Avnet(AVT) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved sales of $5.7 billion in Q3 2024, down 13% year-over-year and down 9% sequentially in constant currency [15][5] - Adjusted operating margin was 3.6%, with Electronic Components business showing a 4.1% operating margin [5][17] - Generated nearly$ 500 million in cash flow from operations, with a total of $650 million over the past four quarters [22][5] Business Line Data and Key Metrics Changes - Electronic Components sales declined 13% year-over-year and 10% quarter-over-quarter in constant currency [16] - Farnell sales declined 10% year-over-year but grew 3% sequentially in constant currency [16][12] - Gross margin for the third quarter was 11.8%, down 62 basis points year-over-year but up 46 basis points sequentially [16] Market Data and Key Metrics Changes - Demand declined across most end markets, with defense and data center markets showing improvement [7] - Transportation end market saw increasing demand globally, particularly in Asia and the Americas [10][7] - The global book-to-bill ratio remained below parity, though modestly improved, particularly in Asia [8] Company Strategy and Development Direction - The company is focused on reducing working capital, especially inventory, and aligning costs to drive shareholder return [14] - Continued investment in verticals such as transportation and defense/aerospace, which are expected to grow [48][47] - The company is leveraging its position in the technology supply chain to pursue opportunities with long-standing customers and suppliers [9] Management's Comments on Operating Environment and Future Outlook - Management noted that current economic conditions are challenging, but there are signs of potential recovery, particularly in Asia [13][26] - The company expects to see some sequential growth as it moves through the balance of calendar 2024 [13] - Management remains cautious but optimistic about the future, indicating a focus on maintaining operational efficiency and cash flow generation [14][24] Other Important Information - A leadership change was announced in the Farnell business, with Chris Breslin leaving the company [11] - Cost reduction actions are being implemented at Farnell, expected to yield annual savings of$ 50 million to $70 million [18] - The company plans to repurchase shares in the fourth quarter, as shares are trading below book value [23][44] Q&A Session Summary Question: Forecast for below seasonal sales in all regions and potential inventory drawdown - Management believes they have hit bottom in Asia, with moderate forecasting for 2024, while Europe is facing tough comparisons due to previous record highs [26] Question: Timing of cost-cutting measures and expected OpEx changes - Cost actions are occurring now, with expectations for a slight decrease in OpEx next quarter due to volume decline and Farnell actions [28] Question: Order trends in the first month of the current quarter - Book-to-bill ratios have improved modestly, particularly in Asia, with some recovery noted in Farnell and IP&E [37] Question: Dynamics in the automotive market and order trends - The automotive market is mixed, with some segments showing growth, particularly in transportation, but overall demand varies by region [39] Question: Revenue levels needed to maintain operating margin above 4% - The operating margin is expected to be around 4%, depending on regional mix and demand [42] Question: Cash conversion cycle and free cash flow outlook - Positive free cash flow is expected, with share buybacks planned for the fourth quarter, but no significant M&A activity anticipated [44]