Avnet(AVT) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved sales of $6.3 billion in the second quarter, representing a 12% year-over-year increase and a 7% sequential increase [13][4] - Operating margin for the electronic components business was 3.2%, while Farnell's operating margin was 4.7% [4][16] - Adjusted diluted earnings per share reached $1.05, exceeding the high end of guidance and growing nearly four times compared to the previous quarter [16][21] - Gross margin was stable at 10.5%, with electronic component gross margins impacted by faster growth in Asia compared to the West [14][16] Business Line Data and Key Metrics Changes - Electronic components sales increased by 11% year-over-year and 7% sequentially, with Farnell sales growing 24% year-over-year and 7% sequentially [13][14] - Demand creation revenues increased sequentially by 7%, indicating a positive trend in converting design wins into revenues [9] - The IP&E business experienced double-digit growth year-over-year, contributing to higher gross margins [10] Market Data and Key Metrics Changes - Sales in Asia reached a record high of over $3 billion, marking the sixth consecutive quarter of year-over-year growth in the region [8] - Year-over-year sales growth was 17% in Asia, 8% in Europe, and 5% in the Americas [13] - The pricing environment remained stable, but upward pricing pressure is anticipated across many technologies due to supply dynamics [7] Company Strategy and Development Direction - The company is focused on expanding operating margins, optimizing inventory, and generating cash flow while investing in future growth [5][12] - There is an emphasis on improving return on working capital and maintaining a strong balance sheet by reducing leverage [20] - The company aims to leverage its diverse supplier line card and customer base to enhance its market position [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing strong demand signals and improving visibility from customers [29][45] - The company anticipates continued growth and margin expansion in 2026, supported by a recovery in the West and improved demand in Asia [12][22] - Management noted that the current operating environment presents opportunities to address supply chain complexities [7] Other Important Information - The company generated $208 million in cash flow from operations during the quarter and reduced inventory by $126 million [20][17] - The third quarter guidance projects sales between $6.2 billion and $6.5 billion, with expectations for growth in the Americas and EMEA [21] Q&A Session Summary Question: Can you discuss the linearity of orders during the quarter? - Management noted that bookings typically tail off in December, but billings continue, indicating a positive book-to-bill ratio [25][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 demand from data centers and industrial customers [33][34] Question: How does the company view operating margin growth for the remaining quarters? - Management expects continued momentum in operating margins, particularly as the West recovers, with a focus on improving profitability [45][46]