Avnet(US:AVT)2026-01-28 17:00Financial Data and Key Metrics Changes - The company achieved sales of $6.3 billion in Q2 2026, representing a 12% year-over-year increase and a 7% sequential increase [12] - Adjusted diluted earnings per share reached $1.05, exceeding the high end of guidance and growing nearly four times compared to the previous quarter [15] - Gross margin for the quarter was 10.5%, remaining stable year-over-year and slightly up sequentially [13] Business Line Data and Key Metrics Changes - Electronic components sales increased by 11% year-over-year and 7% sequentially, with constant currency sales up 9% year-over-year [12] - Farnell sales grew 24% year-over-year and 7% sequentially, with constant currency sales up 20% year-over-year [12] - Operating margin for electronic components was 3.2%, while Farnell's operating margin was 4.7%, marking the highest for Farnell since fiscal 2023 [15] Market Data and Key Metrics Changes - Sales in Asia increased by 17% year-over-year, accounting for over 50% of total sales, compared to approximately 48% in the previous quarter [12] - EMEA sales grew 8% year-over-year, showing signs of recovery across most end markets [12] - The Americas saw a 5% year-over-year sales increase, with aerospace and defense leading the growth [12] Company Strategy and Development Direction - The company is focused on expanding operating margins, optimizing inventory, and generating cash flow while investing in future growth [4] - There is an emphasis on demand creation, supply chain services, and embedded solutions to drive growth and margin expansion [8] - The company aims to improve return on working capital and overall return on invested capital [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing a diverse supplier line card and a stable leadership team [10] - Demand signals are improving globally, with lead times trending higher across most product categories, driven by data center and AI demand [5] - The company anticipates continued growth and margin expansion in 2026, supported by a favorable regional mix and improving market conditions [21] Other Important Information - The company generated $208 million in cash flow from operations during the quarter and reduced inventory by $126 million [18] - Working capital days decreased to 88 days, indicating improved efficiency [16] - The company paid a quarterly dividend of $0.35 per share, totaling $28 million [19] Q&A Session Summary Question: Can you discuss the linearity of orders during the quarter and the duration of the backlog? - Management noted that bookings typically tail off in December, but billings continued strongly, with positive book-to-bill ratios [24][25] - There is an increasing trend of customers placing orders within lead times, indicating improved visibility [26] Question: What are the pricing pressures in specific end markets? - Management indicated that pricing pressures are emerging in memory, storage, and certain capacitors, driven by increased demand from data centers [32][33] Question: How does the guidance for the March quarter compare to previous years? - Management expects typical seasonality with growth in the West, while Asia may see a less significant decline due to Lunar New Year [35][36] Question: Will core business margins grow year-over-year for the remaining quarters? - Management anticipates continued momentum in operating margins, especially as the West recovers [44][45] Question: How do supplier price increases impact revenues and margins? - Price increases affect average selling prices, with contracted customers absorbing costs, while spot buys can lead to higher margins [47][48] Question: Can Farnell margins accelerate with the recovery in Europe? - Management expects incremental improvements in Farnell margins, potentially exceeding 50-100 basis points as revenues increase [50][51]