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)

Avnet First Quarter Fiscal Year 2024 Financial Results Safe Harbor Statement This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the financial condition, results of operations, and business of theCompany. You can find many of these statements by looking for words like “believes,” “projected”, “plans,” “expects,” “anticipates,” “should,” “will,” “may,” ...

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 | --- | --- | --- | --- | |-------------------------------------------------------------------------------------------|-------------------------------------------|--------------------|-- ...

Financial Data and Key Metrics Changes - Sales for the quarter were $6.5 billion, a modest increase year-over-year, exceeding the top end of guidance, with a 3% year-over-year growth in constant currency [18][7] - Adjusted earnings per share were $2, marking the fifth consecutive quarter of adjusted EPS of $2 or greater [7] - Adjusted operating margin improved to 4.8%, up 15 basis points year-over-year and 36 basis points quarter-over-quarter [21] Business Line Data and Key Metrics Changes - Electronic Components business sales grew 4% year-over-year in constant currency, achieving a 5% operating income margin [11] - Farnell's sales increased 9% sequentially and 1% year-over-year in constant currency, with operating margins holding steady at 9% [13][22] - Overall gross margin improved to 12.5%, up 79 basis points quarter-over-quarter [19] Market Data and Key Metrics Changes - Sales growth was led by EMEA with nearly 10% growth and the Americas with 5% growth, while Asia experienced a decline of 10% [18] - Demand signals are realigning globally, with lead times trending down for several component categories, although constraints remain for high-end MCUs, power, and MOSFETs [8][9] Company Strategy and Development Direction - The company is focused on demand creation and customer expansion, with a strategic priority on improving margins through engineering teams and digital design tools [12][13] - The company aims to drive Farnell to over $2 billion in annual sales at double-digit operating margins [15] - The company is managing through an inventory correction phase, expecting it to take a few quarters to normalize [16] Management's Comments on Operating Environment and Future Outlook - Management noted that the pricing environment remained stable, with some suppliers raising prices due to higher input costs [9][33] - The company anticipates a mixed demand environment moving forward, with some verticals showing strength while others remain weak [34][50] - Management expressed confidence in the quality of inventory and plans to improve turnover to align with near-term sales outlook [10][25] Other Important Information - Interest expense increased to $72 million, impacting adjusted diluted earnings per share by $0.37 year-over-year [23] - The company ended the quarter with a gross leverage of 2.3x, improving from the previous quarter [26] - The company paid a quarterly dividend of $0.29 per share, totaling $27 million, with $319 million remaining on the current share repurchase authorization [27] Q&A Session Summary Question: What drove better-than-expected revenue growth in Europe and the Americas? - Management indicated that automotive and industrial markets performed better than anticipated, along with positive contributions from defense and aerospace sectors [32] Question: How is inventory impacting working capital and free cash flow? - Management acknowledged that inventory levels were higher than desired, with a goal to reduce working capital into the low 80s days [35] Question: What is the outlook for core components margins? - Management stated that a mid-$6 billion revenue level is needed to sustain a 5% margin, with favorable mix and demand creation contributing to current performance [38] Question: How is pricing inflation affecting new inventory? - Management noted that pricing is impacting inventory levels but is more muted than in previous quarters, with about 25% of inventory increase attributed to pricing [42] Question: What is the expectation for inventory correction? - Management expects the inventory correction to take 2 to 3 quarters, with mixed signals across different verticals complicating the outlook [50] Question: How are accounts receivable collections performing? - Management reported improved quality of receivables, with no near-term headwinds from customer bankruptcies, and emphasized strategic management of accounts receivable [61]