Avnet slips to quarterly loss as downturn hits distribution

Avnet’s latest quarterly results suggest the distribution channel has its work cut out to overcome the current market environment

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Avnet slips to quarterly loss as downturn hits distribution Avnet's Roy Vallee said business conditions in the market remained challenged.
By  Andrew Seymour Published  August 6, 2009

Components specialist Avnet’s latest quarterly results suggest the distribution channel has its work cut out to overcome the current market environment.

The NYSE-listed outfit, which is one of the few US-based distributors to have a presence in the Middle East, suffered a net loss of US$31m during its fiscal fourth quarter ending June 27th, compared with a profit of US$144m the year before.

Avnet said the loss was compounded by impairment charges and restructuring, which would otherwise have resulted in a US$48m profit.

The company revealed that worldwide sales fell 19% to US$3.8 billion compared with the previous year but rose on a sequential basis, although it doesn’t break out its top-line performance below EMEA-level.

Avnet chairman and CEO Roy Vallee conceded that business conditions “remained challenged” during the quarter, but refused to be downbeat about the distributor’s prospects.

“Although our bottom-line results were negatively impacted by a larger than expected decline in gross profit margin due primarily to business mix and market conditions, the combination of stabilising operating income margin and substantially improved working capital velocity allowed us to improve return on working capital by 189 basis points sequentially,” stated Vallee.

“We remain committed to our return on working capital goals by group and by region and believe that our previously announced actions have the company well-positioned to optimise shareholder value. Although the markets we serve appear to be stabilising, we will continue to monitor incoming order rates and manage our business appropriately,” concluded Vallee.

On a group basis, Avnet’s components-focused Electronics Marketing (EM) unit encountered a 22% slide in year-on-year revenues, with the EMEA region taking the worse hit as sales contracted 31%. Avnet’s EM operation in Middle East — which recently appointed former Qatar Datamation Systems chief Jamal Qaffaf as regional boss — is only thought to account for a small percentage of the overall EMEA business.

Vallee admitted EM gross margins declined more than it expected due primarily to the regional mix and late cycle business environment, but hailed the company’s ability to shore up working capital velocity. “With EM's inventory turns near record levels, the bulk of our inventory reduction appears to be behind us,” he stated. “Furthermore, we believe that inventory throughout the supply chain is now reasonably well aligned with stable end demand."

Meanwhile, Avnet’s infrastructure-led Technology Solutions (TS) arm saw worldwide sales dip 16% year-on-year to US$1.6 billion. EMEA suffered a 21% fall in sales on a reported basis and 5% excluding the impact of changes in foreign currency exchange rates.

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