Avnet, Inc. (AVT) Earnings

Management highlights

### Overall Quarterly and Full-Year Performance - Q4 FY26 results exceeded sales and EPS guidance, delivering a record quarter across key metrics and capping a year of strong growth driven by broad-based improving demand, strong team execution, and operating leverage. - Full-year 2026 saw substantial revenue, margin, and earnings growth as market conditions improved, with consistent discipline around working capital, operating expenses, and capital allocation alongside continued investment in differentiated capabilities. ### Demand and Supply Environment - Demand improvement is broad-based across all regions and end markets, not limited to AI, with solid book-to-bill ratios above 1, growing and extending backlog that provides visibility into FY27. - Supply conditions tightened during the quarter, with lead times increasing across semiconductor and interconnect, passive, and electromechanical (IP&E) categories; pricing increases have become more prevalent beyond memory, with additional supplier price increases expected in coming months. ### Strategic and Growth Initiatives - AI is a key industry catalyst that is increasing semiconductor and component content across Avnet's end markets, with particular upside from edge AI deployments in robotics, drones, and autonomous systems that align with Avnet's core industrial strengths. - IP&E delivered a record quarterly sales quarter, with full-year FY26 sales approaching $5 billion; demand for combined semiconductor and IP&E solutions is growing alongside AI infrastructure and industrial automation expansion. - Supply chain solutions is building momentum with large OEM customers, particularly in data center, networking, and transportation; Avnet Integrated Solutions expands value beyond traditional distribution by offering system assembly, integration, testing, and deployment for high-growth complex end markets. ### Balance Sheet and Working Capital - Inventory days improved to 71 days, the lowest level in nearly four years, with EC inventory days falling below 65 days; over 50% of the sequential inventory increase was driven by memory pricing, not unit growth, and inventory quality is healthy. - Return on working capital reached 19%, exceeding the near-term target of 16%; improving working capital return remains a core priority for FY27.

Guidance

- **Q1 FY27 Guidance**: Avnet projects total sales in the range of $9 billion to $9.3 billion, and adjusted diluted EPS between $2.80 and $2.90, implying ~10% sequential sales growth at the midpoint, assuming current market conditions persist. - Management expects SG&A as a percentage of gross profit to fall below 60% by the end of FY27, and projects adjusted operating income growth will continue to outpace sales growth by approximately 2x, driven by disciplined expense management. - Farnell is on track to reach double-digit operating margins before the end of FY27. - Avnet expects to reach its gross leverage target of 3x by the end of calendar 2026, down from 3.2x at the end of Q4 FY26.

Segment performance

Avnet reported total record Q4 FY26 sales of $8.3 billion, up 48% year-over-year (YoY) and 17% sequentially. Approximately one-third of sequential and YoY sales growth came from memory price increases. - **Electronic Components (EC)**: Record quarterly sales of $7.73 billion (93.1% of total revenue), up 49% YoY and 17% sequentially. Adjusted operating income was $317 million, with an operating margin of 4.1% — a 54 basis point sequential increase, marking the third consecutive quarter of margin expansion and the highest EC operating margin in over two years. All three regions grew double digits YoY and sequentially: Americas grew 55% YoY, Asia reached a record $3.9 billion in sales (47% of total company sales, 8th consecutive quarter of YoY growth) growing 46% YoY, and EMEA grew 44% YoY for the third consecutive quarter of growth. - **Farnell**: Record quarterly sales of $500 million (6.9% of total revenue), up 29% YoY and 10% sequentially. Adjusted operating income was $45 million, with an operating margin of 9% — a nearly 400 basis point sequential increase, the highest Farnell operating margin in over three years and seventh consecutive quarter of margin expansion.

Risks & headwinds

Forward-looking statements are inherently uncertain, and actual results may differ materially from projections due to various risks, which are detailed in Avnet's SEC filings including Form 10-Q and Form 10-K. Key uncertain factors include: potential unplanned excess customer inventory buildup from precautionary safety stock ordering, broader-than-expected demand destruction from ongoing component price increases, ongoing supply chain tightness that could limit ability to meet growing customer demand, and cyclical industry volatility that could alter the current trajectory of demand growth.

Analyst Q&A

• Q: What is the impact of memory pricing on margins and guidance, and what is the breakdown of inventory growth between pricing and unit increases? /

  A: Most pricing increases are passed directly to customers, generating gross profit dollar growth but not significant margin expansion. The Q1 guidance assumes only modest non-memory price increases, similar to the trend seen in Q4. Approximately half of Q4 inventory growth came from memory pricing; more units are needed to support higher sales volume, but inventory days continue to improve for the EC business, inventory quality is healthy, and Avnet actively balances inventory positioning with supplier and customer demand forecasts. Farnell is slowly expanding SKU count 2-3% YoY to support its broader high-service model. (397 chars)

• Q: Where in the current demand cycle does Avnet believe it is, what is the long-term operating margin target trajectory, and how is December quarter tracking relative to historical seasonal trends? /

  A: Management estimates the current upcycle is in the third or fourth inning (front third of the cycle), not late-stage, based on sustained backlog and booking growth. Continued steady operating margin expansion is expected, with a long-term target of 5%+ for the consolidated company; faster growth in the more profitable Americas and EMEA regions is supporting this progress, and Farnell is on track to reach 10-12% operating margin. Management expects the December 2026 quarter to be better than typical seasonal trends, with healthy current backlog supporting solid performance. (512 chars)

• Q: What drove outsized sequential YoY growth in the Americas region, and how much of the Q1 guidance reflects unit growth versus pricing, and is there risk of excess precautionary ordering? /

  A: Americas growth is broad-based across end markets, not concentrated only in data center; aerospace and defense grew ~40-45% YoY, industrial demand is strong, and even automotive/transportation saw growth. Americas benefited from memory pricing similarly to other regions, with no disproportionate impact. The Q1 guidance is driven mostly by unit volume growth, with only modest assumed price increases; while some customers are building small safety stock buffers, there is no evidence of widespread excess inventory or double ordering, and inventory is being consumed as it arrives, with cancellation rates remaining normal. (483 chars)

• Q: How much of Farnell's margin improvement is structural versus cyclical, and what trends are you seeing in automotive OEM inventory behavior? /

  A: Farnell's margin improvement includes both cyclical tailwinds from tightening market conditions and structural improvements from a shift to higher-margin onboard and component product mix. Management expects the sustainable long-term margin floor for Farnell to be significantly higher than the last cycle, with ongoing mix adjustments supporting higher margins. Automotive transportation demand is growing across all regions, driven by higher component content from electric vehicles; while automakers do not appear to be intentionally stockpiling large inventories, they are actively working to avoid the supply shortages seen in previous cycles, and Avnet's supply chain services business is seeing increased demand for support in this area. (491 chars)