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01/11 16:06
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong regional growth, particularly in Asia, and market recovery in the Americas and EMEA. Despite a sequential decline in components operating margin, Farnell shows significant margin improvement. The company increases dividends and repurchases shares, indicating confidence. Positive guidance and strategic investments in digital infrastructure further support a positive sentiment. The Q&A reveals opportunities in AI and data centers, with improving inventory management. Although there are concerns about potential supplier price increases, overall, the sentiment is positive with expected growth and improved margins.
Sales $5.9 billion, up 5% year-over-year and sequentially. Growth driven by 10% increase in Asia and 3% in the Americas, while EMEA sales were flat year-over-year.
Adjusted EPS $0.84, near the high end of guidance. No specific year-over-year change mentioned.
Electronic Components Sales Increased 5% year-over-year and sequentially. Growth attributed to improving demand environment, particularly in Asia and the Americas.
Farnell Sales Increased 50% year-over-year and 3% sequentially. Growth driven by improved product mix and strengthening in Asia and the Americas.
Gross Margin 10.4%, down 42 basis points year-over-year and 15 basis points sequentially. Decline due to regional mix shift to Asia and less favorable product/customer mix in EMEA.
SG&A Expenses $464 million, up $26 million year-over-year and $13 million sequentially. Increase driven by higher sales volume and salary raises.
Adjusted Operating Income $151 million, with an adjusted operating margin of 2.6%. No specific year-over-year change mentioned.
Electronic Components Operating Income $159 million, with an operating margin of 2.9%. Sequential decline of 11 basis points due to higher SG&A expenses.
Farnell Operating Income $17 million, with an operating margin of 4.3%. Operating margin up approximately 375 basis points year-over-year and flat sequentially.
Interest Expense $60 million, decreased by $5 million year-over-year and increased by $1 million sequentially.
Adjusted Effective Income Tax Rate 23%, as expected. No specific year-over-year change mentioned.
Working Capital Increased $160 million sequentially, driven by $176 million increase in receivables and $185 million increase in inventories, offset by $201 million increase in accounts payable.
Inventory Days Decreased by 3 days sequentially to 92 days. Improvement attributed to better inventory management.
Cash Used for Operations $145 million, primarily due to increase in receivables to support growth in Asia revenues.
Capital Expenditures (CapEx) $25 million, within expected quarterly levels.
Debt Increased by $323 million due to higher working capital needs.
Dividend Increased by approximately 6% to $0.35 per share. This marks the 12th consecutive fiscal year of dividend increases.
Share Repurchases Approximately 2.6 million shares repurchased totaling $138 million, including $100 million in connection with convertible debt issuance.
Electronic Components Sales: Sales increased on a sequential and year-on-year basis due to improving demand, particularly in Asia and the Americas. Asia saw its fifth consecutive quarter of year-on-year sales growth, driven by communication and transportation markets.
Farnell Sales: Farnell delivered sequential and year-on-year growth, with strengthening in Asia and the Americas. The team is enhancing digital capabilities and leveraging Avnet's ecosystem for new opportunities.
Regional Sales Performance: Sales in Asia grew 10% year-over-year, representing 49% of total sales. Americas sales grew 3% year-over-year, while EMEA sales were flat year-over-year but improved sequentially.
Demand Trends: Strength observed in transportation, compute, and communication verticals. Semiconductor lead times and pricing are stable, with extended lead times in memory storage and interconnect products for data center and AI build-outs.
Inventory Management: Inventory increased modestly to support sales growth in Asia and supply chain opportunities. Days of inventory on hand improved, and the company is focused on balancing growth opportunities with inventory optimization.
Gross Margin: Gross margin was 10.4%, down year-over-year and sequentially due to regional mix shifts and less favorable product/customer mix in EMEA. Farnell's gross margin improved due to better product mix.
Capital Allocation: Increased quarterly dividend by 6% to $0.35 per share and repurchased 2.6 million shares totaling $138 million. Focused on reducing leverage to 3.0x over the next year.
Supplier Relationships: Strengthened supplier relationships to navigate market challenges, including extended lead times and price discussions for certain technologies.
Extended lead times and price increases in memory storage and interconnect products: Extended lead times and price increases in memory storage and certain interconnect products, particularly those supporting data center and AI build-outs, could disrupt supply chain operations and increase costs.
Macroeconomic and geopolitical uncertainties: Geopolitical and market uncertainties, particularly in Europe, could impact recovery and stability in key regions.
Decline in gross margins: Gross margin declined year-over-year and sequentially, driven by less favorable product and customer mix in Europe and a regional mix shift to Asia, which could pressure profitability.
Increased SG&A expenses: Higher SG&A expenses due to increased sales volume and employee raises could strain operating margins.
Inventory management challenges: Increased inventory levels to support growth in Asia and supply chain services in the Americas could lead to higher working capital requirements and potential inefficiencies.
Leverage and debt levels: Increased debt levels and leverage ratio of 4.0x, with plans to reduce to 3.0x, could pose financial risks if not managed effectively.
Uncertain market recovery: While there are signs of recovery in Asia and the Americas, the market recovery remains uncertain, particularly in Europe, which has yet to fully recover.
Revenue Expectations: For the second quarter of fiscal 2026, Avnet is guiding sales in the range of $5.85 billion to $6.15 billion, implying a sequential sales increase of 2% at the midpoint.
Earnings Per Share (EPS): Diluted earnings per share for the second quarter of fiscal 2026 are expected to range between $0.90 and $1.00.
Regional Sales Growth: Sequential sales growth is expected in the Americas and Asia, with flattish sales in Europe.
Market Recovery: The company anticipates modest improvements in market conditions, particularly in Asia and the Americas, with stabilization in EMEA.
Inventory Management: Avnet plans to reduce inventory levels where elevated while ensuring sufficient inventory to support market recovery and extended lead times for certain products.
Leverage Reduction: The company aims to reduce its leverage to approximately 3.0x over the next year.
Capital Expenditures: Cash used for CapEx is expected to remain within anticipated quarterly levels of approximately $25 million.
Quarterly Dividend Increase: The quarterly dividend was increased by approximately 6% to $0.35 per share.
Dividend Growth History: The company has increased its dividend in each of the last 12 fiscal years, more than doubling it over the past 10 fiscal years, with an average annual dividend increase of more than 10%.
Share Repurchase in Q1 FY2026: Approximately 2.6 million shares were repurchased, totaling $138 million, including $100 million of shares repurchased in connection with convertible debt issuance.
Share Repurchase Over Past 4 Quarters: The company repurchased 8% of outstanding shares over the past 4 quarters.
The earnings call highlights strong regional growth, particularly in Asia, and market recovery in the Americas and EMEA. Despite a sequential decline in components operating margin, Farnell shows significant margin improvement. The company increases dividends and repurchases shares, indicating confidence. Positive guidance and strategic investments in digital infrastructure further support a positive sentiment. The Q&A reveals opportunities in AI and data centers, with improving inventory management. Although there are concerns about potential supplier price increases, overall, the sentiment is positive with expected growth and improved margins.
The earnings call presents a mixed picture: strong sales growth in Asia and inventory optimization are positive, but declining margins and sales in EMEA and the Americas are concerns. The Q&A reveals modest optimism but highlights uncertainties, particularly in EMEA and inventory correction. The share repurchase program is a positive factor, but the market may focus on margin pressures and regional sales declines, leading to a neutral stock price movement.
The earnings call reflects mixed signals: strong adjusted EPS and share repurchases are positive, but sales decline and weak guidance, especially in Europe, are concerning. The Q&A highlights supply chain challenges and competitive pressures, with management providing limited clarity on some issues. Given the market cap, the stock may experience moderate volatility but is unlikely to see significant movement over the next two weeks.
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