Avnet(AVT) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved sales of over $5.6 billion and adjusted EPS of$ 0.92, both exceeding the high end of guidance [5][24] - Sales decreased by 12% year-over-year but increased by 1% sequentially [24][25] - Gross margin was 10.8%, down 97 basis points year-over-year and 72 basis points sequentially [26] - Adjusted operating income was $169 million with an adjusted operating margin of 3% [29] Business Line Data and Key Metrics Changes - Electronic Components sales declined 11% year-over-year but increased 1% sequentially [25] - Farnell sales decreased 18% year-over-year and 8% sequentially [26][15] - The Asia region saw a 14% sequential increase and a 6% year-over-year increase in sales, driven by strength in server and data center markets [12][25] Market Data and Key Metrics Changes - EMEA sales declined 28% year-over-year, while Americas sales decreased 16% [25] - Demand in aerospace and defense increased sequentially in EMEA but remained flat year-over-year [13] - The global book-to-bill ratio remains below parity, with Asia showing the strongest ratio [7] Company Strategy and Development Direction - The company is focusing on cost control and managing working capital while preparing for market recovery [6][18] - There is an emphasis on improving the Farnell business under new leadership, with restructuring efforts underway [15][17] - The company is optimistic about future growth opportunities in AI-related projects and the overall market recovery [21][22] Management's Comments on Operating Environment and Future Outlook - Management believes the market correction may continue for another quarter or two, with expectations for modest improvement in the second half of fiscal 2025 [55][74] - The company is seeing some positive indicators, including a return to year-on-year growth in Asia and an increase in turns business [22][75] - Management remains confident in the company's ability to adapt and thrive through market changes [23] Other Important Information - The company generated over$ 100 million in cash flow from operations during the quarter [5] - Inventory levels increased due to foreign currency exchange rates, but the company aims to reduce inventory days to the 80s by the end of the fiscal year [33][34] - The quarterly dividend was increased by approximately 6% to $0.33 per share, and share buyback authorization was expanded to$ 600 million [37][38] Q&A Session Summary Question: Understanding Asia's Return to Year-over-Year Growth - Management noted that growth in Asia is not solely driven by data center opportunities but includes increases in consumer, communication, and industrial sectors [42][43] Question: Farnell's Future and EBIT Target - Management expressed confidence in Farnell's model returning to double-digit EBIT, despite current challenges [44][45] Question: Market Correction Outlook - Management believes the market correction may last another quarter or two, with expectations for improvement in early 2025 [55] Question: Impact of WT Micro Acquisition - Management refrained from commenting on competitive dynamics but acknowledged the potential for synergies [57] Question: Operating Margin Impact from FX and Mix - Management indicated that FX had a 150 to 200 basis point impact on margins, with a focus on returning to double-digit margins over time [58][59] Question: Guidance for December Quarter - Management anticipates modest regional growth in December, despite typical seasonal declines in Europe [63][64] Question: Inventory Management - Management acknowledged the need to reduce inventory levels while also seizing market opportunities [68][71] Question: End Market Exposure - Management provided rough estimates of end market exposure, indicating a diversified customer base across various sectors [79][80]