Avnet, Inc. Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Financial Performance: Achieved sales of $5.9 billion, above guidance; adjusted EPS of $0.84, near high end of guidance. Strength in Asia and Farnell with double-digit growth. Americas region grew year-on-year for first time since fiscal 2023; EMEA flat year-on-year but better than seasonal sequentially.
• Demand and Lead Times: Strength in transportation, compute, and communication segments. Semiconductor lead times stable for most technologies, but memory storage and certain interconnect products have extended lead times and price increases. Book-to-bill ratio improved globally, with all regions above parity.
• Inventory and Backlog: Modest inventory increase to support growth; days of inventory on hand improved. Backlog growing, customers placing orders within lead times, indicating strengthening market.
• Operating Metrics: Gross margin was 10.4%, down 42 basis points year-over-year and 15 basis points sequentially. SG&A expenses up $26 million year-over-year and $13 million sequentially due to sales volume and salary increases. Adjusted operating income was $151 million, with adjusted operating margin 2.6%.

Segment Performance

• Electronic Components: Sales increased sequentially and year-on-year. Asia sales grew sequentially and year-on-year, now representing just over half of EC sales (fifth consecutive quarter of year-on-year growth in the region, driven by communication and transportation). Americas showed recovery with growth in industrial and communications end markets. EMEA was flat year-on-year but higher sequentially. IP&E sales were steady with improving margins, particularly strong in Asia.
• Farnell: Delivered sequential and year-on-year growth. Operating margin remained stable sequentially due to increased on-the-board components sales offsetting lower margin products like single-board computers and test and measurements. Asia and Americas strengthened, though Europe (its largest region) has yet to fully recover.

Guidance

• Second quarter fiscal 2026 sales guided to range $5.85 billion to $6.15 billion; diluted EPS guided to range $0.90 to $1. Assumes sequential sales increase, similar interest expense compared to first quarter, effective tax rate between 21% and 25%, and 83 million shares outstanding on a diluted basis.

Risks

• Geopolitical and market uncertainties.
• Inventory levels and their impact on cash flows.
• Seasonality and regional market challenges in EMEA, particularly in Europe's recovery.

Question and Answer

Q: Exposure to data center/AI applications?

A: Relatively small, with ~7% of Asia business tied to hyperscalers. Opportunities in storage, connectivity, power, etc., with downstream opportunities in MCU/NPU areas like predictive maintenance and smart wearables.

Q: Inventory days persistence?

A: Trend of decline, exited first quarter at ~92 days, expecting to get into the 80s next quarter with gradual reduction while making investments.

Q: EMEA seasonality and growth?

A: Modest growth expected in September to December quarter as Europe hits bottom, with bookings positive and backlog building.

Q: Incremental margins and Farnell margins?

A: Mix and geographic factors impact margins. Farnell margin improvement depends on product mix, with runway for growth as on-the-board components increase and market recovers.

Q: Transport business and data center linearity?

A: Transport growth varies by region (Asia heavier EV, Americas higher combustible, Europe in between). Data center bookings and shipments show up in same quarter as managed forecast.