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Avnet Looks to Leave Behind ERP Woes, Improve Topline and Operations

Avnet, Inc. Is having an interesting year that includes acquiring another company, a change in leadership and ERP woes.

In a webcast outlining Q4 and year-end financial results, interim CEO Bill Amelio said his near-term priority has been to focus on execution. This includes installing a business management system that address accountability, eliminates barriers within the company and instilling a sense of urgency that is greatly needed in such a fast marketplace. Talent development is also a key focus for Amelio so that Avnet has a “stronger bench for the future,” he said, and is working with management to position future leaders in critical roles.

Having served on the company’s board of directors for two years, Amelio said is he is well-versed in Avnet’s strategic initiatives and corporate plans, which are all under review to better meet financial goals improve margins. “We need to accelerate our progress.”

One way Avnet is looking to accelerate its progress is through its recently announced solutions specialist approach that is being followed worldwide, said Amelio. The most notable event for Avnet in the past quarter aside from its change in leadership is the company’s intent to acquire Premier Farnell Plc, having outbid Switzerland’s Daetwyler Holding AG. Amelio said there are several steps ahead before this acquisition can be completed but said the combination will enable Avnet to create “a customer experience unparalleled in this industry.”

For the fourth quarter of fiscal 2016, Avnet reported sales of $6.2 billion, down 8% year over year. During the period, the company repurchased $46.8 million in stock and paid $21.6 million in dividends, while also announcing the cash offer to purchase Premier Farnell. For the entire fiscal year, Avnet reported sales of $26.2 billion, down 6.1% year over year, while gross profit margin increased 16 basis points year over year to 11.6%. Operating income margin increased four basis points year over year to 3.0%. The company generated $224 million cash from operations in fiscal 2016, repurchased $377 million in stock, and paid $89 million in dividends.

Avnet CFO Kevin Moriarty acknowledged that the company’s troubled ERP woes had a “significant negative impact” on the company’s performance despite having deploying ERP systems with disruption in the past. This latest deployment, however, affected the complex supply chain services the company provides, he said, particularly in the month of April. There are a still few issues to be resolves, and expenses a likely to be higher through the next quarter, but will have tapered off by December. “We are meeting customer deliverables.”

Moriarty said Avnet is confident that it can complete the Premier Farnell acquisition but still have sufficient capital to fund company growth. Otherwise, he said UK takeover regulations limit what the company can say about the acquisition.

Amelio echoed Moriarty faith in the company’s capital allocation strategy which has been in place for a long time. Avnet will continue to buy back stock, he said, and continue with its dividend strategy “that’s been well thought out.” If there is a “transformative opportunity” such as Premier Farnell, the company will pursue it. He would not discuss potential divestures, but is reviewing everything

Amelio said the uncertainty that comes with an election year and other market forces have affected the company organic growth, but also acknowledged that the company has lost ground competitively, regardless of these two factors, and that Avnet needs to focus on what it can control and moving forward from its ERP issues.

Of course, how long Amelio will be steering the ship is up in the air, and while it’s the board’s duty to leave no stone unturned to find the best candidate, he’s very interested in the job after an exciting four weeks and is assuming he’s the front runner.

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