Avnet(US:AVT)2021-10-29 01:23Financial Data and Key Metrics Changes - The company achieved sales of $5.6 billion, up 7.6% sequentially and 17.5% year-over-year in constant currency, with a 32.9% year-over-year growth when excluding TI sales and the extra week in the prior year [10] - Adjusted EPS was $1.22, exceeding guidance, with a gross margin of 11.8%, slightly down from 12.3% last quarter but improved by 88 basis points year-over-year [16][18] - Operating margins reached 3.2% for electronic components and 10.9% for Farnell, with a goal of sustainable operating margins of at least 3% to 3.5% for total Avnet [17][23] Business Line Data and Key Metrics Changes - Electronic Components segment revenues were $5.1 billion, with sequential growth across all geographic regions, particularly strong in Asia [11][19] - Farnell achieved record revenues of $455 million, with 53% of revenues and 69% of total transactions attributed to e-commerce sales [13][19] - The company added 18,800 SKUs in Farnell, reflecting continued progress on a plan to add an additional 250,000 SKUs through fiscal year 2022 [15] Market Data and Key Metrics Changes - Demand was robust across vertical segments, with industrial, automotive, and communication segments serving as significant drivers [10] - The company reported a positive book-to-bill ratio in all regions, well above parity [12] - Inventory levels remained relatively flat, with net working capital days decreasing to 69 days compared to 79 days a year ago [21] Company Strategy and Development Direction - The company is focused on margin expansion by accelerating the growth of high-margin businesses while improving efficiencies in core distribution [8] - Strategic investments in digital capabilities and e-commerce are expected to continue benefiting performance, particularly in Farnell [13][19] - The company plans to maintain a balanced approach to capital allocation, with approximately half dedicated to reinvestment and half to shareholder returns [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining current margins despite ongoing supply chain challenges and inflationary pressures [10][23] - The company anticipates continued strong demand and supply constraints in the second quarter, guiding revenue in the range of $5.3 billion to $5.7 billion [22] - Management emphasized the importance of maintaining strong relationships with customers and suppliers to navigate the complex operating environment [75] Other Important Information - The company reinitiated its share repurchase program and increased its dividend by 9.1% in the quarter [22] - The impact of the Analog Devices decision to discontinue its distribution relationship is expected to be minimal, as it accounted for only about 3% of total sales [12] Q&A Session Summary Question: What are the near-term goals for margins? - Management expects to sustain current margins and highlighted levers such as investments in Farnell and e-commerce capabilities to drive further improvements [25][26] Question: How to balance increasing dividends and share buybacks? - Management indicated a commitment to increasing dividends annually while also being opportunistic with share buybacks based on market conditions [28][30] Question: What is the strategy to replace revenue lost from Maxim? - Management noted that Maxim accounted for a small percentage of total revenues and expressed confidence in replacing those dollars through existing supplier partnerships [31][32] Question: What is the current supply environment? - Management acknowledged ongoing supply constraints but indicated that lead times have not significantly expanded, and they are managing inventory effectively [34][36] Question: Are there any more share shifts expected in the semiconductor industry? - Management noted that industry consolidation is ongoing, and while they cannot predict specific outcomes, they are focused on executing their value proposition [50][51] Question: Is the company over-earning on components due to shortages? - Management clarified that while there are some benefits from pricing increases, they aim for sustainable operating margins of 3% to 3.5% [52][54] Question: What are the targets for e-commerce sales in Farnell? - Management did not specify exact targets but emphasized the importance of increasing e-commerce sales as a percentage of total transactions [62][64] Question: What is the demand for supply chain services? - Management reported increased demand for supply chain services, indicating that these services are sticky and typically yield higher margins [66]