Avnet Inc (AVT) Q4 2026 Earnings Call Transcript

Please stand by. Our presentation will now begin. Welcome to the Avnet Fourth Quarter Fiscal Year 2026 Earnings Call. I would now like to turn the floor over to Lisa Mueller, Director of Investor Relations for Avnet. Please go ahead.

Thank you, operator. I'd like to welcome everyone to Avnet's Fourth Quarter Fiscal Year 2026 Earnings Conference Call. This morning, Avnet released financial results for the fourth quarter of fiscal year 2026, and the release is available on the Investor Relations section of ADNET's website along with a slide presentation which you may access at your convenience. As a reminder, some of the information contained in the news released on this conference call contain forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Such forward-looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this presentation. Please note, unless otherwise stated, all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issue today, as well as in the appendix slides of today's presentation and posted on the Investor Relations website. Today's call will be led by Phil Gallagher, ABNET CEO, and Ken Jacobson, ABNET CFO. With that, let me turn the call over to Phil Gallagher.

Thank you, Lisa, and thank you. Market conditions and providers began to translate in time to extend in the most just as important differentiating AdNet in the market, work and commitment, and a 9% and data center requires in the months ahead. We believe the improving demand environment is broader than AI loan, applications, and other factors increasing. These customers are marking its fourth consecutive quarter year-on-year aerospace and defense networking and data center with $3.9 billion embedded business solutions offering, helping We can then solve for the benefits of leveraging Fresnel's digital platforms and scale. Market conditions improve, deliver meaningful margin, becomes more valuable as demand improves and market conditions type for IP&E sales. Through demand creation, fire of the year. Innovation and ability to deliver creative supply chain solutions in the market by providing system assembly, rack integration, differences globally.

Beyond traditional component distribution, increased 29% year over year and 10% sequentially. Increased during the quarter. As a result, approximately one-third of both the sequential and year-over-year sales growth was attributable to pricing increases in the memory product category. For the fourth quarter, gross profit dollars grew at approximately the same rate as sales growth, or 46% year-over-year. Gross profit margin of 10.4% was up five basis points sequentially and was down 14 basis points year-over-year. Electronic components gross profit margins flat sequentially and down 25 basis points year-over-year. 400 basis points year over year and was up primarily due to a better mix of higher margin on the board and $29 million sequentially in SG&A and logistics costs due to higher sales volumes. Expense discipline continues to drive to 70% last quarter and 76% a year ago. It was even lower for our EC business at 56% compared to 62% last quarter and 68%. SG&A expenses as a percentage of gross profit will continue to improve to $118 million dollars, and the Avnet adjusted operating income margin expansion. The effects that continue to drive an EC operating margin was 4.1. The 54 basis points sequential increase in EC operating margin was led by the Americas, with all regions improving their operating margin sequentially and year-over-year. This is EC's third consecutive quarter of operating margin expansion and is the highest EC operating margin in more than two years. The 400 basis points are operating margin in over three years and is their seventh margin expansion. Farnell continues to be on track to reach toward the end of Fiscal 20, turning to expenses below operating income, tax rate was 23%, both consistent with expectations, times greater than sales compared to last quarter. Near term, we expect EPS to continue to get growing at approximately three times as fast as $59 million sequentially, primarily due to an increase in accounts receivable driven by the $1.2 billion growth in sales. Working capital days decrease seven days quarter over quarter to 69 days. Our EC inventory days improved to below 65 days, and Farnell inventory days improved to below 65 days. We expect inventory days to continue to improve for EC, but we expect Farnell inventory to remain around 200 days, reflecting the business's tip of two turns per year. Inventory dollars grew, and substantially all of that was memory-related. $1 million compared to what I'm making necessary inventory and values we see in the markets we serve. A total of 19% and $1 million of cash flow from operations to support $1.2 billion to continue supporting the sales growth primarily in the form of accounts receivable. We expect to prioritize supporting our dividend, $15 million during the quarter. We are making progress towards our leverage target of approximately three times, which we expect to achieve by the end of the calendar year, a 3.2 times, and with approximately $1.2 billion of available committed borrowing capacity. 2% of shares in dividends, including $29 million for the and adjusted diluted earnings per share increases approximately 10% of the midpoint. Compared to the previous quarter, an effective tax rate of between 21% and 25% and 85 million shares outstanding on the diluted. Thank our team for driving us to be able to capitalize and to continue to achieve new records for both sales.

A question and answer session. If you would like to ask a question, please press star one on your telephone keypad.

A confirmation tone will indicate your line in the question queue you may press star 2 if you'd like to remove your question from the queue for participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys joe quattrochi with wells fargo taking the questions uh i was wondering if you could just talk a little bit more about the pricing dynamics that you're seeing uh what's kind of embedded in the guide from a memory pricing change perspective and then on the reported results can you help us just understand what was the impact on the memory pricing from an EBIT perspective on a sequential year-over-year basis relative to, I think you said, you know, it was about a third of the revenue growth.

Side of memory increases across quarters at times being announced, but they're much more modest than what we saw in memory,

I would say, than the guide assumed, you know, modest or minor. Price increases, you know, going into the next quarter will continue to monitor the situation and give much the impact EBIT or operating income you know we would say about a third GP dollar growth also came from pricing so there wasn't any meaningful difference between the sales impact and the GP dollar impact and I think just in general I think our operating income dollars our GP dollars dropped through about 2.6 times for the also from the so that we saw in the GP dollars okay and then maybe I think you

I think I heard you say you know greater than 50% of the increase in inventory was more or less related to kind of pricing of the inventory or pricing of the mix. Can you talk about just, like, the unit increase of inventory, and then how do we think about the unit increase of inventory as we start to look into just the 27 or into the September quarter?

Yeah, that's right. About half of the increase came from pricing, specifically memory. And, again, some of that's just timing differences, right, in terms of when we got product and things of that nature. you know I think in general you're going to need more units to support I think our commentary was you expect to continue to see some some improvement at least in the EC business on the inventory days as we continue to increase our working capital velocity but you know I think the inventories as healthy as has been no real problems in terms of even some of the stuff that was kind of in really good shape I think now continue to see things get tighter right so things get tighter want to make sure we've got inventory on the shelves the balance of our suppliers needs and

and Stein with great thanks for taking my questions congrats on the um you're providing um you can uh talk to us a little bit about uh sort of the the positioning in the cycle right you just post posted revenue up i don't know about 34 percent year over year it's the fourth quarter of year over year growth um what anything would you say we're in i think gives you a little bit of what

we're seeing from a backlog bookings.

Okay. Maybe the other thing I'd like to look at is the margin performance. I think you explained why gross margins may, I mean, they were up sequentially, but it may be a little bit disappointing considering the magnitude of the upside, why that wouldn't have sort of flowed through the better results. I think what you said is that price increases have a sort of deflationary effect on that. But As we progress through the cycle, where should we anticipate growth in operating margins traveling to and maybe settling out? I think historically you've talked about a 5% or greater than 5% operating margin target. You're still nowhere near that, really. You've gotten close before. How should we think about expansion over the next few quarters?

Expansion would be, you know, continued steady problem. In general, I think we mix of on-the-board components. For EC, that answer partially depends on where the growth is coming from. You know, we've seen good progress on operating margin because of the West, Europe, and the Americas has recovered, but Asia is still growing really strong, so I would temper any expectations for expansion of gross margin on EC, but continue steady progress in that, To look at your growth, you write 47 you just posted, and maybe the guidance is even

So that's great, but I want to see if I can ask one more, please. In December, as we think about creases, seasonal, above, or is there any concern that maybe there's double ordering or customers trying to get ahead and that there could be a pause in December? What's your current thinking as to what might drive a variance between typical and this December?

Yeah, thanks. Thanks, Will. I was never correct you, Will. Well, the word typical, that's what we talk about internally, too. It's our typical seasonality to go back and look at. It's kind of everything that's been somewhat thrown out the door on typical anymore, because even since it's COVID, I'm looking at the numbers now. Even last year, December quarter was rather strong for us. But you are right. Historically, you know, December quarter will be...

I'm Rupu Balacaria with Bank of America.

Hi, thanks for taking my questions. Phil, America's revenue increased 28% sequentially, and it looks like it was materially faster than EMEA in Asia. Can you talk about, like, what were some of the factors that drove that regional divergence, and how much came from memory and data center? I mean, it just seems that that region had just outsized kind of growth this quarter. So can you just comment on that?

Yeah, sure, well, Rubo, thanks. Yeah, so really nice performance in America, in all the regions, actually. And yes, it did that out through Asia, but you know, I remember Asia's had a ton of data centers, recent industrial, nicely, by the way.

All right, thanks for all the details there. For my follow-up, can I ask you to unpack a little bit on the revenue guide for $9 to $9.3 billion? I mean, how much is memory pricing and how much are you factoring in unit volumes? How sensitive is the outlook to each? You know, book-to-bill is well above parity, you said, and lead times are increasing. But, I mean, is there evidence that, you know, these orders reflect real consumption rather than any precautionary buying? And then, you know, we talked about, you said, you know, double ordering is something probably, you know, the suppliers look at. But, you know, just with all the component costs going up, any danger of any demand disruption? So, if you can just kind of help us with what you're embedding into your outlook and risk management for the year, kind of, right?

Yeah, so, Rubly, there's a few questions in there. I'll probably let Phil jump in on a couple of those as well. I guess maybe just to answer your question, you know, our approach for giving guidance hasn't really changed from past quarters. We're taking the role from the teams and, you know, putting some intelligence on it, but it's – and we're shipping a lot more units. again the guidance doesn't in that guide so there's the modest price increases but it's really units and and by more and more customers especially large oems trying to build up let's say safety stock buffer stocks things like that but i think in this environment it's hard to get a hold of it we use memory as an example a lot of customers wish they had more but there's not more to be had so you know i i don't think we feel um that there's a lot of safety stock we believe this is getting much closer to still tell there but there's nothing we've seen our indicators that suggest, you know, significant, you know, that being said, you know, memory is causing some constraints in terms of, you know, getting everything you need to build, but I think, generally speaking, lead times are up and to the right, and, you know, inventory is being consumed as it comes in, and that's why we're turning things faster. Phil, any other commentary there?

Yeah, we're not seeing demand disruption.

I think Joe asked that as well. I'm not sure we got to that, so I apologize.

You know, you're right, we kind of lean on the suppliers to try track for the double bookings right but we wouldn't see that we look at the inflated demand right which is part of your question ai edis what have you everyone trying to put some analytics around and say what's the reality that there was additional product or clog is uh you know we sanitize the best we possibly can uh work with the suppliers best we possibly can and the other thing we look at is we're not seeing anything today as we look at it abnormal from a thanks very much congratulations on another exceptional quarter it's pretty clear

all of our models were completely wrong and and and not appreciating the growth rate so that's a good problem to have I think yeah yeah Phil I know you have a pile of sheets with data in front of you and and you know if you could just make that available to us that would be great um now dig in on the farnell improvement um obviously you know we know that that's a highly cyclical business um but at the same time you have been making a lot of structural changes over there and you know congratulations to the team for succeeding there i would is there a way to quantify what sustainable margin profile is going to look like versus we've got structural improvement plus you know and market demand is there a way to kind of parse that out yeah um don't have no if i get into the match detail on that but the answer is yes we're the high service guys can get some knowledge the the mostly ec commentary you know

that benefiting some from memory but it's a much smaller percentage of their sales than what we see in the EC, and I would still say, you know, we're still probably earlier in additional demand coming from shortages and things like that. I still think EC business is kind of fulfilling customers as they need it, and pipelining and things like that. So, I've seen some benefit, but likely more as things get in.

I appreciate all that detail. I was kind of curious if you can comment on what you're seeing. I know that you've seen some growth driven by transport, improved demand there. In automotive, we've heard from some of your suppliers recently, including one this morning, that was saying the automotive guys, the OEMs, are pressuring the Tier 1s to finally start securing more inventory. You know, and I think that this is a little bit of a swing factor from we saw this overcorrection back to just-in-time or extremely lean inventory levels after the supply chain crisis. Maybe now we're starting to realize, you know, that demand is still there and the supply is tight. I was wondering if you could comment on what you're seeing there.

Yeah, so I know exactly what you're talking about, and of course, we talked about an increase in the conversations, how we can help makers, but a quick statement and comment was, you

know, we don't want a $2.00 part holding up a $100,000 vehicle, right?

I mean, they don't want to do that and call, you know, cause another, another.

I think bad outcomes is an understatement. I appreciate all the color.

Thanks again, Melissa.

Thank you. There are no further questions at this time. I would like to hand the floor back over to Phil Gallagher for any closing remarks.

Okay, thank you. I want to thank everybody for attending today's earnings call. I look forward to speaking to you again for the rest of the summer.

This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.