Avnet Warns of Disappointing Earnings

Avnet Inc., the large Phoenix-based technology distributor, warned this week that earnings for its third quarter of 2008 would fall below management expectations.

"We are extremely disappointed with our earnings as a confluence of issues contributed to a very difficult quarter," Chairman and CEO Roy Vallee said in a statement.

Avnet now expects that earnings per share for the quarter ended March 29 will come to $.74 to $.76, well below the forecast of $.85 to $.89 that the company provided to investors at the time of its second quarter earnings report on Jan. 24. Sales for the third quarter are now expected to be approximately $4.42 billion, which is at the lower end of the $4.37 billion to $4.57 billion range provided with the management forecast in January.

The company cited four major reasons its operating income was off, with three of them occurring in the Europe, Middle East and Asia region. Profits were hurt by missing revenue targets that would have qualified for higher supplier rebates, an IT supplier in EMEA changing a rebate program, synergy cost savings in EMEA taking longer to achieve and "negative organic growth" in EMEA, according to Avnet.

The overall economy isn't helping, but isn't completely to blame, Vallee suggested. "Although our results are being negatively impacted to some extent by the softening economic environment, we are not seeing a significant broad based slowdown in business or unusual pricing pressure," Vallee's statement said.

The company began cost cutting measures in March that will continue through the June quarter. The company forecasts Q4 earnings per share in the range of $.79 to $.83 on revenues $4.55 billion to $4.75 billion.

Avnet, with 12,000 employees in more than 300 offices worldwide, was No. 172 on the Fortune 500 list in 2007 on revenues of $15.68 billion. The company's stock fell $1.62 in heavy trading on Tuesday to close at $28.38. In mid-day trading on Wednesday, the stock was down an additional $0.38 to $28.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.