Avnet reported moderate fourth-quarter results last week that met consensus estimates. Avnet generated $6.6 billion of total sales, in line with seasonality and analysts’ expectations, and up 20 basis points from the year-ago quarter on a pro forma basis. Investors are pleased to hear that Avnet generated better than expected growth from European markets during the fourth quarter, which jumped 12% from the year-ago quarter.
Full-year sales to Europe still ended 2% lower relative to the previous year, but we are optimistic that the eurozone growth could continue into fiscal 2014. Outside of Europe, sales to the Americas were down 2% during the quarter and 7% for the full year, while sales to Asia were up 9% during the quarter and 10% for the full year.
Analysts continue to believe that Asia’s fragmented distribution landscape offers the best opportunities for Avnet’s growth, and expect that the firm will continue to make acquisitions to grow its footprint in developing markets. On the operating front, Avnet’s gross margins fell 30 basis points from the year-ago quarter because of a challenging pricing environment and geographic shift in product mix, while operating margins declined 90 basis points because of higher restructuring costs associated with its acquisitions and operating expenses.
Looking ahead, Avnet expects first-quarter sales of $6.05 billion-$6.65 billion and earnings of $0.83-$0.93 per share. Avnet continues to focus on margin expansion and is consistently targeting bolt-on acquisitions that can improve its value-added services. However, the firm’s efforts have been waylaid by global volatility that has made customer demand difficult to predict, making it hard to maintain optimal inventory levels. Still, most global distributors are experiencing similar frustrations. Avnet possesses global scale advantages over its competitors (save Arrow ARW ), but most analysts would like to see a larger margin of safety before suggesting an investment in Avnet.
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