Avnet Rises On Quarterly Results

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Avnet reported profit and sales growth Thursday, with success in North American technology sales and European cost-cutting that weren't hampered by the sluggish sales for computing components and the Asia-Pacific region.

The Tempe, Ariz.-based distributor saw year-over-year revenue for its first quarter ended Sept. 27 jump 7.8 percent to $6.84 billion, topping analysts' expectations of $6.71 billion.

Quarterly non-GAAP earnings rose 14.4 percent to $144.2 million this year, or $1.02 per share. This beat estimates from Zacks Investment Research of 97 cents per share. 

[Related: Avnet Solutions Global President To Step Down]

"We continued the momentum of fiscal 2014," Avnet CEO Rick Hamada said during the company's earnings call.

Investors sent Avnet's stock up nearly 3 percent in trading Thursday to $41.15 on the quarterly results, which were released before market open. The company had a recent market value of $5.69 billion.

Avnet's technology solutions division saw global sales increase 2 percent to $2.47 billion once changes from foreign currency exchange rates were factored in.

Operating margins, meanwhile, fell from 2.6 percent to 2.5 percent. Hamada said getting technology solution operating margins back to the long-term goal of 3.4 percent to 3.9 percent will require continuous year-over-year improvement and take some time.

But given sequential buying patterns, Avnet's current quarter is expected to deliver year-over-year technology margin growth, according to Chief Financial Officer Kevin Moriarty. 

Computing component sales -- which include processors, servers and CPU -- continued to be a drag on Avnet's technology business due to transitions and technology refreshes from major vendors, Hamada said.

Weaker-than-expected component sales resulted in year-over-year revenue falling by 5.8 percent on a constant currency basis in Europe, the Middle East and Africa (EMEA). Components comprise 8 to 10 percent of Avnet's overall technology business, said Global Technology Solutions President Phil Gallagher, who plans to step down before the end of the year. 

Hamada said Avnet will exercise disciplined portfolio management, allocating resources to products that deliver an appropriate return. He cautioned, though, that the sluggish component sales may continue for at least a couple more quarters.

"Over time, we will make sure we right-size this [components] business," Hamada said. "Whatever we're retaining will meet our growth margins." 

NEXT: Asia-Pacific Sales Off

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