Avnet, Inc. Q3 FY2026 earnings call

Phil Gallagher mentioned it was an outstanding quarter with strong execution and improving market conditions. Avnet delivered financial results above expectations, with record sales in electronic components business. Market conditions improved across most verticals served. Highlights included record sales in Electronic Components business, strong demand in industrial, networking, and data center end markets, double-digit sales growth in Asia, Europe, and Americas, Farnell's steady progress with double-digit sales growth and margin expansion. Ken Jacobson discussed sales, gross profit margin, operating expenses, adjusted operating income, balance sheet, and liquidity. Farnell's focus on e-commerce platform and inventory proposition, Avnet's investments in digital platforms and capabilities, supply chain, and engineering resources.

Avnet achieved sales of $7.1 billion. Electronic components business had a 3.5% operating margin and record sales, with Asia having record revenues for seventh consecutive quarter, representing almost 50% of total sales. Farnell business had a 5.2% operating margin and double-digit year-on-year sales growth for third consecutive quarter. Inventory days reduced 77% below near-term target of 80 days. Electronic components sales increased 35% year-over-year and 13% sequentially; Farnell sales increased 24% year-over-year and 6% sequentially.

For the fourth quarter of fiscal 2026, guiding sales in the range of $7.3 billion to $7.6 billion and diluted earnings per share in the range of $1.70 to $1.80. Assumes current market conditions persist, similar interest expense to third quarter, effective tax rate between 21% and 25%, and 83 million shares outstanding on a diluted basis.

Closely monitoring current geopolitical environment and potential broader macroeconomic impact. Conflict in the Middle East had no material impact on Q3 results outside of some increases in freight expenses due to rising fuel costs.

Q: Congratulations on a great quarter. Glad to see the continued progress in everything. So I know you mentioned you've seen some pricing increases from some suppliers. Obviously, memory was a very significant piece of that. But is there any way of contemplating how much of your revenue growth outside of memory has been driven by higher ASPs, even if it's just for some of the higher value components, not just the price hikes or like absolute that volume growth, have you quantified volume growth recently?

A: Melissa, thanks for the comments. This is Bill. Not -- not -- I mean, the memory -- we just wanted to be fully transparent on that because it's frankly so public right now. I know你有一个关于这个的问题。很多人认为价格上涨会在本季度4月1日左右开始产生影响。所以关于基于ASP的增长百分比以及技术的平衡，我们没有太多可计算的。如果有ASP增长，它们已经在之前季度的运行速率中了。所以实际上，大部分是内存。在本季度6月可能会有所变化。Ken Jacobson: Melissa, 我只想补充，我认为随着其他价格上涨，我们预计这些不会像我们在内存中看到的那样大幅增长，也不会全部如此。Q: Great to see another strong quarter, and I hope you're right that we're sort of in the beginning of this upturn. Phil, you mentioned strength in AI data centers driving demand. Can you remind us what your exposure is to that end market? Is that simply traditional component distribution where the ODMs are using the channel? Or is there some sort of supply chain services associated with that? Any characterization of that exposure or sizing, for example, would be helpful.

A: Yes. Thanks, Will. Thanks for the comments. Yes. So I think we estimated a couple of quarters ago is somewhere in the 5% to 7% range, probably increased a little bit closer to 10% to 15% that we have exposure. And to be clear to your question, to go directly into the data center. And that would be, I don't know what你叫它传统，但它肯定与供应链相关，更多是在核心和传统产品线中。我们没有——如你所知，我们不携带视频。所以不是那个，大部分直接销售给超大规模数据中心和数据中心的是在台湾的代理商。这是我们试图跟踪的，并且我们正在跟踪其他垂直领域如何受到数据中心扩展的影响，对吧？工业等其他领域也在看到提升，这是我们的优势领域，对吧？所以——我给你的数字是直接与数据中心相关的。然后你有我所说的n减一因素，对吧？工业领域是我想提到你可以想象的电力、电源管理、加热、冷却、HVAC等客户。他们也在增加——我们试图确定有多少与数据中心相关。但我希望这回答了——是的，我们也在扩展我们的供应链服务机会，但这在我给你的数字中不是那么多，更多是服务收入。Q: One other, if I can. I was a little surprised to see components grow faster than Farnell in the quarter. I think based on your comments, it sounds like that's more memory driven, maybe there's less of that in Farnell. But I would just expect that at this point in the cycle when things are -- you're just starting to hear about lead times stretch prices increasing shortages starting to show themselves that perhaps Farnell starts to be a more prominent part of the business. Is that -- is that on the comm in your opinion? Or anything you can talk about the sort of performance differential between these two because Farnell has quite a bit of gearing on the margin side.

A: Yes. No, thanks, Will. I think part of it is they've had now 3 quarters of double-digit year-on-year growth. So they've kind of gotten a lift ahead of some of the core balance of the quarter outside of Asia outside of Asia. The other thing is they have a lesser percentage of their business is on board components, right? So their percentages are lower because of the MRO test and measurements. A big part of their business. So it's not all apples-to-apples, like everything we have. They're not 90% on board to or 90% sevelectorn IP like we are in the core. So I think that's the biggest delta difference. And then the other one is their strongest region typically the largest region is in Europe. And as we said in the script, although we're encouraged with what we're seeing in Europe ones, for sure, oxygen in Europe, and that's great news for us. It's still a little bit more spotty than what we see in other regions. So what we need is for Farnell to accelerate its growth in Europe as well. And that -- you're absolutely right. that will help the margin mix too. And they don't have as much memory. Yes, they don't -- the volumes of memory and the core is much higher. So that would also impact I hope that answers it.

Q: Maybe a few if I could. I think你说本季度收入的顺序增长的50%与定价有关。关于这如何促进EBIT的顺序增长，有什么帮助吗？A: Yes, Joe, 我认为我在脚本中描述的方式是当我们传递价格时，对吧，它确实——我们保持相同的毛利率，但获得增量毛利美元。所以我认为它促进了整体经营杠杆的下降。现在再次，我认为我们在指导之外看到的很多，以及大量的超出部分，是在亚洲。所以继续看到亚洲的这种趋势很强，现在接近我们UC业务的50%。所以——但它帮助了经营利润率的杠杆，就像其他销售一样。但对毛利率没有有意义的影响。Q: Right. And I guess like on the EBIT dollar increase sequentially, fair to say that it was more than 50%.

A: 我会说它可能大约与销售增长的百分比相同，来自那里。Q: Yes. Okay. And then I guess, as we think about just like what's embedded in the guidance, I think你 earlier said, right, we've seen a round of price increases across maybe more of the broad analog mixed-signal space that kind of started taking place in April. So how do we think about that contemplate, I guess, in the 5% sequential growth for the June quarter?

A: Yes, 我会说我认为它在里面，至少我们知道的。但再次，它不如我们上季度看到的那么明显，对吧？所以我认为它已经在Q3的内存定价运行速率中，然后其他一些东西只是小得多的百分比。并且再次，它不是全部。并且时间是在整个季度中，而不是在季度开始时的所有东西。所以想想，是的，价格可能是两位数的增长，但平均来说是0，比如如果是100。Q: Yes. Yes. Okay. And then maybe just last 9 on the inventory, can you just kind of update us how you feel about your inventory positioning across just kind of the broader line card and where you see that going over the coming quarters?

A: Yes, 我认为我们总体感觉良好。并且再次，我认为Phil提到了订单与出货比和积压，对吧，这是我们过去几个季度的挑战之一，试图获得那种可见性，以便我们可以确保我们的供应商正在生产所需的正确部件。所以我认为我们感觉良好。我们仍然有机会处理一些过剩的东西和一些陈旧的东西，继续周转并移动并转换良好的库存。但再次，我们将继续投资库存，我们希望确保我们准备好并拥有足够的库存来支持客户的需求和整体需求，但我们对库存天数的进展感到满意，我们将继续在我们有机会的地方进行工作，并继续投资，特别是在IP方面。Farnell仍然有一些持续的投资要做。所以他们也在改善他们的库存天数，但我们仍然有一些东西我们希望确保他们准备好。所以再次，我认为你看到它在这里继续随着我们继续增长而减少，但仍然有一些投资和整体效率的机会。Phil Gallagher: Yes, Joe, 我只想补充一点。这是我们的生命线，对吧？所以库存有时会有不好的说法。我们不想要陈旧的。我们不想要我们不需要的太多东西，但我们一直在平衡。并且对我们的供应商来说，显然我们有适当的库存是关键，并且随着交货时间延长，重要的是我们在管道中，并且我们的信息之一是给我们的客户，正如我们在脚本中讨论的，继续给我们更长的长期可见性。这正在开始发生，仍然不是全面的，但这也正在开始发生。所以现在，我们对我们的库存位置感觉良好。我们将继续改善它。这意味着不仅希望周转它，而且从SKU角度添加适当的库存，并且到这一点，Farnell，我们实际上已经添加了——这甚至回到Will的问题，即使从新产品介绍（NPI）的角度，我们今年添加了近60,000个SKU，后来又添加了70,000个额外的SKU，很多是在IP&E领域，但也在整个半导体领域。所以我们现在有一个很好的把握，并且我们对库存的整体位置感觉相当良好。Q: So you beat guidance for fiscal 2Q, you're guiding above seasonal for fiscal 4Q. Based on the visibility that you have -- do you think that you can maintain above seasonal growth for the second half of calendar '26?

A: Well, we don't typically -- as you know, we don't typically guide out that far, right? But again -- and I really remain vigilant on this route. So we're just managing the bookings, managing the backlog and Yes, it looks positive at this point in time that we'll continue to see some growth as we get through the year. Summer is always tough to judge, right, with the holidays and whatnot. But we're not seeing anything that would really negate at this at this point in time. I think it's the important one.

Q: Maybe I can ask a follow-up to Ken on margins and specifically on incremental margins, revenues leaked quite a bit. You came above the high end of guidance. Were you -- was this the incremental margin that you were expecting in the core business? And how should we think about that as we move forward? And has your expectation for Farnell margins changed? Initially, you had guided on the Farnell side, 50 to 100 bps of improvement every quarter. I think on the call, you said that you'll get -- you're targeting double-digit operating margin now by sometime in the second half. I think你 said of calendar '27. How should we think about that incremental margin on that side of the business?

A: Yes, 我会先从最后一个关于Farnell的问题开始，Ruplu。并且我会说，我认为我们跟踪得相当好。我们看到了毛利率的良好上升，因为预期的板上组件组合。我认为Phil在这里提到的是欧洲真的复苏了，我们现在已经有几个季度的增长了，但它不像我们在亚洲看到的那样，肯定，甚至在美洲。在欧洲的增长方面，无论是在Farnell还是核心业务方面。所以我认为随着它继续复苏，我们正在监控，你会在那里得到更多的提升。所以我们对进展感到良好，并且指导意味着在那个范围内的改善。我们预计在第四季度方面。我认为对于季度本身，回到最后一个评论，很多超出部分来自亚洲，对吧？我们预计它会因为农历新年而下降一点，但它上升了。所以这影响了整体经营利润率。但我认为，总的来说，我们在经营利润率扩展方面有良好的进展，并且指导意味着进一步的改善。所以我们跟踪得相当好，并且现在有几个季度连续。然后两者的组合帮助Avnet Inc.的经营利润率扩展。所以它仍然离我们的近期里程碑有几个季度，但我认为我们正在取得良好的进展并且感觉良好。并且显然，更广泛的杠杆和经营收入美元比销售增长快得多，这是我们所期望的。Q: Let me just ask a clarification on that. So on Farnell margins, where do you think that can get to by the end of this calendar year so that we set our expectations. And then on -- maybe my last question would be, you talked a lot about memory. How much is memory as a percent of revenue or as part of the product line? Like how big is that in terms of your product line or in terms of revenues?

A: A few different questions there. So 我认为我们说Farnell的改善是每季度50到100个基点。所以如果你将这乘以本日历年末剩下的3个季度，你得到1.5亿到3亿美元，对吧？所以我认为这没有变化。然后从内存角度，显然，随着定价的变化，它已经成为一个更大的百分比。所以想想大约在低两位数的范围。并且这主要是核心业务的一种评论。EC，Farnell有很多——会是一个小得多的集中度。