Bleak Quarter, Great Year for Avnet

Electronic News, August 20, 2001 by Rob Spiegel

Distributor's fiscal year ends up 29 percent but final quarter drops

Avnet Inc. of Phoenix last week reported on its fiscal year ended June 29, posting a down quarter that ended a year that displayed 29 percent sales growth over the previous fiscal year. Roy Vallee, chairman and chief executive officer, characterized the fiscal year as "the most amazing fiscal year in my 30 years in this business," noting that the year included both a boom and a bust.

But, "the fourth quarter has been an extreme disappointment," Vallee said during the company's earnings conference call. Avnet (nyse: AVT) posted sales for the fiscal year of $12.8 billion, up from its 2000 sales of $9.9 billion. Sales for the fourth quarter were $2.54 billion as compared with $2.95 billion in the fourth quarter of fiscal year 2000. Net income from operations was $5.7 million, or 5 cents per share on a diluted basis, excluding special charges related to the acquisition and integration of Kent Electronics and for costs due to actions taken in response to business conditions and related restructuring.

Including the special charge, Avnet reported a net loss from continuing operations for the fourth quarter of $231 million, or $1.96 per share on a diluted basis. This compares with income of $72.5 million, or 62 cents per share on a diluted basis, in last year's fourth quarter.

Vallee commented on the onetime charge in a prepared statement, saying that the charge was higher than first anticipated because of a re-evaluation of the company's Internet-related businesses due and because of deeper cost-cutting, both in response to the worsening business environment.

The company also announced measures to better position itself during current economic conditions. The company will discontinue the payment of its cash dividend effective after its anticipated dividend payment on Jan. 2, 2002. The move is intended to help deploy cash to fuel future earnings growth.

"Looking at every cost and use of capital in our business to ensure we are better positioned to deliver higher shareholder value going forward, we have decided that it is in the best interest of our shareholders to discontinue the use of capital to pay cash dividends," Vallee said.

Avnet's results were in keeping with the earnings reports coming from most electronic distributors during the second quarter of 2001. One bright note: with quarterly sales of $2.54 billion, Avnet edged out rival Arrow Electronics Inc. for the first time in several quarters (Arrow reported quarterly sales of $2.5 billion) although Arrow (nyse: ARW) reported a net income of $6.95 million compared to Avnet's net loss.

"Considering the current market, I think they had an acceptable quarter. It was about as good as you can expect," said Clarke Walser, principal at Walser and Associates of Arlington Heights, Ill. Walser noted that Avnet and other distributors are doing quite well in keeping their companies in the black during this downturn. "During the downturn in 1984, most distributors were in the red. Now, most people are still making money, and it's a much more severe downturn. That's remarkable giving the magnitude of the drop-off in business."

During the earnings conference call, Avnet executives noted some light at the end of the tunnel. "Excess components in the supply chain are burning off; they're diminishing," Vallee said. "As you get further and further into the summer and into the fall, we're getting toward four quarters of inventory burn-off. Companies will start ordering from their actual needs rather than living off their excess inventory."

The H'Avnets
Avnet's revenue and Income figures
compared from 2000 to 2001 *
                            Fiscal year 2001       Fiscal year 2000
                       (excluding special charge)
Revenue in $ millions           $12,800                 $9,900
Income in $ millions             $236.8                  $193
                        Fourth quarter 2001      Fourth quarter 2000
                     (excluding special charge)
Revenue in millions            $2,540                  $2,950
Income in millions              $5.7                    $72.5
(*)Financial statements have been
restated to reflect the combined results
of Avnet and Kent as required generally
accepted accounting practices.