Avnet (AVT) reported $6.2 billion in revenue for the quarter ended December 2023, representing a year-over-year decline of 7.6%. EPS of $1.40 for the same period compares to $2.00 a year ago.The reported revenue represents a surprise of +0.86% over the Zacks Consensus Estimate of $6.15 billion. With the consensus EPS estimate being $1.39, the EPS surprise was +0.72%.While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectations to determine their ne ...

Core Viewpoint - Avnet, Inc. reported second-quarter results for fiscal 2024, showing a decline in sales and earnings compared to the previous year, but management remains optimistic about future growth opportunities despite economic challenges [1][2]. Financial Highlights - Sales for the second quarter were $6.2 billion, down from $6.7 billion in the same quarter last year, representing a year-over-year decline of 7.6% [2][3]. - Diluted earnings per share (EPS) were $1.28, a decrease of 51.3% from $2.63 in the prior year quarter [2][3]. - Adjusted diluted EPS was $1.40, down 30.0% from $2.00 in the prior year quarter [2][3]. - Operating income margin decreased to 3.8% from 4.5% in the prior year quarter [2][3]. - The company returned $59.0 million to shareholders through share repurchases and $27.8 million in dividends during the quarter [2][3]. Segment Performance - Electronic Components sales were $5.8 billion, down 7.9% year-over-year [3][29]. - Farnell sales were $392.8 million, a decrease of 3.7% compared to the previous year [3][29]. - Operating income margin for Electronic Components was 4.3%, down from 4.7% in the prior year [3][29]. - Farnell's operating income margin was 4.0%, significantly lower than 9.0% in the prior year [3][29]. Geographic Performance - Sales in the Americas were $1.6 billion, down 5.5% year-over-year [3][29]. - EMEA sales were $2.1 billion, a decline of 6.3% compared to the previous year [3][29]. - Asia sales decreased by 10.0% to $2.5 billion [3][29]. Outlook - For the third quarter of fiscal 2024, the company expects sales in the range of $5.55 billion to $5.85 billion, with a midpoint of $5.70 billion, indicating a sequential decline of 6% to 11% [5][6]. - Diluted EPS guidance is projected between $1.05 and $1.15, with a midpoint of $1.10 [5][6].

Core Viewpoint - Avnet (AVT) is anticipated to report a year-over-year decline in earnings due to lower revenues, with the upcoming earnings report expected on January 31, 2024 [1][2]. Financial Expectations - The consensus estimate for quarterly earnings is $1.39 per share, reflecting a year-over-year decrease of 30.5% [2]. - Expected revenues are projected at $6.15 billion, down 8.4% from the same quarter last year [2]. Estimate Revisions - The consensus EPS estimate has been revised 1.85% lower in the last 30 days, indicating a reassessment by analysts [2]. - The Most Accurate Estimate for Avnet is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -1% [5]. Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that a positive Earnings ESP is a strong predictor of an earnings beat, particularly when combined with a Zacks Rank of 1, 2, or 3 [4]. - Avnet currently holds a Zacks Rank of 4, which complicates the prediction of an earnings beat [5][6]. Historical Performance - In the last reported quarter, Avnet exceeded the expected earnings of $1.50 per share, achieving $1.61, resulting in a surprise of +7.33% [7]. - Over the past four quarters, Avnet has consistently beaten consensus EPS estimates [7]. Conclusion - Avnet does not appear to be a compelling candidate for an earnings beat based on current estimates and rankings, but other factors should also be considered by investors [8].

PART I [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Avnet, Inc.'s unaudited consolidated financial statements for Q1 FY2024, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, with detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets and liabilities slightly increased from July 1, 2023, to September 30, 2023, reaching $12.65 billion and $7.82 billion respectively, with shareholders' equity at $4.82 billion | Metric | Sep 30, 2023 (Millions) | Jul 1, 2023 (Millions) | | :-------------------------------- | :----------------------- | :---------------------- | | Total Assets | $12,646.5 | $12,477.2 | | Total Liabilities | $7,823.9 | $7,725.5 | | Total Shareholders' Equity | $4,822.6 | $4,751.7 | - Current assets increased to **$10.91 billion** from **$10.75 billion**, primarily driven by an increase in inventories[8](index=8&type=chunk) - Long-term debt increased to **$3.10 billion** from **$2.99 billion**[8](index=8&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 FY2024 sales decreased by 6.1% year-over-year, but net income increased by 13.6% to $209.3 million due to legal settlements, with diluted EPS rising to $2.25 | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | Change (YoY) | | :------------------------------------- | :-------------------- | :-------------------- | :----------- | | Sales | $6,335.6 | $6,750.1 | -6.1% | | Gross profit | $748.1 | $768.2 | -2.6% | | Operating income | $253.8 | $290.5 | -12.7% | | Net income | $209.3 | $184.3 | +13.6% | | Diluted EPS | $2.25 | $1.93 | +16.6% | | Cash dividends paid per common share | $0.31 | $0.29 | +6.9% | - A significant gain on legal settlements and other of **$86.5 million** was recorded in Q1 FY2024, contributing positively to income before taxes[11](index=11&type=chunk) - Interest and other financing expenses, net, increased substantially to **$70.8 million** from **$45.1 million**[11](index=11&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income for Q1 FY2024 was $115.5 million, a significant improvement from a $7.5 million loss in the prior year, driven by reduced foreign currency translation loss and positive net income | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :----------------------------------- | :-------------------- | :-------------------- | | Net income | $209.3 | $184.3 | | Foreign currency translation and other | $(107.0) | $(201.7) | | Cross-currency swap | $11.8 | — | | Pension adjustments, net | $1.5 | $9.9 | | Total other comprehensive loss, net of tax | $(93.8) | $(191.8) | | Total comprehensive income (loss), net of tax | $115.5 | $(7.5) | - The foreign currency translation loss significantly decreased from **$(201.7) million** in Q1 FY2023 to **$(107.0) million** in Q1 FY2024[14](index=14&type=chunk) [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased from $4.75 billion to $4.82 billion from July 1 to September 30, 2023, driven by net income, partially offset by other comprehensive loss, dividends, and share repurchases | Metric | Jul 1, 2023 (Millions) | Sep 30, 2023 (Millions) | | :----------------------------------- | :---------------------- | :----------------------- | | Total Shareholders' Equity | $4,751.7 | $4,822.6 | | Net income | $209.3 | $209.3 | | Other comprehensive loss | $(93.8) | $(93.8) | | Cash dividends | $(28.3) | $(28.3) | | Repurchases of common stock | $(27.0) | $(27.0) | - The company repurchased **559 thousand shares** of common stock for **$27.0 million** during the quarter[17](index=17&type=chunk) - Cash dividends of **$28.3 million** were paid during the quarter[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 FY2024 operating activities used $41.3 million, a significant improvement from the prior year, with financing providing $100.2 million and investing using $75.8 million, primarily for capital expenditures | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :----------------------------------- | :-------------------- | :-------------------- | | Net cash used for operating activities | $(41.3) | $(645.1) | | Net cash provided by financing activities | $100.2 | $588.4 | | Net cash used for investing activities | $(75.8) | $(20.9) | | Net decrease in cash and cash equivalents | $(9.6) | $(72.8) | - The decrease in cash used for operating activities was largely due to changes in working capital, including a smaller increase in inventories and a decrease in accounts receivable compared to the prior year[18](index=18&type=chunk) - Capital expenditures increased significantly to **$76.1 million** in Q1 FY2024 from **$28.2 million** in Q1 FY2023[18](index=18&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail accounting policies, significant financial statement items, and recent activities, covering new pronouncements, receivables, goodwill, debt, leases, derivatives, commitments, taxes, pensions, equity, EPS, cash flow, segments, and restructuring [1. Basis of presentation and new accounting pronouncements](index=9&type=section&id=1.%20Basis%20of%20presentation%20and%20new%20accounting%20pronouncements) Unaudited interim financial statements adhere to GAAP, with the Q1 FY2024 adoption of ASU No. 2022-04 (Supplier Finance Programs) having no material impact, except for fiscal 2025 roll-forward information - The company adopted **ASU No. 2022-04, Liabilities (subtopic 405-50): Supplier Finance Programs**, in the first quarter of fiscal 2024[22](index=22&type=chunk) - The adoption of **ASU No. 2022-04** did not have a material impact on the company's consolidated financial statements[22](index=22&type=chunk) [2. Receivables](index=9&type=section&id=2.%20Receivables) Receivables slightly decreased from $4.88 billion to $4.79 billion, while the allowance for credit losses marginally increased to $113.5 million, with credit loss provisions rising to $4.2 million in Q1 FY2024 | Metric | Sep 30, 2023 (Millions) | Jul 1, 2023 (Millions) | | :------------------------ | :----------------------- | :---------------------- | | Receivables | $4,793.2 | $4,876.6 | | Allowance for Credit Losses | $113.5 | $112.8 | | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :-------------------------- | :-------------------- | :-------------------- | | Balance at beginning of period | $112.8 | $113.9 | | Credit Loss Provisions | $4.2 | $1.4 | | Receivables Write Offs | $(1.0) | $(3.4) | | Balance at end of period | $113.5 | $106.6 | [3. Goodwill](index=10&type=section&id=3.%20Goodwill) Goodwill decreased by $20.8 million to $759.8 million at September 30, 2023, primarily due to foreign currency translation impacts on Electronic Components and Farnell segments | Segment | Jul 1, 2023 (Millions) | Foreign Currency Translation (Millions) | Sep 30, 2023 (Millions) | | :-------------------- | :---------------------- | :--------------------------------------- | :----------------------- | | Electronic Components | $296.8 | $(4.7) | $292.1 | | Farnell | $483.8 | $(16.0) | $467.8 | | Total | $780.6 | $(20.8) | $759.8 | [4. Debt](index=10&type=section&id=4.%20Debt) Total debt increased to $3.17 billion at September 30, 2023, from $3.06 billion, driven by higher Credit Facility borrowings, while the company remained compliant with all debt covenants | Debt Type | Sep 30, 2023 (Millions) | Jul 1, 2023 (Millions) | | :----------------------------------- | :----------------------- | :---------------------- | | Short-term debt | $68.6 | $70.6 | | Accounts receivable securitization program | $463.7 | $555.8 | | Credit Facility | $1,002.0 | $796.6 | | Public notes (various maturities) | $1,650.0 | $1,650.0 | | Long-term debt (carrying value) | $3,101.9 | $2,988.0 | | Total Debt (carrying value) | $3,170.5 | $3,058.7 | - The Credit Facility borrowings increased significantly from **$796.6 million** to **$1.00 billion**[33](index=33&type=chunk) - The company was in compliance with all covenants under the Credit Facility and Securitization Program as of September 30, 2023[34](index=34&type=chunk) [5. Leases](index=12&type=section&id=5.%20Leases) Most leases are operating leases for real property, with a weighted-average remaining term of 8.0 years and a 3.8% discount rate as of September 30, 2023, and total lease cost remained stable | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :---------------- | :-------------------- | :-------------------- | | Operating lease cost | $15.5 | $16.6 | | Variable lease cost | $7.2 | $6.3 | | Total lease cost | $22.7 | $22.9 | | Metric | Sep 30, 2023 | | :--------------------------------------- | :----------- | | Weighted-average remaining lease term (years) | 8.0 | | Weighted-average discount rate | 3.8% | - Cash paid for operating lease liabilities was **$13.9 million** in Q1 FY2024[41](index=41&type=chunk) [6. Derivative financial instruments](index=13&type=section&id=6.%20Derivative%20financial%20instruments) The company uses derivatives, including forward foreign exchange contracts and a cross-currency swap, to hedge foreign currency and interest rate risks, with the fair value of economic hedges and cross-currency swap liability decreasing - The company uses economic hedges (primarily forward foreign exchange contracts) to mitigate foreign currency exposure, with maturities typically less than 60 days[44](index=44&type=chunk) - A fixed-to-fixed rate cross-currency swap with a notional amount of **$500.0 million** (€472.6 million) was designated as a net investment hedge of European operations, maturing in March 2028[45](index=45&type=chunk) | Derivative Type | Sep 30, 2023 (Millions) | Jul 1, 2023 (Millions) | | :------------------------ | :----------------------- | :---------------------- | | Economic hedges (assets) | $17.2 | $69.1 | | Economic hedges (liabilities) | $37.9 | $68.6 | | Cross-currency swap (liabilities) | $11.0 | $22.8 | [7. Commitments and contingencies](index=14&type=section&id=7.%20Commitments%20and%20contingencies) While involved in legal proceedings, management expects no material adverse effect on financial condition or liquidity, with an $86.5 million gain recorded in Q1 FY2024 from a capacitor manufacturer settlement - Management believes that the resolution of legal matters will not have a material adverse effect on the company's financial position or liquidity[52](index=52&type=chunk) - The company recorded an **$86.5 million** gain on legal settlements and other in Q1 FY2024 from a claim against a capacitor manufacturer[53](index=53&type=chunk) - Aggregate estimated liabilities for compliance-related matters were **$22.7 million** as of September 30, 2023[52](index=52&type=chunk) [8. Income taxes](index=14&type=section&id=8.%20Income%20taxes) The effective tax rate for Q1 FY2024 was 24.0%, down from 25.0% in Q1 FY2023, unfavorably impacted by increased unrecognized tax benefit reserves, U.S. state taxes, and income mix in higher tax jurisdictions - The effective tax rate was **24.0%** in Q1 FY2024, compared to **25.0%** in Q1 FY2023[54](index=54&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - Unfavorable impacts on the effective tax rate included increases to unrecognized tax benefit reserves, U.S. state taxes, and the mix of income in higher tax jurisdictions[54](index=54&type=chunk)[91](index=91&type=chunk) [9. Pension plan](index=15&type=section&id=9.%20Pension%20plan) The net periodic pension benefit improved to $(1.2) million in Q1 FY2024 from $(1.9) million, with the company contributing $4.0 million and expecting another $4.0 million for the remainder of fiscal 2024 | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :------------------------------------------ | :-------------------- | :-------------------- | | Service cost | $2.6 | $3.0 | | Interest cost | $6.1 | $6.7 | | Expected return on plan assets | $(10.0) | $(12.2) | | Net periodic pension benefit | $(1.2) | $(1.9) | - The company made **$4.0 million** in contributions to the pension plan during Q1 FY2024 and expects to contribute an additional **$4.0 million** in the remainder of fiscal 2024[57](index=57&type=chunk) [10. Shareholders' equity](index=15&type=section&id=10.%20Shareholders'%20equity) In Q1 FY2024, the company repurchased 0.6 million shares for $27.0 million, with $291.5 million remaining under authorization, and paid a cash dividend of $0.31 per share, totaling $28.3 million - The company repurchased **0.6 million shares** for **$27.0 million** in Q1 FY2024[58](index=58&type=chunk) - As of September 30, 2023, **$291.5 million** remained under the share repurchase authorization[58](index=58&type=chunk) - A dividend of **$0.31 per common share** was approved and paid, totaling **$28.3 million**[58](index=58&type=chunk) [11. Earnings per share](index=16&type=section&id=11.%20Earnings%20per%20share) Basic EPS increased to $2.29 and diluted EPS to $2.25 in Q1 FY2024, up from $1.96 and $1.93 respectively in Q1 FY2023, driven by higher net income | Metric | Q1 FY2024 | Q1 FY2023 | | :------------------------------------------ | :-------- | :-------- | | Basic earnings per share | $2.29 | $1.96 | | Diluted earnings per share | $2.25 | $1.93 | | Weighted average common shares for basic EPS | 91,495 | 94,051 | | Weighted average common shares for diluted EPS | 93,178 | 95,636 | [12. Additional cash flow information](index=16&type=section&id=12.%20Additional%20cash%20flow%20information) Non-cash investing activities included $14.0 million in capital expenditures incurred but not paid, with supplemental cash flow showing interest payments of $81.4 million and income tax payments of $78.4 million in Q1 FY2024 | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :----------------------------------- | :-------------------- | :-------------------- | | Capital expenditures incurred but not paid | $14.0 | $11.9 | | Unsettled share repurchases | $2.7 | $4.4 | | Interest paid | $81.4 | $32.9 | | Income tax payments, net | $78.4 | $57.4 | - Cash and cash equivalents included **$11.4 million** in investment grade money market funds and overnight time deposits as of September 30, 2023[63](index=63&type=chunk) [13. Segment information](index=17&type=section&id=13.%20Segment%20information) EC and Farnell are reportable segments; EC sales decreased by 6.5% to $5.91 billion, Farnell sales by 1.1% to $421.2 million in Q1 FY2024, with EC operating income increasing and Farnell's decreasing significantly | Segment | Q1 FY2024 Sales (Millions) | Q1 FY2023 Sales (Millions) | Q1 FY2024 Operating Income (Millions) | Q1 FY2023 Operating Income (Millions) | | :-------------------- | :-------------------------- | :-------------------------- | :------------------------------------- | :------------------------------------- | | Electronic Components | $5,914.4 | $6,324.2 | $272.8 | $267.3 | | Farnell | $421.2 | $425.9 | $17.7 | $51.6 | | Total Sales | $6,335.6 | $6,750.1 | | | | Total Operating Income | | | $290.4 | $318.9 | - EC operating income margin increased by **38 basis points** to **4.6%**, while Farnell's operating income margin decreased by **792 basis points** to **4.2%**[88](index=88&type=chunk) - Geographically, Americas sales decreased by **6.3%**, EMEA sales increased by **8.4%**, and Asia sales decreased by **16.6%** year-over-year[67](index=67&type=chunk) [14. Restructuring expenses](index=17&type=section&id=14.%20Restructuring%20expenses) Q1 FY2024 restructuring expenses totaled $7.1 million, including $2.7 million in severance for Farnell employee reductions, bringing the total restructuring liability to $18.3 million at September 30, 2023 | Metric | Jul 1, 2023 (Millions) | Q1 FY2024 Restructuring Expenses (Millions) | Cash Payments (Millions) | Sep 30, 2023 (Millions) | | :---------------------------------------- | :---------------------- | :------------------------------------------ | :------------------------ | :----------------------- | | Severance | $15.5 | $2.7 | $(0.2) | $17.8 | | Exit Facility Costs | $0.5 | — | — | $0.5 | | Total | $16.0 | $2.7 | $(0.2) | $18.3 | - Restructuring expenses in Q1 FY2024 included severance costs of **$2.7 million** for over **50 employees** in the Farnell operating group[86](index=86&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 FY2024 financial condition and results, covering performance drivers, segment results, liquidity, and reconciliation of GAAP to non-GAAP financial measures - The company uses non-GAAP financial measures like 'adjusted operating income' to better assess and understand operating performance, excluding restructuring, integration, and other expenses, and amortization of acquired intangible assets[73](index=73&type=chunk)[76](index=76&type=chunk) [OVERVIEW](index=20&type=section&id=OVERVIEW) Avnet, a global electronic component distributor, saw Q1 FY2024 consolidated sales and operating income decline, but net income increased due to a legal settlement [Organization](index=20&type=section&id=Organization) Avnet is a global electronic component distributor operating in over 140 countries through two main groups, Electronic Components (EC) and Farnell, across Americas, EMEA, and Asia - Avnet is a leading global electronic component technology distributor and solutions provider, serving customers in over **140 countries**[77](index=77&type=chunk) - The company operates through two primary groups: **Electronic Components (EC)** and **Farnell**, both active in the Americas, EMEA, and Asia[78](index=78&type=chunk) - EC distributes semiconductors, interconnect, passive, electromechanical, and other integrated components, while Farnell distributes electronic components and industrial products via multi-channel sales[78](index=78&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Q1 FY2024 consolidated sales decreased by 6.1% to $6.34 billion, and operating income fell by 12.7% to $253.8 million, but net income rose 13.6% to $209.3 million due to legal settlements [Executive Summary](index=20&type=section&id=Executive%20Summary) Q1 FY2024 consolidated sales decreased by 6.1% to $6.34 billion, operating income fell by 12.7% to $253.8 million, while gross profit margin improved to 11.8% | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | Change (YoY) | | :----------------- | :------------------- | :------------------- | :----------- | | Consolidated Sales | $6,335.6 | $6,750.1 | -6.1% | | Gross Profit | $748.1 | $768.2 | -2.6% | | Operating Income | $253.8 | $290.5 | -12.7% | | Gross Profit Margin | 11.8% | 11.4% | +0.4 pp | | Operating Income Margin | 4.0% | 4.3% | -0.3 pp | [Sales](index=21&type=section&id=Sales) Q1 FY2024 consolidated sales decreased by 6.1% (7.8% in constant currency), with EC sales down 6.5% due to lower demand and Farnell sales down 1.1% due to declining demand and competitive pricing | Segment/Region | Sales Year-Year % Change | Sales Year-Year % Change in Constant Currency | | :--------------------- | :----------------------- | :-------------------------------------------- | | Avnet (Consolidated) | (6.1)% | (7.8)% | | Americas | (6.3)% | (6.3)% | | EMEA | 8.4% | 1.9% | | Asia | (16.6)% | (15.8)% | | EC | (6.5)% | (8.1)% | | Farnell | (1.1)% | (3.8)% | - The decrease in EC sales is primarily attributed to lower demand resulting from the normalization of electronic component supply[80](index=80&type=chunk) - Farnell's sales decline was due to decreased demand from high-service distributors and competitive pricing pressures[81](index=81&type=chunk) [Gross Profit](index=21&type=section&id=Gross%20Profit) Gross profit decreased by 2.6% to $748.1 million, but the gross profit margin increased by 43 basis points to 11.8% in Q1 FY2024, with EC's margin improving and Farnell's declining | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | Change (YoY) | | :----------- | :------------------- | :------------------- | :----------- | | Gross Profit | $748.1 | $768.2 | -2.6% | | Gross Profit Margin | 11.8% | 11.4% | +0.4 pp | - EC gross profit margin increased due to a larger proportion of sales (**60% vs. 55%**) coming from higher-margin western regions[82](index=82&type=chunk) - Farnell gross profit margin decreased due to the unwinding of component shortage pricing premiums, a lower sales mix of on-the-board electronic components, and competitive pricing pressures[82](index=82&type=chunk) [Selling, General and Administrative Expenses](index=21&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) SG&A expenses increased by 2.0% to $487.3 million in Q1 FY2024, primarily due to foreign currency translation, rising to 7.7% of sales and 65.1% of gross profit due to decreased sales and gross profit | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | Change (YoY) | | :-------------------------------- | :------------------- | :------------------- | :----------- | | SG&A Expenses | $487.3 | $477.6 | +2.0% | | SG&A as % of Sales | 7.7% | 7.1% | +0.6 pp | | SG&A as % of Gross Profit | 65.1% | 62.2% | +2.9 pp | - The year-over-year increase in SG&A expenses was primarily a result of foreign currency translation[83](index=83&type=chunk) [Restructuring, Integration and Other Expenses](index=23&type=section&id=Restructuring,%20Integration%20and%20Other%20Expenses) Q1 FY2024 restructuring, integration, and other expenses totaled $7.1 million, including $2.7 million in severance for Farnell employees, with an after-tax impact of $5.3 million, or $0.06 per diluted share | Metric | Q1 FY2024 (Millions) | | :---------------------------------------- | :------------------- | | Restructuring, integration and other expenses | $7.1 | | Severance costs | $2.7 | | Other expenses | $4.4 | | After-tax impact | $5.3 | | Per diluted share impact | $0.06 | [Operating Income](index=23&type=section&id=Operating%20Income) Operating income decreased by 12.7% to $253.8 million in Q1 FY2024, with margin falling to 4.0%, driven by lower sales, higher SG&A, and restructuring expenses, partially offset by favorable foreign currency | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | Change (YoY) | | :-------------------- | :------------------- | :------------------- | :----------- | | Operating Income | $253.8 | $290.5 | -12.7% | | Adjusted Operating Income | $261.7 | $293.3 | -10.8% | | Operating Income Margin | 4.0% | 4.3% | -0.3 pp | - EC's operating income margin increased by **38 basis points** to **4.6%**, while Farnell's decreased by **792 basis points** to **4.2%**[88](index=88&type=chunk) [Interest and Other Financing Expenses, Net](index=23&type=section&id=Interest%20and%20Other%20Financing%20Expenses,%20Net) Interest and other financing expenses, net, significantly increased by $25.7 million to $70.8 million in Q1 FY2024, primarily due to higher outstanding borrowings and increased average borrowing rates | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | Change (YoY) | | :------------------------------------ | :------------------- | :------------------- | :----------- | | Interest and other financing expenses, net | $70.8 | $45.1 | +$25.7 | | Increase due to | Higher outstanding borrowings, increased average borrowing rates | | | [Gain on Legal Settlements and other](index=23&type=section&id=Gain%20on%20Legal%20Settlements%20and%20other) A pre-tax gain of $86.5 million ($66.1 million after tax, or $0.71 per diluted share) was recorded in Q1 FY2024 from the settlement of claims against capacitor manufacturers | Metric | Q1 FY2024 (Millions) | | :-------------------------------- | :------------------- | | Gain on legal settlements and other (pre-tax) | $86.5 | | After-tax impact | $66.1 | | Per diluted share impact | $0.71 | [Income Tax](index=23&type=section&id=Income%20Tax) The effective tax rate for Q1 FY2024 was 24.0%, down from 25.0% in Q1 FY2023, unfavorably impacted by increased unrecognized tax benefit reserves, U.S. state taxes, and income mix in higher tax jurisdictions | Metric | Q1 FY2024 | Q1 FY2023 | | :------------------ | :-------- | :-------- | | Effective tax rate | 24.0% | 25.0% | - Unfavorable impacts on the effective tax rate included increases to unrecognized tax benefit reserves, U.S. state taxes, and the mix of income in higher tax jurisdictions[91](index=91&type=chunk) [Net Income](index=25&type=section&id=Net%20Income) Net income for Q1 FY2024 increased to $209.3 million, or $2.25 per diluted share, up from $184.3 million, or $1.93 per diluted share, in Q1 FY2023, primarily due to the gain on legal settlements | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :----------- | :------------------- | :------------------- | | Net Income | $209.3 | $184.3 | | Diluted EPS | $2.25 | $1.93 | [LIQUIDITY AND CAPITAL RESOURCES](index=25&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Liquidity is supported by operating cash flows and borrowing capacity; Q1 FY2024 saw significantly less cash used in operations, cash provided by financing, and increased cash used in investing due to capital expenditures [Cash Flow](index=25&type=section&id=Cash%20Flow) Operating cash flow significantly improved, using $41.3 million in Q1 FY2024 versus $645.1 million in Q1 FY2023, with financing providing $100.2 million and investing using $76.1 million for capital expenditures [Cash Flow from Operating Activities](index=25&type=section&id=Cash%20Flow%20from%20Operating%20Activities) Q1 FY2024 operating activities used $41.3 million, a substantial improvement from $645.1 million used in Q1 FY2023, driven by smaller inventory increases and decreased accounts receivable, partially offset by increased accounts payable | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :----------------------------------- | :------------------- | :------------------- | | Cash used for operations | $41.3 | $645.1 | | Cash used for working capital and other | $280.1 | $874.8 | | Increase in inventories | $371.6 | $559.0 | | Decrease in accounts receivable | $30.2 | (Increase of $419.9) | | Increase in accounts payable | $111.5 | $120.9 | [Cash Flow from Financing Activities](index=25&type=section&id=Cash%20Flow%20from%20Financing%20Activities) Q1 FY2024 financing activities provided $100.2 million, including $243.6 million from the Credit Facility, offset by Securitization Program repayments, other debt, $28.3 million in dividends, and $24.3 million in share repurchases | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :----------------------------------- | :------------------- | :------------------- | | Net proceeds from Credit Facility | $243.6 | $702.0 | | Repayment under Securitization Program | $(92.1) | (Proceeds of $152.2) | | Dividends paid | $(28.3) | $(27.0) | | Common stock repurchased | $(24.3) | $(152.4) | | Net cash provided by financing activities | $100.2 | $588.4 | [Cash Flow from Investing Activities](index=25&type=section&id=Cash%20Flow%20from%20Investing%20Activities) Cash used for investing activities increased to $76.1 million in Q1 FY2024 from $28.2 million in Q1 FY2023, primarily due to higher capital expenditures for EMEA distribution and warehouse expansions | Metric | Q1 FY2024 (Millions) | Q1 FY2023 (Millions) | | :-------------------- | :------------------- | :------------------- | | Capital expenditures | $76.1 | $28.2 | | Net cash used for investing activities | $76.1 | $28.2 | - The increase in capital expenditures is primarily due to distribution and warehouse expansions in EMEA[96](index=96&type=chunk) [Contractual Obligations](index=25&type=section&id=Contractual%20Obligations) No material changes occurred in long-term debt or lease commitments since July 1, 2023, nor any material non-cancellable commitments for capital expenditures or inventory purchases outside the normal course of business - No material changes to long-term debt and lease commitments outside of normal course of business[97](index=97&type=chunk) - No material non-cancellable commitments for capital expenditures or inventory purchases outside of the normal course of business[97](index=97&type=chunk) [Financing Transactions](index=27&type=section&id=Financing%20Transactions) The company complied with all Credit Facility and Securitization Program covenants as of September 30, 2023, utilizing various lines of credit and factoring agreements for liquidity, with $68.6 million outstanding in short-term debt - The company was in compliance with all covenants under the Credit Facility and Securitization Program as of September 30, 2023[99](index=99&type=chunk) - Outstanding borrowings under other short-term debt were **$68.6 million** at the end of Q1 FY2024[99](index=99&type=chunk) - The company sells certain trade accounts receivable on a non-recourse basis to financial institutions for liquidity outside the U.S., with factoring fees recorded in 'Interest and other financing expenses, net'[100](index=100&type=chunk) [Liquidity](index=29&type=section&id=Liquidity) Cash and cash equivalents totaled $278.7 million at September 30, 2023, with $183.2 million held outside the U.S., and the company had $2.20 billion in total borrowing capacity and $291.5 million remaining for share repurchases | Metric | Sep 30, 2023 (Millions) | Jul 1, 2023 (Millions) | | :-------------------------- | :---------------------- | :--------------------- | | Cash and cash equivalents | $278.7 | $288.2 | | Cash held outside the U.S. | $183.2 | $194.5 | | Total borrowing capacity | $2,200.0 | | | Total committed availability | $733.3 | | - The company used **$109.8 million** in cash flows for operating activities over the trailing four fiscal quarters ended September 30, 2023[101](index=101&type=chunk) - As of September 30, 2023, **$291.5 million** remained under the share repurchase authorization[104](index=104&type=chunk) [Recently Issued Accounting Pronouncements](index=29&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) Details on recently issued accounting pronouncements are provided in Note 1, 'Basis of presentation and new accounting pronouncements,' to the consolidated financial statements - Details on recently issued accounting pronouncements are provided in **Note 1** to the consolidated financial statements[107](index=107&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate and foreign currency risks with economic hedges and a mix of fixed and variable rate debt; a 1.0% interest rate increase would impact Q1 FY2024 income before taxes by $3.8 million - The company uses financial arrangements to economically hedge against interest rate and foreign currency exchange rate volatility[108](index=108&type=chunk) - As of September 30, 2023, **52%** of the company's debt bears interest at a fixed rate and **48%** at variable rates[110](index=110&type=chunk) - A hypothetical **1.0% increase** in interest rates would result in a **$3.8 million** decrease in income before income taxes for Q1 FY2024[110](index=110&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO confirmed the effectiveness of disclosure controls and procedures as of September 30, 2023, with no material changes to internal control over financial reporting during Q1 FY2024 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2023[111](index=111&type=chunk) - No material changes to the company's internal control over financial reporting occurred during the first quarter of fiscal 2024[112](index=112&type=chunk) PART II [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company assesses legal proceedings, believing no specific public disclosure is required, and expects no material adverse effect on financial position or liquidity, though results of operations in a single period could be impacted - Management believes no particular pending legal proceeding requires specific public disclosure[114](index=114&type=chunk) - Resolution of current legal matters is not expected to have a material adverse effect on financial position or liquidity, but could be material to results of operations in a single reporting period[115](index=115&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended July 1, 2023, as of September 30, 2023 - No material changes to the risk factors set forth in the company's Annual Report on Form 10-K for the fiscal year ended July 1, 2023, as of September 30, 2023[116](index=116&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 FY2024, the company repurchased 558,695 common shares for $27.0 million at an average price of $48.40, with $291.5 million remaining under the share repurchase authorization as of September 30, 2023 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------ | :----------------------------- | :--------------------------- | | August 27 – September 30 | 558,695 | $48.40 | - Approximately **$291.5 million** of shares may yet be purchased under the publicly announced share repurchase program as of September 30, 2023[118](index=118&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including indemnification agreements, CEO and CFO certifications (Sarbanes-Oxley Act), and XBRL taxonomy documents - Exhibits include certifications from the CEO and CFO (**31.1, 31.2, 32.1, 32.2**) and XBRL related documents (**101.INS, 101.SCH, 101.DEF, 101.CAL, 101.LAB, 101.PRE**)[119](index=119&type=chunk) [Signature Page](index=33&type=section&id=Signature%20Page) The report was signed by Kenneth A. Jacobson, Chief Financial Officer of AVNET, INC., on November 3, 2023 - The report was signed by **Kenneth A. Jacobson**, Chief Financial Officer, on **November 3, 2023**[121](index=121&type=chunk)

Financial Performance - Avnet's Q1 FY24 revenue was $6.336 billion, a decrease of 6% year-over-year (Y/Y) and 8% in constant currency[13] - The gross margin increased by 43 bps Y/Y but decreased by 67 bps quarter-over-quarter (Q/Q) to 11.8%[14] - Adjusted operating expenses were $486 million, a 2% increase Y/Y and a 4% decrease Q/Q[14] - Adjusted diluted EPS was $1.61, a 20% decrease Y/Y[20] Segment Performance - Electronic Components segment's adjusted operating income was $273 million, a 2% increase Y/Y, with an adjusted operating margin of 4.6%, up 38 bps[18] - Farnell segment's adjusted operating income was $18 million, a 66% decrease Y/Y, with an adjusted operating margin of 4.2%, down 792 bps[18] Regional Performance - EMEA region's revenue was $2.308 billion, an 8% increase Y/Y (2% in constant currency)[13] - Americas region's revenue was $1.574 billion, a 6% decrease Y/Y[13] - Asia region's revenue was $2.454 billion, a 17% decrease Y/Y (16% in constant currency)[13] Balance Sheet and Liquidity - Inventory was $5.8 billion, a $290 million increase Q/Q[23] - The company has $732 million available in committed lines of credit[23] Q2 FY24 Outlook - Sales are expected to be in the range of $6.0 billion to $6.3 billion, with a midpoint of $6.15 billion[24] - Diluted EPS is expected to be in the range of $1.35 to $1.45, with a midpoint of $1.40[24]

Avnet, Inc. (NASDAQ:AVT) Q1 2024 Earnings Conference Call November 1, 2023 4:30 PM ET Company Participants Joe Burke – Vice President-Investor Relations Phil Gallagher – Chief Executive Officer Ken Jacobson – Chief Financial Officer Conference Call Participants Melissa Fairbanks – Raymond James Ruplu Bhattacharya – Bank of America Joe Quatrochi – Wells Fargo Matt Sheerin – Stifel Joseph Cardoso – JPMorgan William Stein – Truist Securities Operator Greetings and welcome to the Avnet First Quarter Fiscal Year ...

Financial Performance - Sales for fiscal 2023 were $26.54 billion, an increase of 9.2% from fiscal 2022 sales of $24.31 billion, with a constant currency increase of 13.4%[109] - Operating income for fiscal 2023 was $1.19 billion, a 26.4% increase from fiscal 2022, with an operating income margin of 4.5%[110] - Adjusted operating income for fiscal 2023 was $1.22 billion, a 23.9% increase from fiscal 2022, with an adjusted operating income margin of 4.6%[124] - Gross profit in fiscal 2023 was $3.18 billion, a 7.3% increase from fiscal 2022, with a gross profit margin of 12.0%[118] - The company's net income for fiscal 2023 was $770.8 million, with diluted earnings per share of $8.26, compared to $692.4 million and $6.94 in fiscal 2022, representing a year-over-year increase of 12.5% in net income[129] - Net income for the quarter was $770,828 thousand, compared to $692,379 thousand in the same quarter last year, reflecting an increase of about 11.3%[181] - Gross profit rose to $3,182,143 thousand, a 7.3% increase from $2,965,391 thousand year-over-year[181] - Earnings per share (diluted) increased to $8.26, up from $6.94, marking a growth of approximately 18.9%[181] Expenses and Costs - Selling, general and administrative expenses decreased by $27.5 million, or 1.4%, to $1.97 billion in fiscal 2023[119] - Interest and other financing expenses increased by $150.5 million, or 149.9%, to $250.9 million in fiscal 2023 due to higher borrowings and rates[125] - The company incurred $28.0 million in restructuring, integration, and other expenses in fiscal 2023, expecting $16.0 million in annualized operating cost savings[121] - The total income tax expense for fiscal 2023 was $212.048 million, compared to $140.955 million in fiscal 2022, reflecting an increase of 50.5%[259] - Operating lease costs for fiscal 2023 were $88.9 million, down from $94.4 million in fiscal 2022[290] Cash Flow and Working Capital - Cash flows from operating activities used $713.7 million in fiscal 2023, significantly higher than $219.3 million used in fiscal 2022, indicating increased working capital needs to support sales growth[129] - The company had cash and cash equivalents of $288.2 million as of July 1, 2023, an increase from $153.7 million a year earlier[140] - Net cash flows provided by financing activities were $1,054,756, a significant increase from $156,059 in the prior year[189] - Total cash and cash equivalents at the end of the period were $288,230, up from $153,693 at the beginning of the period, reflecting a net increase of $134,537[189] Debt and Financing - As of July 1, 2023, the company had $796.6 million in borrowings outstanding under the Credit Facility and $555.8 million under the Securitization Program, with combined availability of $846.7 million[143] - Total debt increased to $3.06 billion as of July 1, 2023, compared to $1.61 billion as of July 2, 2022[253] - The company issued notes with a net value of $498,615, compared to $299,973 in the prior year, indicating increased financing activity[189] Inventory and Receivables - The company had $5.5 billion in inventories as of July 1, 2023, with a cost of sales of $23.4 billion for the fiscal year, reflecting ongoing inventory purchases to meet customer demand[145] - Receivables increased to $4.88 billion as of July 1, 2023, compared to $4.41 billion as of July 2, 2022, while the allowance for credit losses was $112.8 million[238] Shareholder Returns - The company repurchased $221.7 million of common stock during fiscal 2023 and has an aggregate share repurchase authorization of $318.5 million[147] - The company paid dividends totaling $106.3 million in fiscal 2023, with a quarterly dividend of $0.29 per share approved in the fourth quarter[147] - Cash dividends paid per common share increased to $1.16 from $1.00, representing a 16.0% increase[181] Taxation - The effective tax rate for fiscal 2023 was 21.6%, up from 16.9% in fiscal 2022, primarily due to U.S. state taxes and valuation allowances against deferred tax assets[127] - The estimated liability for income tax contingencies was $130.5 million as of July 1, 2023, with expected cash payments of $1.0 million within the next 12 months[146] - The Company recognized deferred tax assets of $187.3 million and an income tax expense of $212.1 million for the year ended July 1, 2023[175] Assets and Liabilities - Total assets increased to $12,477,159 thousand, up from $10,388,532 thousand year-over-year, representing a growth of approximately 20.0%[179] - Total current assets reached $10,750,853 thousand, a significant increase of 21.0% from $8,876,626 thousand in the previous year[179] - Total liabilities rose to $7,725,490 thousand, up from $6,195,772 thousand, which is an increase of about 24.7%[179] - Long-term debt increased to $2,988,029 thousand, compared to $1,437,400 thousand, indicating a rise of approximately 107.7%[179] Pension and Benefits - Total net periodic pension cost for fiscal 2023 was $29.7 million, compared to a benefit of $2.9 million in fiscal 2022[282] - Contributions to the pension plan were $8.0 million in fiscal 2023, with an expectation of the same amount in fiscal 2024[283] - The fair value of plan assets decreased from $638.9 million in 2022 to $504.3 million in 2023, a decline of approximately 21%[287] Stock-Based Compensation - Stock-based compensation increased to $38,781 from $36,738, reflecting a rise in employee compensation costs[189] - The total fair value of restricted stock units vested during fiscal 2023 was $28.6 million, up from $26.6 million in fiscal 2022[301] - The company granted 0.2 million performance share units in fiscal 2023, with stock-based compensation expense of $5.6 million associated with this program[303]

Avnet, Inc. (NASDAQ:AVT) Q4 2023 Earnings Call Transcript August 16, 2023 4:30 PM ET Company Participants Joe Burke - VP, Treasury and IR Phil Gallagher - CEO Ken Jacobson - CFO Conference Call Participants Ruplu Bhattacharya - Bank of America Joe Quatrochi - Wells Fargo Matt Sheerin - Stifel Melissa Fairbanks - Raymond James Operator Welcome to the Avnet Fourth Quarter Fiscal Year 2023 Earnings Conference Call. I would now like to turn the floor over to Joe Burke, Vice President, Treasury and Investor Rela ...

Financial Performance - Avnet exceeded the high end of sales and adjusted EPS guidance for Q4 FY23[5] - Adjusted operating income grew three times faster than revenue year-over-year, reaching 4.8%[8] - The company achieved record EPS in FY23[11] - Operating income grew two times greater than revenues in FY23[11] - Q4 FY23 reported revenues were $6.6 billion[14] - Adjusted diluted EPS for Q4 FY23 was $2.06[22] Revenue Analysis - Q4 FY23 revenue was $6.55 billion, a 2.9% increase in constant currency compared to Q4 FY22 ($6.37 billion)[12] - EMEA region achieved record sales of $2.45 billion in Q4 FY23[12] - Year-over-year revenue growth in constant currency: EMEA +17%, Americas +7%, Asia -11%[12] Q1 FY24 Outlook - The company projects sales between $6.15 billion and $6.45 billion for Q1 FY24[27] - Adjusted diluted EPS is expected to be between $1.45 and $1.55 for Q1 FY24[27]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 1, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | --- | |-------------------------------------------------------------------------------------------|-------------------------------------------|--------------------|-- ...