AVT 10-Q
Avnet Inc (AVT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _____ to _____ | |
Commission File #
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction |
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| (IRS Employer | |
of incorporation or organization) |
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| Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
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(Registrant’s telephone number, including area code.)
N/A
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange on Which registered: |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Accelerated Filer ☐ |
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Non-accelerated Filer ☐ | Smaller Reporting Company | ||
Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 25, 2025, the total number of shares outstanding of the registrant’s Common Stock was
AVNET, INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
Item 1. | Financial Statements |
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 29, |
| June 29, |
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2025 | 2024 |
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(Thousands, except share |
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amounts) |
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ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Receivables |
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Inventories |
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Prepaid and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Operating lease assets | | | |||||
Other assets |
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Total assets | $ | | $ | | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Short-term debt | $ | | $ | | |||
Accounts payable |
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Accrued expenses and other | | | |||||
Short-term operating lease liabilities |
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Total current liabilities |
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Long-term debt |
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Long-term operating lease liabilities | | | |||||
Other liabilities |
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Total liabilities | | | |||||
Commitments and contingencies (Note 6) | |||||||
Shareholders’ equity: | |||||||
Common stock $ | | | |||||
Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
| ( |
| ( | |||
Total shareholders’ equity | | | |||||
Total liabilities and shareholders’ equity | $ | | $ | | |||
See notes to consolidated financial statements.
2
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Third Quarters Ended | Nine Months Ended | |||||||||||
| March 29, |
| March 30, |
| March 29, |
| March 30, | |||||
2025 | 2024 | 2025 | 2024 | |||||||||
(Thousands, except per share amounts) | ||||||||||||
$ | | $ | | $ | | $ | | |||||
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Gross profit |
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Selling, general and administrative expenses |
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Restructuring, integration, and other expenses |
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Operating income |
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Other expense, net |
| ( |
| ( |
| ( |
| ( | ||||
Interest and other financing expenses, net |
| ( |
| ( |
| ( |
| ( | ||||
Gain on legal settlements and other | — | — | — | | ||||||||
Income before taxes |
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Income tax (benefit) expense |
| ( |
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Net income | $ | | $ | | $ | | $ | | ||||
Earnings per share: | ||||||||||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | | ||||
Shares used to compute earnings per share: | ||||||||||||
Basic |
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Diluted |
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Cash dividends paid per common share | $ | | $ | | $ | | $ | | ||||
See notes to consolidated financial statements.
3
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Third Quarters Ended | Nine Months Ended | |||||||||||
| March 29, |
| March 30, |
| March 29, |
| March 30, | |||||
2025 | 2024 | 2025 | 2024 | |||||||||
(Thousands) | ||||||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss), net of tax: | ||||||||||||
Foreign currency translation and other | | ( |
| |
| ( | ||||||
Cross-currency swap | ( | | ( | ( | ||||||||
Pension adjustments | | ( |
| |
| | ||||||
Total other comprehensive income (loss), net of tax | | ( | | ( | ||||||||
Total comprehensive income, net of tax | $ | | $ | | $ | | $ | | ||||
See notes to consolidated financial statements.
4
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
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| Accumulated |
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Common | Common | Additional | Other | Total | ||||||||||||||
Stock- | Stock- | Paid-In | Retained | Comprehensive | Shareholders’ | |||||||||||||
Shares | Amount | Capital | Earnings | (Loss) Income | Equity | |||||||||||||
(Thousands) | ||||||||||||||||||
Balance, June 29, 2024 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| | ||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
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Cash dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Repurchases of common stock |
| ( |
| ( | — |
| ( | — |
| ( | ||||||||
Stock-based compensation |
| | | | — | — | | |||||||||||
Balance, September 28, 2024 |
| | | | | ( | | |||||||||||
Net income |
| — |
| — |
| — |
| |
| — |
| | ||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Cash dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Repurchases of common stock |
| ( |
| ( | — |
| ( | — |
| ( | ||||||||
Stock-based compensation |
| |
| |
| |
| — |
| — |
| | ||||||
Balance, December 28, 2024 | | | | | ( | | ||||||||||||
Net income |
| — |
| — |
| — |
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| — |
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Other comprehensive loss |
| — |
| — |
| — |
| — |
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Cash dividends |
| — |
| — |
|
| ( |
| — |
| ( | |||||||
Repurchases of common stock |
| ( |
| ( |
| ( | — |
| ( | |||||||||
Stock-based compensation |
| |
| |
| |
| — |
| — |
| | ||||||
Balance, March 29, 2025 | | $ | | $ | | $ | | $ | ( | $ | | |||||||
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| Accumulated |
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Common | Common | Additional | Other | Total | ||||||||||||||
Stock- | Stock- | Paid-In | Retained | Comprehensive | Shareholders’ | |||||||||||||
Shares | Amount | Capital | Earnings | (Loss) Income | Equity | |||||||||||||
(Thousands) | ||||||||||||||||||
Balance, July 1, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| | ||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Cash dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Repurchases of common stock |
| ( |
| ( | — |
| ( | — |
| ( | ||||||||
Stock-based compensation |
| | | | — | — |
| | ||||||||||
Balance, September 30, 2023 |
| | | | | ( | | |||||||||||
Net income |
| — |
| — |
| — |
| |
| — |
| | ||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
| |
| | ||||||
Cash dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Repurchases of common stock |
| ( |
| ( | — |
| ( | — |
| ( | ||||||||
Stock-based compensation |
| |
| |
| |
| — |
| — |
| | ||||||
Balance, December 30, 2023 | | | | | ( | | ||||||||||||
Net income |
| — |
| — |
| — |
| |
| — |
| | ||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Cash dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Stock-based compensation |
| |
| |
| ( |
| — |
| — |
| ( | ||||||
Balance, March 30, 2024 | | $ | | $ | | $ | | $ | ( | $ | | |||||||
See notes to consolidated financial statements.
5
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended | ||||||
| March 29, |
| March 30, | |||
2025 | 2024 | |||||
(Thousands) | ||||||
Cash flows from operating activities: | ||||||
Net income | $ | | $ | | ||
Non-cash and other reconciling items: | ||||||
Depreciation and amortization |
| |
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Amortization of operating lease assets | | | ||||
Deferred income taxes |
| ( |
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Stock-based compensation |
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Other, net |
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Changes in (net of effects from businesses acquired and divested): | ||||||
Receivables |
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Inventories |
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| ( | ||
Accounts payable |
| ( |
| ( | ||
Accrued expenses and other, net |
| ( |
| ( | ||
Net cash flows provided by operating activities | | | ||||
Cash flows from financing activities: | ||||||
Borrowings (repayments) under accounts receivable securitization, net | | ( | ||||
Repayments under senior unsecured credit facility, net | ( | ( | ||||
Borrowings under bank credit facilities and other debt, net | | | ||||
Repurchases of common stock | ( | ( | ||||
Dividends paid on common stock | ( | ( | ||||
Other, net | ( | ( | ||||
Net cash flows used for financing activities | ( | ( | ||||
Cash flows from investing activities: | ||||||
Purchases of property, plant and equipment | ( | ( | ||||
Other, net | | | ||||
Net cash flows used for investing activities | ( | ( | ||||
Effect of currency exchange rate changes on cash and cash equivalents | ( | ( | ||||
Cash and cash equivalents: | ||||||
— decrease | ( | ( | ||||
— at beginning of period | | | ||||
— at end of period | $ | | $ | | ||
See notes to consolidated financial statements.
6
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation and new accounting pronouncements
In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly Avnet, Inc. and its consolidated subsidiaries’ (collectively, the “Company” or “Avnet”) financial position, results of operations, comprehensive income, and cash flows. All such adjustments are of a normal recurring nature. Certain reclassifications have been made to fiscal 2024 balances to correspond to the fiscal 2025 consolidated financial statement presentation.
Preparing financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results may differ from these estimates and assumptions.
Interim results of operations do not necessarily indicate the results to be expected for the full fiscal year. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2024.
Recently issued accounting pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires the Company to disclose significant segment expenses, the title and position of the Company’s Chief Operating Decision Maker (CODM), and an explanation of how the Company’s reported measure of segment profit or loss is used by the CODM to assess segment performance and make resource allocation decisions. The Company will adopt this guidance in its Annual Report on Form 10-K for the fiscal year ending June 28, 2025. Other than satisfying the enhanced disclosure requirements, the Company does not believe this guidance will have an impact on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Tax Disclosures (“ASU No. 2023-09”), which updates income tax disclosures related to the effective income tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction. ASU No. 2023-09 will be effective for the Company in fiscal year 2026 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2023-09 on its disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Clarifying the Effective Date (“ASU 2025-01”). The guidance is designed to improve financial reporting by requiring public business entities to disclose additional information about specific expense categories in the financial statement notes at interim and annual reporting periods. ASU No. 2024-03, as clarified by ASU 2025-01, will be effective for the Company in fiscal year 2028 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2024-03 on its disclosures.
7
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Working capital
Receivables
The Company’s receivables and allowance for credit losses were as follows:
March 29, | June 29, | |||||
2025 | 2024 | |||||
(Thousands) | ||||||
Receivables | $ | | $ | | ||
Allowance for Credit Losses | $ | ( | $ | ( | ||
The Company had the following activity in the allowance for credit losses during the first nine months of fiscal 2025 and fiscal 2024:
March 29, | March 30, | |||||
2025 | 2024 | |||||
(Thousands) | ||||||
Balance at beginning of the period | $ | | $ | | ||
Credit Loss Provisions | | | ||||
Credit Loss Recoveries | | ( | ||||
Receivables Write Offs | ( | ( | ||||
Foreign Currency Effect and Other | | ( | ||||
Balance at end of the period | $ | | $ | | ||
Inventories
The Company’s inventories are primarily comprised of electronic components purchased from the Company’s suppliers, which are available for sale to customers in the normal course of the Company’s electronic component distribution business.
Classified within inventories are electronic components held for supply chain service engagements (components) where the Company is acting as an agent on behalf of a customer or in some cases the component supplier. Given that these supply chain services involve purchasing, warehousing and providing logistics services for components as part of the services, the Company classifies the underlying components within inventories on the consolidated balance sheets. Components held for supply chain services where the Company is acting as an agent represented approximately
3. Goodwill
The following table presents the change in goodwill by reportable segment for the first nine months of fiscal 2025.
| Electronic |
|
| ||||||
Components | Farnell | Total | |||||||
(Thousands) | |||||||||
Carrying value at June 29, 2024 (1) | $ | | $ | | $ | | |||
Foreign currency translation |
| |
| |
| | |||
Carrying value at March 29, 2025 (1) | $ | | $ | | $ | | |||
| (1) | Includes accumulated impairments of $ |
8
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Debt
Short-term debt consists of the following (carrying balances in thousands):
March 29, | June 29, | March 29, | June 29, | ||||||||||
2025 |
| 2024 |
| 2025 |
| 2024 | |||||||
Interest Rate | Carrying Balance |
| |||||||||||
Revolving credit facilities: | |||||||||||||
Accounts receivable securitization program | — | | % | $ | — | $ | | ||||||
Other short-term debt | | % | | % | | | |||||||
Short-term debt | $ | | $ | | |||||||||
Other short-term debt consists of various committed and uncommitted lines of credit and other forms of bank debt with financial institutions utilized primarily to support the ongoing working capital requirements of the Company, including its foreign operations.
Long-term debt consists of the following (carrying balances in thousands):
March 29, | June 29, | March 29, | June 29, | ||||||||||
2025 |
| 2024 |
| 2025 |
| 2024 | |||||||
Interest Rate | Carrying Balance |
| |||||||||||
Revolving credit facilities: | |||||||||||||
Accounts receivable securitization program (due December 2026) | | % | — | $ | | $ | — | ||||||
Credit Facility (due January 2030) | | % | | % | | | |||||||
Other long-term debt | | % | | % | | | |||||||
Public notes due: | |||||||||||||
April 2026 | | % | | % | | | |||||||
March 2028 | | % | | % |
| |
| | |||||
May 2031 | | % | | % | | | |||||||
June 2032 | | % | | % | | | |||||||
Long-term debt before discount and debt issuance costs |
| |
| | |||||||||
Discount and debt issuance costs – unamortized |
| ( |
| ( | |||||||||
Long-term debt | $ | | $ | | |||||||||
In December 2024, the Company amended and extended for two years its trade accounts receivable securitization program (the “Securitization Program”) in the United States with a group of financial institutions, which is due in December 2026. The Securitization Program allows the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of trade accounts receivable, to provide security or collateral for borrowings of up to $
In January 2025, the Company amended and extended its
9
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Under the Credit Facility, the Company may select from various interest rate options, currencies, and maturities. The Credit Facility contains certain covenants, including various limitations on debt incurrence, share repurchases, dividends, investments, and capital expenditures. The Credit Facility also includes a financial covenant requiring the Company to maintain a minimum leverage ratio, which the Company was in compliance with as of March 29, 2025, and June 29, 2024.
As of March 29, 2025, the carrying value and fair value of the Company’s total debt was $
5. Derivative financial instruments
Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies, which subjects the Company to the risks associated with fluctuations in currency exchange rates. This foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase from suppliers. The Company’s transactions are denominated primarily in the following currencies: U.S. Dollar, Euro, British Pound, Japanese Yen, Chinese Yuan, Taiwan Dollar, Canadian Dollar, and Mexican Peso. The Company also, to a lesser extent, has foreign operations transactions in other EMEA and Asian foreign currencies.
The Company uses economic hedges to reduce this risk utilizing natural hedging (i.e., offsetting receivables and payables in the same foreign currency) and creating offsetting positions using derivative financial instruments (primarily forward foreign currency exchange contracts typically with maturities of less than
The Company has a fixed-to-fixed rate cross currency swap (the “cross-currency swap”) with a notional amount of $
The Company uses these derivative financial instruments to manage risks associated with foreign currency exchange rates and interest rates. The Company does not enter derivative financial instruments for trading or speculative purposes and monitors the financial stability and credit standing of its counterparties.
10
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The locations and fair values of the Company’s derivative financial instruments in the Company’s consolidated balance sheets are as follows:
March 29, |
| June 29, | ||||
2025 | 2024 | |||||
(Thousands) | ||||||
Economic hedges | ||||||
$ | | $ | | |||
$ | | $ | | |||
Cross-currency swap | ||||||
$ | | $ | | |||
The locations of derivative financial instruments on the Company’s consolidated statements of operations are as follows:
Third Quarters Ended | Nine Months Ended | ||||||||||||
March 29, |
| March 30, |
| March 29, |
| March 30, | |||||||
2025 | 2024 |
| 2025 | 2024 | |||||||||
(Thousands) | |||||||||||||
Economic hedges | $ | ( | $ | ( | $ | | $ | ( | |||||
Cross currency swap | Interest and other financing expense, net | $ | | $ | | $ | | $ | | ||||
6. Commitments and contingencies
From time to time, the Company may become a party to, or be otherwise involved in, various lawsuits, claims, investigations, and other legal proceedings arising in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not anticipate that any such matters will have a material adverse effect on the Company’s financial condition, liquidity, or results of operations.
The Company is also currently subject to various pending and potential legal matters and investigations relating to compliance with governmental laws and regulations. For certain of these matters, it is not possible to determine the ultimate outcome, and the Company cannot reasonably estimate the maximum potential exposure or the range of possible loss, particularly regarding matters in early stages. The Company currently believes that the resolution of such matters will not have a material adverse effect on the Company’s financial position or liquidity but could possibly be material to its results of operations in any single reporting period.
As of March 29, 2025, and June 29, 2024, the Company had aggregate estimated liabilities of $
Gain on Legal Settlements and Other
During the first nine months of fiscal 2024, the Company recorded a gain on legal settlements and other of $
11
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Income taxes
The below discussion of the effective tax rate for the periods presented in the consolidated statements of operations is in comparison to the 21% U.S. statutory federal income tax rate.
The Company’s effective tax rate on its income before taxes was a benefit of
During the third quarter of fiscal 2024, the Company’s effective tax rate on its income before taxes was
For the first nine months of fiscal 2025, the Company’s effective tax rate on its income before taxes was
During the first nine months of fiscal 2024, the Company’s effective tax rate on its income before taxes was
The Pillar Two rules published by the Organization for Economic Co-operation and Development (OECD) are effective for the Company in fiscal year 2025. The Company does not expect Pillar Two taxes to have a significant impact on its income tax expense and is closely monitoring the potential impacts of further legislation, regulatory guidance, and regulations issued in the countries in which the Company does business.
8. Pension plan
The Company has a noncontributory defined benefit pension plan that covers substantially all current and some former U.S. employees (the “Plan”). Components of net periodic pension cost for the Plan was as follows:
Third Quarters Ended | Nine Months Ended | |||||||||||
| March 29, |
| March 30, |
| March 29, |
| March 30, | |||||
2025 |
| 2024 |
| 2025 |
| 2024 | ||||||
(Thousands) | ||||||||||||
Service cost within selling, general and administrative expenses | $ | | $ | | $ | | $ | | ||||
Interest cost |
| |
| |
| |
| | ||||
Expected return on plan assets |
| ( |
| ( |
| ( |
| ( | ||||
Recognized net actuarial loss and other |
| |
| |
| |
| | ||||
Total net periodic pension benefit within other expense, net | ( | ( | ( | ( | ||||||||
Net periodic pension benefit | $ | ( | $ | ( | $ | ( | $ | ( | ||||
The Company made $
12
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Shareholders’ equity
Share repurchase program
In August 2024, the Company’s Board of Directors approved an increase in the Company’s existing share repurchase plan. With this increase, the Company is authorized to repurchase up to an aggregate of $
Common stock dividend
In
10. Earnings per share
Third Quarters Ended | Nine Months Ended | |||||||||||
| March 29, | March 30, | March 29, | March 30, | ||||||||
2025 |
| 2024 |
| 2025 |
| 2024 | ||||||
(Thousands, except per share data) | ||||||||||||
Numerator: |
| |||||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Denominator: | ||||||||||||
Weighted average common shares for basic earnings per share |
| |
| |
| |
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Net effect of dilutive stock-based compensation awards |
| |
| |
| |
| | ||||
Weighted average common shares for diluted earnings per share |
| |
| |
| |
| | ||||
Basic earnings per share | $ | | $ | | $ | | $ | | ||||
Diluted earnings per share | $ | | $ | | $ | | $ | | ||||
Stock options excluded from earnings per share calculation due to an anti-dilutive effect | — | | — | | ||||||||
11. Additional cash flow information
Non-cash investing and financing activities and supplemental cash flow information were as follows:
Nine Months Ended | ||||||
| March 29, |
| March 30, | |||
2025 | 2024 | |||||
(Thousands) | ||||||
Non-cash Investing Activities: | ||||||
Capital expenditures incurred but not paid | $ | | $ | | ||
Supplemental Cash Flow Information: | ||||||
Interest | $ | | $ | | ||
Income tax payments, net | $ | | $ | | ||
Included in cash and cash equivalents as of March 29, 2025, and June 29, 2024, was $
13
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Segment information
Electronic Components (“EC”) and Farnell (“Farnell”) are the Company’s reportable segments (“operating groups”).
Third Quarters Ended | Nine Months Ended | |||||||||||
March 29, | March 30, | March 29, | March 30, | |||||||||
2025 |
| 2024 | 2025 | 2024 | ||||||||
| (Thousands) | |||||||||||
Sales |
|
|
|
|
|
|
|
| ||||
Electronic Components | $ | | $ | | $ | | $ | | ||||
Farnell | | | | | ||||||||
| | | | |||||||||
Operating income: | ||||||||||||
Electronic Components | $ | | $ | | $ | | $ | | ||||
Farnell | | | | | ||||||||
| | | | |||||||||
Corporate expenses | ( | ( | ( | ( | ||||||||
Restructuring, integration, and other expenses |
| ( |
| ( |
| ( | ( | |||||
Amortization of acquired intangible assets | ( | ( | ( | ( | ||||||||
Operating income | $ | | $ | | $ | | $ | | ||||
Sales, by geographic area: | ||||||||||||
Americas | $ | | $ | | $ | | $ | | ||||
EMEA |
| |
| |
| |
| | ||||
Asia |
| |
| |
| |
| | ||||
Sales | $ | | $ | | $ | | $ | | ||||
13. Restructuring expenses
Fiscal 2025
During fiscal 2025, the Company executed certain restructuring actions to reduce future operating expenses including specific restructuring actions to reduce expenses within the Farnell operating group. The following table presents the activity during the first nine months of fiscal 2025 related to the restructuring liabilities established during fiscal 2025:
|
| Facility |
| Asset |
|
| |||||||||
Severance |
| Exit Costs |
| Impairments |
| Other |
| Total | |||||||
(Thousands) | |||||||||||||||
$ | | $ | | $ | | $ | | $ | | ||||||
Cash payments |
| ( | ( | — | — | ( | |||||||||
Non-cash amounts | ( | ( | ( | ( | ( | ||||||||||
Other, principally foreign currency translation | ( | — | — | — | ( | ||||||||||
Balance at March 29, 2025 | $ | | $ | — | $ | — | $ | | $ | | |||||
14
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Severance expense recorded in the first nine months of fiscal 2025 related to the reduction, or planned reduction, of over
Fiscal 2024
During fiscal 2024, the Company incurred restructuring expenses primarily related to headcount reductions including from the planned closure of certain distribution centers intended to reduce future operating expenses. The Company expects the majority of the remaining amounts to be paid by the end of fiscal 2025. The following table presents the activity during the first nine months of fiscal 2025 related to the remaining restructuring liabilities established during fiscal 2024:
| |||
Severance | |||
(Thousands) | |||
Balance at June 29, 2024 | $ | | |
Cash payments |
| ( | |
Changes in estimates, net |
| ( | |
Other, principally foreign currency translation |
| | |
Balance at March 29, 2025 | $ | | |
15
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with respect to the financial condition, results of operations, and business of the Company. Many of these statements can be found by looking for words like “continue,” “believes,” “projected,” “plans,” “expects,” “anticipates,” “should,” “will,” “may,” “estimates,” or similar expressions in this Quarterly Report or in documents incorporated by reference in this Quarterly Report. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties. The following important factors, in addition to those discussed elsewhere in this Quarterly Report, and the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2024, and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, could affect the Company’s future results of operations, and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements: geopolitical events and military conflicts; pandemics and other health-related crises; competitive pressures among distributors of electronic components; an industry down-cycle in semiconductors; relationships with key suppliers and allocations of products by suppliers; accounts receivable defaults; risks relating to the Company’s international sales and operations, including risks relating to repatriating cash, foreign currency fluctuations, inflation, duties and taxes, tariffs, sanctions and trade restrictions, and compliance with international and U.S. laws; risks relating to acquisitions, divestitures and investments; adverse effects on the Company’s supply chain, operations of its distribution centers, shipping costs, third-party service providers, customers and suppliers, including as a result of issues caused by military conflicts, terrorist attacks, natural and weather-related disasters, pandemics and health related crises, warehouse modernization, and relocation efforts; risks related to cyber security attacks, other privacy and security incidents, and information systems failures, including related to current or future implementations, integrations, and upgrades; general economic and business conditions (domestic, foreign and global) affecting the Company’s operations and financial performance and, indirectly, the Company’s credit ratings, debt covenant compliance, liquidity, and access to financing; constraints on employee retention and hiring; and legislative or regulatory changes.
Any forward-looking statement speaks only as of the date on which that statement is made. Except as required by law, the Company assumes no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
For a description of the Company’s critical accounting policies and an understanding of Avnet and the significant factors that influenced the Company’s performance during the quarter ended March 29, 2025, this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Item 1 of this Quarterly Report on Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2024.
The discussion of the Company’s results of operations includes references to the impact of foreign currency translation. When the U.S. Dollar strengthens and the stronger exchange rates are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the result is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens, the weaker exchange rates result in an increase in U.S. Dollars of reported results. In the discussion that follows, results excluding this impact, primarily for subsidiaries in Europe, the Middle East and Africa (“EMEA”) and Asia/Pacific (“Asia”), are referred to as “constant currency.”
In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the U.S. (“GAAP”), the Company also discloses certain non-GAAP financial information, including:
| ● | “Adjusted operating income,” which is operating income excluding (i) restructuring, integration, and other expenses, and (ii) amortization of acquired intangible assets. |
16
The reconciliation of operating income to adjusted operating income is presented in the following table:
Third Quarters Ended | Nine Months Ended | |||||||||||
| March 29, |
| March 30, |
| March 29, |
| March 30, | |||||
2025 |
| 2024 | 2025 | 2024 | ||||||||
(Thousands) | ||||||||||||
Operating income | $ | 143,251 | $ | 190,151 | $ | 440,802 | $ | 680,177 | ||||
Restructuring, integration, and other expenses |
| 9,110 |
| 11,847 |
| 39,255 |
| 24,132 | ||||
Amortization of acquired intangible assets |
| 364 |
| 712 |
| 1,099 |
| 2,301 | ||||
Adjusted operating income | $ | 152,725 | $ | 202,710 | $ | 481,156 | $ | 706,610 | ||||
Management believes that providing this additional information is useful to financial statement users to better assess and understand operating performance, especially when comparing results with prior periods or forecasting performance for future periods, primarily because management typically monitors the business with and without these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in many cases, for measuring performance for compensation purposes. However, any analysis of results on a non-GAAP basis should be used in conjunction with results presented in accordance with GAAP.
OVERVIEW
Organization
Avnet, Inc., including its consolidated subsidiaries (collectively, the “Company” or “Avnet”), is a leading global electronic component distributor and solutions provider that has served customers’ evolving needs for more than a century. Founded in 1921, the Company works with suppliers in every major technology segment to serve customers in more than 140 countries.
Avnet has two primary operating groups — Electronic Components (“EC”) and Farnell. Both operating groups have operations in each of the three major economic regions of the world: (i) the Americas, (ii) EMEA, and (iii) Asia. EC markets, sells, and distributes (i) semiconductors, (ii) interconnect, passive and electromechanical components, and (iii) other integrated and embedded components, to a diverse customer base serving many end-markets. Farnell distributes electronic components and industrial products to a diverse customer base utilizing multi-channel sales and marketing resources.
Recent developments
The Company’s operations subject it to tariffs and other trade protection measures. The U.S. administration has instituted certain changes, and may make additional changes, in trade policies that include the negotiation or termination of trade agreements, higher tariffs on imports into the U.S., and other measures affecting trade between the U.S. and other countries from which the Company imports. Due in part to these measures, some countries are changing their trade policies relating to goods imported from the U.S. These global trade disruptions and geopolitical tensions, together with any related downturns in the global economy, could dampen customer demand, increase market volatility, and impact currency exchange rates, all of which could materially and adversely affect the Company’s financial performance. Evaluating and complying with new and future trade measures diverts management’s attention from existing initiatives, which may negatively impact the Company’s business operations.
The impact of these changes in trade policies will depend on various factors, including (i) when trade measures are implemented, (ii) the ultimate amount, scope, nature, and duration of tariffs and other trade measures, and (iii) the extent to which the Company can mitigate impacts and pass on any increased costs associated with these changes. In addition, the impact of trade disruptions on general economic conditions and demand for electronic components is difficult to predict. Although the Company cannot fully assess the potential impact to its business at this time, approximately 7% to 10% of the Company’s annual sales in the Americas originates from China.
17
The Company employs and continues to develop systems and other measures to mitigate the impact of tariffs, including selective supply chain, logistics, and pricing actions. The Company also has contingency plans to respond to a range of economic scenarios. The Company’s management continues to monitor and evaluate the changing tariff situation, as well as the overall environment in the electronic components industry. However, despite these efforts, the Company may not be able to fully mitigate the impact of changes in trade policies or an economic downturn.
Industry outlook
The global electronic components market has a history of cyclical downturns followed by periods of increased demand. Beginning in the second half of calendar year 2023, the industry began to experience a downturn marked by a decrease in sales due to a combination of elevated customer inventory levels and lower underlying demand for electronic components. As a result, the Company has seen decreased sales, resulting in lower operating income. The duration of the current downturn is uncertain. The Company expects sales in the fourth quarter of fiscal 2025 to be essentially flat compared to the third quarter of fiscal 2025.
Additionally, the Company’s inventories relative to its sales are higher than they have historically been as a result of this industry downturn. The Company has and may in the future purchase additional inventories from electronic component suppliers, even in an industry downturn, if the Company believes the purchase will benefit the Company’s financial or strategic business objectives.
Results of Operations
Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||
Q3 2025 | Q3 2024 | Variance | Variance % | Q3 2025 | Q3 2024 | Variance | Variance % | ||||||||||||||||||||||
($ in millions, unless otherwise stated) | |||||||||||||||||||||||||||||
Sales | $ | 5,315 | $ | 5,654 | $ | (338) | (6.0) | % | $ | 16,583 | $ | 18,194 | $ | (1,611) | (8.9) | % | |||||||||||||
Gross profit | 588 | 669 | (81) | (12.2) | 1,791 | 2,124 | (332) | (15.7) | |||||||||||||||||||||
Selling, general and administrative expenses | 435 | 467 | (32) | (6.8) | 1,311 | 1,419 | (108) | (7.6) | |||||||||||||||||||||
Restructuring, integration, and other expenses | 9 | 12 | (3) | (23.1) | 39 | 24 | 15 | 62.7 | |||||||||||||||||||||
Operating income | 143 | 190 | (47) | (24.7) | 441 | 680 | (239) | (35.2) | |||||||||||||||||||||
Adjusted operating income | 153 | 203 | (50) | (24.7) | 481 | 707 | (225) | (31.9) | |||||||||||||||||||||
Other expense, net | (4) | (15) | 11 | (72.9) | (10) | (17) | 7 | (43.5) | |||||||||||||||||||||
Interest and other financing expenses, net | (61) | (73) | 12 | (16.8) | (188) | (219) | 31 | (14.0) | |||||||||||||||||||||
Gain on legal settlements and other | — | — | — | — | — | 86 | (86) | (100.0) | |||||||||||||||||||||
Income tax expense | (10) | 13 | (23) | (174.5) | 9 | 115 | (106) | (92.1) | |||||||||||||||||||||
Net income | 88 | 89 | (1) | (1.0) | 234 | 416 | (182) | (43.7) | |||||||||||||||||||||
Diluted earnings per share | 1.01 | 0.97 | 0.04 | 4.1 | 2.65 | 4.52 | (1.87) | (41.4) | |||||||||||||||||||||
Other Metrics | |||||||||||||||||||||||||||||
Gross profit margin | 11.1 | % | 11.8 | % | (78) | bps | (0.8) | % | 10.8 | % | 11.7 | % | (87) | bps | (0.9) | % | |||||||||||||
Operating income margin | 2.7 | % | 3.4 | % | (66) | bps | (0.7) | % | 2.7 | % | 3.7 | % | (108) | bps | (1.1) | % | |||||||||||||
Adjusted operating income margin | 2.9 | % | 3.6 | % | (72) | bps | (0.7) | % | 2.9 | % | 3.9 | % | (98) | bps | (1.0) | % | |||||||||||||
Effective tax rate | (12.5) | % | 12.9 | % | (2,537) | bps | (25.4) | % | 3.7 | % | 21.6 | % | (1,792) | bps | (17.9) | % | |||||||||||||
18
Sales
The following table presents the percentage change in sales for the third quarter and first nine months of fiscal 2025 as compared to the third quarter and first nine months fiscal 2024, by geographic region and operating group.
Quarter Ended | Nine Months Ended | |||||||||||||||||||
March 29, 2025 | March 29, 2025 | |||||||||||||||||||
Sales | Sales | |||||||||||||||||||
Year-Year % | Year-Year % | |||||||||||||||||||
Sales | Change in | Sales | Change in | |||||||||||||||||
Year-Year % | Constant | Year-Year % | Constant | |||||||||||||||||
| Change | Currency |
| Change | Currency | |||||||||||||||
Avnet | (6.0) | % | (4.9) | % | (8.9) | % | (8.5) | % | ||||||||||||
Avnet by region | ||||||||||||||||||||
Americas | (9.2) | % | (9.2) | % | (13.0) | % | (13.0) | % | ||||||||||||
EMEA | (24.1) | % | (21.8) | % | (25.7) | % | (25.2) | % | ||||||||||||
Asia | 13.0 | % | 13.4 | % | 9.0 | % | 9.3 | % | ||||||||||||
Avnet by operating group | ||||||||||||||||||||
EC | (5.7) | % | (4.6) | % | (8.5) | % | (8.2) | % | ||||||||||||
Farnell | (10.1) | % | (8.5) | % | (13.3) | % | (13.1) | % | ||||||||||||
During the third quarter and first nine months of fiscal 2025, both operating groups continued to experience lower demand for electronic components. Sales of $5.32 billion for the third quarter of fiscal 2025 decreased $338.2 million, or 6.0%, as compared to $5.65 billion for the same quarter last year. Sales for the first nine months of fiscal 2025 were $16.58 billion, a decrease of $1.61 billion as compared to sales of $18.19 billion for the first nine months of fiscal 2024.
EC sales of $4.95 billion in the third quarter of fiscal 2025 decreased $297.0 million, or 5.7%, from the prior year third quarter sales of $5.25 billion, with the Americas and EMEA regions contributing to the decrease offset by sales growth in the Asia region. The decrease in sales is primarily due to sales volume decreases due to the market downturn in the electronic components industry and, to a lesser extent, an unfavorable product mix of lower priced electronic components. In the Americas, the Company did not see any meaningful increase in shipments in advance of anticipated tariff increases.
Farnell sales for the third quarter of fiscal 2025 were $366.7 million, reflecting a decrease of $41.2 million, or 10.1%, compared to the same period in the prior year. The decrease in sales in the third quarter of fiscal 2025 is primarily due to lower demand for on-the-board electronic components.
Gross Profit
The Company’s gross profit and gross profit margin are primarily affected by sales volume, product mix, and geographic sales mix. Gross profit for the third quarter of fiscal 2025 decreased $81.4 million, or 12.2% from the third quarter of fiscal 2024. Gross profit for the first nine months of fiscal 2025 decreased $332.3 million, or 15.7% from the first nine months of fiscal 2024.This decrease is primarily due to sales volume decreases in both operating groups and to a lesser extent from the decline in gross profit margin in each operating group.
Gross profit margin decreased by 78 basis points to 11.1% for the third quarter of fiscal 2025 when compared to the third quarter of fiscal 2024 and decreased by 87 basis points to 10.8% for the first nine months of fiscal 2025 when compared to the first nine months of fiscal 2024. The decrease in gross profit margin is primarily due to geographic sales mix, partially offset by increases in gross margin from certain supplier engagements. Sales in the higher gross profit margin western regions represented approximately 53% of sales in the third quarter of fiscal 2025, versus 61% of sales during the third quarter of fiscal 2024.
19
EC gross profit margin decreased year over year largely due to the change in geographic mix. Farnell gross profit margin decreased year over year, primarily due to lower sales of higher margin on-the-board electronic components.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses (“SG&A expenses”) decreased $31.8 million or 6.8% from the third quarter of fiscal 2024, and decreased $108.0 million, or 7.6% from the first nine months of fiscal 2024. The decrease in SG&A expenses is primarily due to decreases in variable operating expenses associated with the decrease in sales volumes discussed above, from restructuring actions taken by the Company, from the gain on the sale of a building and by the impact of changes in foreign currency translation rates.
Management monitors SG&A expenses as a percentage of sales and as a percentage of gross profit. In the third quarter of fiscal 2025, SG&A expenses were 8.2% of sales and 74.1% of gross profit, as compared with 8.3% and 69.8%, respectively, in the third quarter of fiscal 2024. SG&A expenses were 7.9% as a percentage of sales and 73.2% as a percentage of gross profit for the first nine months of fiscal 2025, as compared with 7.8% and 66.8%, respectively, in the first nine months of fiscal 2024. The year-over-year increases in SG&A expenses as a percentage of both sales and gross profit during the first nine months of fiscal 2025 are primarily due to the decrease in sales and gross profit without a proportional reduction in SG&A expenses, resulting in lower operating leverage.
Restructuring, Integration, and Other Expenses
In fiscal 2024, the Company initiated a restructuring plan to improve operating income by reducing SG&A expenses including within the Farnell operating group. In the third quarter of fiscal 2025, these efforts continued, leading to $9.1 million in restructuring, integration, and other expenses.
As a result of these initiatives, the Company recorded total restructuring, integration, and other expense in the third quarter of fiscal 2025 of $9.1 million comprised of severance and other employee-related expenses of $7.1 million, $2.4 million of integration and other costs, and a benefit of $0.4 million for changes in estimates for costs associated with prior year restructuring actions. The after-tax impact of restructuring, integration, and other expenses were $6.6 million and $0.08 per share on a diluted basis.
During the first nine months of fiscal 2025, the Company incurred restructuring, integration, and other expense costs of $39.3 million. Restructuring expenses consisted of severance and other employee-related expenses of $11.7 million for reduction of over 250 employees across the Company, $5.3 million of facility exit costs primarily related to an office closure in the Americas, $14.9 million of asset impairments, $3.1 million of other restructuring costs primarily related to software licenses not in use, $7.1 million of integration and other costs, and a benefit of $2.8 million for changes in estimates for costs associated with prior year restructuring actions. The after-tax impact of restructuring, integration, and other expenses were $29.0 million and $0.33 per share on a diluted basis.
Comparatively, the Company recorded restructuring, integration, and other expenses of $11.8 million and $24.1 million during the third quarter and first nine months of fiscal 2024, respectively.
See Note 13 “Restructuring expenses” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.
Operating Income
Operating income for the third quarter of fiscal 2025 was $143.3 million, a decrease of $46.9 million or 24.7%, year over year. Operating income margin for the third quarter of fiscal 2025 was 2.7%, a decrease of 66 basis points compared to 3.4% in the third quarter of fiscal 2024. The decreases in operating income and operating income margin are primarily due to the decrease in gross profit primarily from lower sales and from a lower gross profit margin without a proportionate decrease in SG&A expenses, as discussed above. Adjusted operating income for the third quarter of fiscal 2025 was $152.7 million, a decrease of $50.0 million, or 24.7%. Adjusted operating income margin for the third quarter of fiscal 2025 was 2.9% compared to 3.6% in the third quarter of fiscal 2024.
20
Comparing the third quarter of fiscal 2025 to the third quarter of fiscal 2024, EC operating income decreased 20.6% to $172.2 million, and EC operating income margin decreased 65 basis points to 3.5%, with a decrease in the EMEA region offset by improvements in the Americas and Asia regions. Farnell operating income decreased 32.8% to $11.0 million in the third quarter of fiscal 2025. Farnell operating income margin decreased 101 basis points year over year to 3.0%. The decreases in operating income and operating income margin in both operating groups are due to the decrease in gross profit primarily from lower sales and from a lower gross profit margin without a proportionate decrease in SG&A expenses.
Operating income for the first nine months of fiscal 2025 was $440.8 million, a decrease of $239.4 million, from the first nine months of fiscal 2024 operating income of $680.2 million. The year-over-year decrease in operating income was primarily due to the decrease in sales, lower gross profit margin, and impact from foreign currency exchange rates. Adjusted operating income for the first nine months of fiscal 2025 was $481.2 million, a decrease of $225.5 million or 31.9% from the first nine months of fiscal 2024. Operating income margin was 2.7% in the first nine months of fiscal 2025, a decrease of 108 basis points compared to 3.7% in the prior year first nine months.
Interest and Other Financing Expenses, Net and Other Expense, Net
Interest and other financing expenses in the third quarter of fiscal 2025 were $61.1 million, a decrease of $12.4 million as compared to $73.5 million in the third quarter of fiscal 2024. Interest and other financing expenses in the first nine months of fiscal 2025 were $188.0 million, a decrease of $30.6 million, as compared with interest and other financing expenses of $218.6 million in the first nine months of fiscal 2024. The decrease in interest and other financing expenses in the third quarter and first nine months of fiscal 2025 compared to fiscal 2024 is primarily a result of lower outstanding borrowings and average borrowing rates.
The Company had other expenses of $4.0 million in the third quarter of fiscal 2025 compared to other expenses of $14.7 million in the third quarter of fiscal 2024. The Company had other expenses of $9.7 million in the first nine months of fiscal 2025, compared to other expenses of $17.1 million in the first nine months of fiscal 2024. The decrease in other expenses in the third quarter and first nine months of fiscal 2025 is primarily due to differences in foreign currency translation losses.
Gain on Legal Settlements and other
During the first nine months of fiscal 2024, the Company recorded a gain on legal settlements and other of $86.5 million in connection with the settlements of claims filed against certain manufacturers of capacitors.
Income Tax
Income tax expense for the third quarter and first nine months of fiscal 2025 were $ (9.8) million and $9.0 million, respectively, reflecting an effective tax rate of (12.5)% and 3.7%, respectively. In comparison, for the third quarter and first nine months of fiscal 2024, income tax expense were $13.1 million and $114.9 million, respectively, reflecting an effective tax rate of 12.9% and 21.6%, respectively. The decrease in the effective tax rate for the third quarter of fiscal 2025 as compared to the third quarter of fiscal 2024 was primarily due to the increases in tax attribute carryforwards. The decrease in the effective tax rate for the first nine months of fiscal 2025 as compared to the first nine months of fiscal 2024 was primarily due to the increases in tax attribute carryforwards. See Note 7 “Income taxes” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.
Net Income
As a result of the factors described above, the Company’s net income for the third quarter of fiscal 2025 was $87.9 million, or $1.01 per share on a diluted basis, as compared with $88.8 million, or $0.97 per share on a diluted basis, in the third quarter of fiscal 2024.
As a result of the factors described above, the Company’s net income for the first nine months of fiscal 2025 was $234.1 million, or $2.65 per share on a diluted basis, as compared with $416.0 million, or $4.52 per share on a diluted basis, in the first nine months of fiscal 2024.
21
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Operating Activities
Net cash provided by operating activities was $585.0 million for the first nine months of fiscal 2025, compared to net cash provided by operating activities of $415.7 million for the first nine months of fiscal 2024. The $169.3 million increase in net cash provided by operating activities year over year is primarily due to improvements in cash used for working capital and other as working capital levels have begun to be more in line with sales, offset by lower cash provided by net income. Cash generated from working capital and other was $282.4 million during the first nine months of fiscal 2025, compared to cash used of $152.6 million during the first nine months of fiscal 2024, with the difference attributable primarily to reductions in inventory and the timing of payments for inventory purchases. The Company also had decreases in accounts receivable due to timing of sales and collections when compared to the prior fiscal year. Included in other, net was a gain on the sale of a building of $9.2 million recognized during the first nine months of fiscal 2025. The Company received $90.7 million of cash from legal settlements during the first nine months of fiscal 2024.
Financing Activities
Net repayments of debt totaled $270.3 million during the first nine months of fiscal 2025, including net repayments of $418.6 million under the Credit Facility, offset by net proceeds of $84.9 million under the Securitization Program, and $63.4 million for other debt. This compares to $106.3 million of net repayments during the first nine months of the prior fiscal year. The Company has repurchased $253.5 million of common stock under the share repurchase plan during the first nine months of fiscal 2025 compared to $86.0 million in the same period of the prior fiscal year. The Company paid cash dividends to shareholders of $0.99 per share, or $85.6 million, during the first nine months of fiscal 2025 as compared to $0.93 per share, or $84.2 million, during the first nine months of fiscal 2024.
Investing Activities
The Company’s purchases of property, plant and equipment decreased during the first nine months of fiscal 2025 by $112.3 million, when compared to the same period in fiscal 2024, primarily due to new distribution center investments in EMEA in the first nine months of fiscal 2024. Included in other, net were net proceeds of $9.2 million on the sale of a building received during the first nine months of fiscal 2025.
Contractual Obligations
For a detailed description of the Company’s long-term debt and lease commitments for the next five years and thereafter, see Long-Term Contractual Obligations appearing in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2024. There are no material changes to this information outside of normal borrowings and repayments of long-term debt and operating lease payments. The Company does not currently have any material non-cancellable commitments for capital expenditures or inventory purchases outside of the normal course of business.
Financing Transactions
See Note 4, “Debt” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on financing transactions, including the Credit Facility, the Securitization Program, and other outstanding debt as of March 29, 2025. The Company was in compliance with all covenants under the Credit Facility and the Securitization Program as of March 29, 2025, and June 29, 2024.
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The Company has various lines of credit, financing arrangements, and other forms of bank debt in the U.S. and various foreign locations to fund the short-term working capital, foreign exchange, overdraft, capital expenditure, and letter of credit needs of its wholly owned subsidiaries. Outstanding borrowings under such forms of debt at the end of third quarter of fiscal 2025 was $99.1 million.
As an alternative form of liquidity outside of the United States, the Company sells certain of its trade accounts receivable on a non-recourse basis to financial institutions pursuant to factoring agreements. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows. Factoring fees for the sales of trade accounts receivable are recorded within “Interest and other financing expenses, net” of the consolidated financial statements.
Liquidity
The Company held cash and cash equivalents of $188.9 million as of March 29, 2025, of which $177.2 million was held outside the United States. As of June 29, 2024, the Company held cash and cash equivalents of $310.9 million, of which $179.6 million was held outside of the United States.
During periods of weakening demand in the electronic components industry, the Company typically generates cash from operating activities. Conversely, the Company will use cash for working capital requirements during periods of higher growth. The Company generated $859.3 million in cash flows from operating activities over the trailing four fiscal quarters ended March 29, 2025.
Liquidity is subject to many factors, such as normal business operations and general economic, financial, competitive, legislative, and regulatory factors that are beyond the Company’s control. Cash balances held in foreign locations that cannot be remitted back to the U.S. in a tax efficient manner are generally used for ongoing working capital, including the need to purchase inventories, capital expenditures, and other foreign business needs. In addition, local government regulations may restrict the Company’s ability to move funds among various locations under certain circumstances. Management does not believe such restrictions would limit the Company’s ability to pursue its intended business strategy.
As of the end of the third quarter of fiscal 2025, the Company had a combined total borrowing capacity of $2.00 billion under the Credit Facility and the Securitization Program. There were $333.0 million of borrowings outstanding and $0.9 million in letters of credit issued under the Credit Facility, and $500.0 million outstanding under the Securitization Program, resulting in approximately $1.17 billion of total committed availability as of March 29, 2025. Availability under the Securitization Program is subject to the Company having sufficient eligible trade accounts receivable in the United States to support desired borrowings.
During the third quarter and first nine months of fiscal 2025, the Company had an average daily balance outstanding of approximately $1.11 billion and $1.08 billion, respectively, under the Credit Facility, and approximately $494.7 million and $487.3 million, respectively, under the Securitization Program. The Company also has average borrowings that are higher than quarter end borrowings from various lines of credit, financing arrangements, and other forms of bank debt in the U.S. and various foreign locations.
As of March 29, 2025, the Company may repurchase up to an aggregate of $414.1 million of shares of the Company’s common stock through the share repurchase program approved by the Board of Directors. The Company may repurchase stock from time to time at the discretion of management, subject to strategic considerations, market conditions (including share price), and other factors. The Company may terminate or limit the share repurchase program at any time without prior notice. During the third quarter of fiscal 2025, the Company repurchased $101.3 million of common stock.
The Company has historically paid quarterly cash dividends on shares of its common stock, and future dividends are subject to approval by the Board of Directors. During the third quarter of fiscal 2025, the Board of Directors approved a dividend of $0.33 per share, which resulted in $28.2 million of dividend payments during the quarter.
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The Company continually monitors and reviews its liquidity position and funding needs. Management believes that the Company’s ability to generate operating cash flows through the liquidation of working capital in the future and available borrowing capacity, including capacity for the non-recourse sale of trade accounts receivable, will be sufficient to meet its future liquidity needs. Additionally, the Company believes that it has sufficient access to additional liquidity from the capital markets if necessary.
Recently Issued Accounting Pronouncements
See Note 1, “Basis of presentation and new accounting pronouncements” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
The Company seeks to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates through financial arrangements that are intended to provide an economic hedge against the risks associated with such volatility. The Company continues to have exposure to such risks to the extent they are not economically hedged.
See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2024, for further discussion of market risks associated with foreign currency exchange rates and interest rates. Avnet’s exposure to such risks has not changed materially since June 29, 2024, as the Company continues to economically hedge the majority of its foreign currency exchange exposures. Thus, any increase or decrease in the fair value of the Company’s forward foreign currency exchange contracts is generally offset by an opposite effect on the related economically hedged position. For interest rate risk, the Company continues to maintain a combination of fixed and variable rate debt to mitigate the exposure to fluctuations in market interest rates.
See Liquidity and Capital Resources — Financing Transactions appearing in Item 2 of this Quarterly Report on Form 10-Q for further discussion of the Company’s financing transactions and capital structure. As of March 29, 2025, approximately 63% of the Company’s debt bears interest at a fixed rate and 37% of the Company’s debt bears interest at variable rates. Therefore, a hypothetical 1.0% (100 basis points) increase in interest rates would result in a $2.4 million decrease in income before income taxes in the Company’s consolidated statement of operations for the third quarter of fiscal 2025.
Item 4. | Controls and Procedures |
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the reporting period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures are effective such that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
During the third quarter of fiscal 2025, there were no changes to the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II
OTHER INFORMATION
Item 1. | Legal Proceedings |
Pursuant to SEC regulations, including but not limited to Item 103 of Regulation S-K, the Company regularly assesses the status of and developments in pending environmental and other legal proceedings to determine whether any such proceedings should be identified specifically in this discussion of legal proceedings, and has concluded that no particular pending legal proceeding requires public disclosure. Based on the information known to date, management believes that the Company has appropriately accrued in its consolidated financial statements for its share of the estimable costs of environmental and other legal proceedings.
The Company is also currently subject to various pending and potential legal matters and investigations relating to compliance with governmental laws and regulations, including import/export and environmental matters. The Company currently believes that the resolution of such matters will not have a material adverse effect on the Company’s financial position or liquidity but could possibly be material to its results of operations in any single reporting period.
Item 1A. | Risk Factors |
The discussion of the Company’s business and operations should be read together with the risk factors contained in Item 1A of its Annual Report on Form 10-K for the fiscal year ended June 29, 2024, which describe various risks and uncertainties to which the Company is or may become subject. These risks and uncertainties have the potential to affect the Company’s business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. As of March 29, 2025, there have been no material changes to the risk factors set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2024.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The Company’s Board of Directors approved the repurchase plan of up to an aggregate of $600 million of common stock including the increase approved in August 2024. The following table includes the Company’s monthly purchases of the Company’s common stock, excluding excise tax, during the third quarter of fiscal 2025, under the share repurchase program, which is part of publicly announced plans.
Total Number of | Approximate Dollar |
| |||||||||
Total | Average | Shares Purchased | Value of Shares That |
| |||||||
Number | Price | as Part of Publicly | May Yet Be |
| |||||||
of Shares | Paid per | Announced Plans | Purchased under the |
| |||||||
Period | Purchased |
| Share |
| or Programs |
| Plans or Programs |
| |||
December 29 – January 25 |
| 370,167 | $ | 52.66 | 370,167 | 495,919,000 | |||||
January 26 – February 22 |
| 730,459 | $ | 51.03 | 730,459 | 458,642,000 | |||||
February 23 – March 29 |
| 902,822 | $ | 49.31 | 902,822 | 414,120,000 | |||||
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Item 6. | Exhibits |
Exhibit | ||
Number |
| Exhibit |
31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1** | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2** | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS* | XBRL - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH* | XBRL Taxonomy Extension Schema Document. | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Filed herewith. |
** | Furnished herewith. The information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liability under that section, and shall not be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
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