin performance in five quarters
• Net working capital days improved sequentially by 7 days, from 93 to 86, and improved 14 days from the second quarter
• Cash flow from operations reached $236 million

CEO Commentary

“We closed fiscal 2018 with great momentum in revenue growth, earnings and cash flow generation,” said Bill Amelio, Chief Executive Officer, Avnet. “Avnet’s unique ecosystem gives our customers access to an unparalleled suite of capabilities. We can now guide our enterprise and startup customers alike from idea to product and product to market. We do this by reducing complexity and delivering solutions that get products to market quickly and cost effectively. Our ecosystem is foundational, and when coupled with our ongoing transformation initiatives, we see a very exciting road ahead.”

CFO Commentary

“Our transformation efforts are contributing meaningfully toward our goals of growing Avnet’s higher margin businesses, reducing our expenses and optimizing working capital. This progress culminated in $236 million of cash flow from operations in the fourth quarter, Avnet’s best operating cash flow performance in five years,” stated Tom Liguori, Chief Financial Officer, Avnet. ”Our focus on optimizing operating expenses resulted in an additional $37 million of savings being implemented at the end of the fourth quarter to further streamline expenses as we enter fiscal year 2019.”

Additional Fourth Quarter Highlights

• Named a global distribution partner for Microsemi Corp., a wholly owned subsidiary of Microchip Technology. This expands Avnet’s multi-year relationship with Microchip, and gives Avnet customers access to Microsemi’s complete portfolio of semiconductor and system solutions for aerospace and defense, communications, data center and industrial markets.
• Added three new suppliers to the Electronic Components business and four new suppliers to Premier Farnell
• Surpassed one million members in Avnet’s online communities of element14 and Hackster.io, more than double the members from one year ago
• Earned a ranking in the top 10 on the 2018 Gartner Supply Chain Top 25 list
• Expanded the Company’s industry expertise by adding semiconductor veteran Oleg Khaykin to Avnet’s board of directors, where he serves on the audit and the corporate governance committees
• Strengthened the Electronic Components business unit by adding Tony Roybal, who joined Avnet as regional president, Americas Electronic Components, reporting to Phil Gallagher
• Continued to maintain a strong book-to-bill ratio above 1.0 across all regions
• Delivered the strongest sales quarter of the year for the Electronic Components business with 6% sales growth sequentially
• Doubled online sales year-over-year
• Repurchased 2.9 million Avnet shares for $117 million
• Paid $0.19 per share dividend for a total of $22.1 million
• Reported end of quarter cash and cash equivalents of $621.1 million; debt was $1.7 billion with a leverage ratio of approximately 2.2

Outlook for the First Quarter of Fiscal 2019 Ending on September 29, 2018

The above guidance excludes any additional acquisitions, any results of discontinued operations, amortization of intangibles, accelerated depreciation, any potential restructuring, integration, and other expenses and certain income tax adjustments including certain impacts of the recent tax law changes in the U.S. The above guidance assumes 117 million average diluted shares outstanding and the average U.S. Dollar to Euro currency exchange rate for the first quarter of fiscal 2019 is $1.16 to €1.00. This compares with an average exchange rate of $1.17 to the Euro in the first quarter of fiscal 2018.

Today’s Conference Call and Webcast Details:

Avnet will host a quarterly teleconference and webcast today at 1:30 p.m. PDT. The live webcast can be accessed from the following link Avnet Earnings Call Webcast and Slides and will be available for 90 days.

To participate in the live call, dial 877-407-8112 or 201-689-8840. To access the slides follow the webcast link above, or the slides can be accessed via Avnet’s Investor Relations web page at: www.ir.avnet.com.

Forward-Looking Statements

This document contains certain “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. These statements are based on management’s current expectations and are subject to uncertainty and changes in facts and circumstances. The forward-looking statements herein include statements addressing future financial and operating results of Avnet and may include words such as “will,” “anticipate,” “intend,” “estimate,” “forecast,” “expect,” “feel,” “believe,” “should,” and other words and terms of similar meaning in connection with any discussions of future operating or financial performance, business prospects or market conditions. Actual results may differ materially from the expectations contained in the forward-looking statements.

The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: Avnet’s ability to retain and grow market share and to generate additional cash flow, risks associated with any acquisition activities and the successful integration of acquired companies, implementing and maintaining ERP systems, supplier losses and changes to supplier programs, an industry down-cycle in semiconductors, declines in sales, changes in business conditions and the economy in general, changes in market demand and pricing pressures, any material changes in the allocation of product or price discounts by suppliers, and other competitive and/or regulatory factors affecting the businesses of Avnet generally.

More detailed information about these and other factors is set forth in Avnet’s filings with the Securities and Exchange Commission, including Avnet’s reports on Form 10-K, Form 10-Q and Form 8-K. Except as required by law, Avnet is under no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

About Avnet

From idea to design and from prototype to production, Avnet supports customers at each stage of a product’s lifecycle. A comprehensive portfolio of design and supply chain services makes Avnet the go-to guide for innovators who set the pace for technological change. For nearly a century, Avnet has helped its customers and suppliers around the world realize the transformative possibilities of technology. Learn more about Avnet at www.avnet.com. Visit the Avnet Investor Relations website at www.ir.avnet.com or contact us at investorrelations@avnet.com. (AVT_IR)

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 other income (expense), (iii) adjusted income tax expense, (iv) adjusted income from continuing operations, (v) adjusted diluted earnings per share, and (vi) sales adjusted for the impact of 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 “excluding the impact of changes in foreign currency exchange rates” or “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 adjusted for restructuring, integration and other expenses, goodwill impairment expense 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 without the impact of these items as well as other income (expense) excluding certain amounts 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 many cases, for measuring performance for compensation purposes. Management measures operating income for our reportable segments excluding restructuring, integration and other expenses, goodwill impairment expense 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, income from continuing operations and diluted earnings per share from continuing operations adjusted for the impact of the items described above and certain items impacting other expense and income tax expense 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. 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 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.

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 (if necessary) periods 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. Organic sales is measured on a sales from continuing operations basis. Organic sales in constant currency is defined as organic sales (as defined above) excluding the impact of changes in foreign currency exchange rates.

The following table presents reported and organic sales growth rates for the fourth quarter and full year of fiscal 2018 compared to fiscal 2017.

The following table presents the reconciliation of reported sales to organic sales for the fourth quarter and full year of fiscal 2017.

Sales from suppliers lost as a result of supplier channel changes were $2.3 million, $0.5 million and $3.3 million in the fourth quarter of fiscal 2018 for the Americas, EMEA and Asia regions, respectively compared to sales of $61.7 million, $103.8 million and $71.5 million in the fourth quarter of fiscal 2017 for the Americas, EMEA and Asia regions, respectively.

Sales from suppliers lost as a result of supplier channel changes were $36.8 million, $45.1 million and $45.8 million in fiscal 2018 for the Americas, EMEA and Asia regions, respectively compared to sales of $263.2 million, $388.1 million and $328.3 million in fiscal 2017 for the Americas, EMEA and Asia regions, respectively.

Historical Segment Financial Information

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 first quarter of fiscal 2019.

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Source: Avnet, Inc.

Investor Relations Contacts
Avnet
Tom Liguori, 480-643-7550
CFO
or
Abernathy MacGregor
Ina McGuinness, 480-643-7053
investorrelations@avnet.com
or
Media Relations Contact
Avnet
Maureen O’Leary, 480-643-7499
Media Relations
maureen.oleary@avnet.com