AVT - Earnings call 2 2024

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Operator

Welcome to the Avnet Second Quarter Fiscal Year 2024 Earnings Conference Call. I would now like to turn the floor over to Joe Burke, Vice President of Treasury and Investor Relations for Avnet.

Joseph Burke

Thank you, operator. I'd like to welcome everyone to the Avnet Second Quarter Fiscal Year 2024 Earnings Conference Call. This morning, Avnet released financial results for the second quarter fiscal year 2024 and the release is available on the Investor Relations section of Avnet's website, along with a slide presentation which you may access at your convenience.

that of this contained statements conference risks, and some release the that reminder, predict. uncertainties on to and call assumptions a the in information news involve As difficult are contain forward-looking Such forward-looking of the statements. those actual company's from a could materially in performance differ and results contained are statements not guarantee such SEC. These CEO; obligation Form circumstances the differences forward-looking Ken that, CFO. With this filings detail in statements in factors could me that described after subsequent to as only or Jacobson, cause call Phil Several turn speak no forward-looking of let the presentation, and the most date Avnet's regarding presentation. Today's statements this or XX-Q recent information of are by and with publicly the led of XX-K contribute the company to any such date and will Gallagher. Avnet's supply over Avnet's the update to undertakes call be new Gallagher, Phil and Phil?

Philip Gallagher

We've a the operating couple of slightly was by margins Electronic working above margin the Joe, achieved and global past and XXXX year-over-year. an earnings X% X.X% Thank was with year billion. the in joining basis through on share sequentially of a pleased down business. results, X.X% I am solid quarter our call. that guidance, X% $X.X we financial our Components fiscal thank highlighted down been midpoint to on line of for you, quarter, which delivered quarters. inventory quarter conference sales of another over our operating We second you, of correction in our everyone, achieved we This guidance. In us

communications China in now demand being with transportation Defense also economic markets and uncertain levels magnified is chain. In across across and West. markets the supply softness end in by demand some has conditions we're serve. was in the lower diverse soft. which show the Asia, began addition, while was relative our inventory we strength, of continue consumer the relatively which in economic and This weak demand customers, are resulted mixed verticals and elevated to the facing present In quarter, including industrial,

stable, semiconductor improve, positive in we of As overall do meaningfully for see not a environment as And sign. the remains to continue pricing majority is to the today. products, the term which pricing the lead we times it expect near decline

to with manage align continue conditions. coordination our backlog market current and We our close suppliers and with softening customers to

centered and range. year-over-year cancellations, rather contributing is activity a to are backlog pushouts normal backlogs however, Shorter lead reschedules being times, on than Our are lower within which sequentially. and

result of a quarter. these below continued As last ratio book-to-bill above parity, be factors, though modestly to our

up, of currency. our combination Although Supply was levels and increase reported the inventory Chain driven engagements Service foreign a a as were by

business chain service teams core will XXXX. over come inventory fiscal our offerings. for and color Excluding flat. confident supply inventory will this provide inventory levels for And are EC down Ken our further the of on our as these items, that relatively was core a business remainder

sales With team strongest sequentially our Components line, as sequentially were strongest conversion with business. on Asia, and component inventory mixed saw our and improving with and in in demand Americas currency, XX% up said year-over-year. transportation coming the Asia Sales As X% focused are results year-on-year and turn the a sectors. market the business levels sequentially of EMEA as markets. sales sales compare. were near focus sequentially job are down We it a a our fuel on At outlook, were an our are asset seeing with up down inventory and business. that me highlights defense really the end customers. for In across the transportation X% the inventory, noting were the year-on-year. let navigating the I've is view communications I and our currency. cycle. and and our X% But our vital It quarters. to our inventory up near-term constant in markets. X% constant declined year-on-year end it the top tough cash electronic regions. today our last to X% were supplier EMEA were provide elevated Electronic with year, before, in the In that, we Sales XX% reducing X% softening and we [indiscernible] we for we best end in EMEA, And optimizing correction. done has In down going mentioned midst had sales are industrial investments previously, in a true read partners reducing record inventory nice transportation worth on against our quarter in December

able the customers, and of is constant X% business, operating reduction were our by pricing and an were cost competitive quarter, actions the currency. to which were portfolio. from X%, began for of margin we margins have mix and sales benefits has For the is our a important great part suppliers we in potential to pressures. deliver still down Avnet value we Farnell hold demand, as Farnell taken. product and outlook. in line the during sales some decline, stated disappointing our both sequentially sales profitability believe already Farnell as expected, Operating greater-than-expected to to impacted We softening were Despite but the year-over-year Farnell see with

Avnet's term further sales of to and We margins are operating breadth improving on while the identify growth opportunities. near leveraging force customer base focused

Solutions. In IP&E and opportunities, stable on and demand creation remained design including strong, focused total of team was wins revenue basis. creation, sequential and margin creation a demand percentage is revenues as Our on registrations and several our growth a Embedded the quarter, expansion demand

margins, that opportunities pursuing to business. products components many and growth IP&E We are semiconductor gross also complementary there in IP&E are IP&E cross-selling business. have with are higher our our

solutions. display embedded and exciting Finally, opportunities board business, embedded we we where see with our offer

solutions, custom gross capability We with offer to both third-party higher the which have margins. solutions come and both of

our ways leverage force these find growth to to to opportunities. on technical and embedded global capitalize sales continue We capabilities

their Our importance to the create They ability efforts. leveraging why creation our portfolio Avnet's that of products. also count supplier of support generate demand continue customers entire highlights of leverage focused solutions for the suppliers our are tail long selling customer growth. on and sector partners The value to increasing solutions industrial to

Our Avnet part them they and help are with the suppliers seeking. in continue to growth general to distribution drive

uncertain opportunities are market. As in are, exciting we as the of midst these an still

overall strong weeks, and at Over dedication group I least results. prior choppy our their this second many managing cycles makers market a differentiators serve several for several softness market will our continue believe to calendar into have consensus and to team Avnet, us commitment. any well The through with partners, to of are revenues. extend which that more our turn met navigate among but confident couple key our over could will our for I'll position environment. With in compete dive deeper enables experience waters. conclude, our for want Ken well supplier the to are our people these decision through thank quarter that We past us half competitive as and it at representing sentiment nearly I quarters, our XXXX. To CEOs and through market is we we culture that,

Ken Jacobson

and you, joining for in Thank everyone. We morning, our and appreciate earnings Phil, good your Avnet call. interest

from perspective, X% down sales year-over-year. regional sequentially in down approximately the sales single billion, X% a X% were declined board sales currency. Americas basis, year ramp, X% in constant declined to group for quarter. currency. $X.X X% quarter-over-quarter also XX% second From constant in quarter-over-quarter. line constant sales From X% in seasonal to EMEA computers XX% Farnell and declined guidance quarter constant Sales Farnell electronic as the and December year-over-year sales with were perspective, On increasing sales by EC quarter. declined currency. a constant X% Western sequential year-over-year expected X% continue sales an declines in declined and in sales in Our currency. the X% ago lower and of currency operating in the component the due and were regions Asia each in

XX.X% sequentially gross Asia. due year-over-year a sequentially pricing down an due XX and was was pressures seasonal basis largely competitive components. second gross year-over-year, for margin from Farnell margin on-the-board to points shift XX mix the quarter, points basis was to primarily EC For gross margin and to flat declined of and lower quarter-over-quarter. unfavorable and mix lower year-over-year sales

year-over-year. Turning expenses operating X% sequentially. to currency Adjusted down the X% expenses operating expenses. were million quarter, $XXX X% year-over-year down constant in down were in and Operating

expenses gross last of adjusted percentage the second a profit operating higher XX than basis XX% were points quarter, dollars, As quarter. in

decreased second million, the XX% reported quarter, $XXX of adjusted year-over-year. operating income For which we

basis income operating lower EC The decreased decline was Our Electronic quarter-over-quarter. was due a XX adjusted XX% basis XX lower combination decreased year-over-year sales down by was unfavorable margin the to expenses. on-the-board pricing X% X% sales down offset in shift $XX which and mix By operating million, XX XX down points operating sequentially. and and sales operating and operating of down components, competitive a by primarily margin points quarter-over-quarter basis related pressures group, points Asia. Farnell basis to impacted and was Components lower X.X%, income of was year-over-year points Farnell $XXX an margin operating mix X.X%, to was sequential basis year-over-year. points year-over-year. which seasonal was partially quarter, lower million, was XX operating sales

on-the-board Farnell second exited year. operating will undertaking a the and approximately quarter. already as wide Farnell benefits actions lower $XX the for of quarter, to by expenses. of at may gross as expenses we and actions XX% the targeting We pressures was demand margins. last completed discussed reduce anticipate improve million components the are we of reductions dampen challenging completed of we quarters of annual begun range few next for continued As million, Farnell competitive The Overall, to $XX expected has will be be between majority of expense which the restructuring restructuring the end fiscal

they through ensure are necessary cycle, these any operating actions a people. model do Although these our restructuring take as Farnell sustainable not we expense lightly has to impact actions

below to income. operating Turning expenses

expense expense to primarily higher $XX impacted diluted negatively year-over-year $X.XX $XX per million higher million by increased year-over-year. average Second $X of quarter increased earnings by million adjusted share interest interest This quarter-over-quarter, borrowings. and due

tax diluted was line in at Our as share expectations quarter earnings with quarter. the Adjusted adjusted effective expected. in per for $X.XX income was XX% the rate

sheet to and the balance Turning liquidity.

an sequentially,including million, increased $XXX the increase million million and $XXX $XXX in quarter, payables. by capital of receivables decrease in $XXX working inventories decrease million reported in During

result days increase capital the for an capital XXX working increase, days of quarter, quarter-over-quarter. As were working of days X a this

income. working on on operating the return capital working Our lower and capital higher decreased quarterly

core me increase in increase an in inventory inventory and in inventory to EC give service moment currency specific The increase remained was a quarter. driven exchange foreign reported changes take Inventory this engagements quarter. color to flat supply traditional and in business by sequential was December from the to the Let chain and more our in rates. overall related on stable inventories also

work incoming We continue to we created of levels inventory have supply chain. on elevated inventory line challenges by through the across sight the while

in resiliency base disappointed decline as for this component in are for which to from Although are these inventory business supply continue EC is service offering. inventory few and increase as historically core The OEMs see business of we chain the a the past March chains service who quarters. are their driving for an these to our learned confident an customer our From lesson a typically levels perspective, increase are supply suppliers. remains in with opportunities. these flat, shortages, These prioritizing directly June engagements a large start OEMs done years we opportunities we will that and have in suppliers their

for The held business. in of the Supply behalf. As and risk of in OEM the inventory services flat inventory supplier down our that a as ramp increase chain be profile third business the expect fourth core towards for Services a engagements. and slightly the engagements is from really distribution that restricted for engagements reminder, contractually traditional Chain on our the the we to inventories or different inventories compared separate was few existing hold supply quarter. inventory their specific EC these associated core the would is are is the quarters our EC to service The to end inventories to newer We for

[ XXXX. of second where led in increase which Our to cash debt team remains will the fiscal capital an million. levels elevated highly help us from in reducing focused of inventory flow ] in The $XXX half operations working increase drive on

cash of for quarter, During the million we $XX used operations.

However, generated of quarters, over from we cash X the operations. past million $XXX

capital a XXXX. in of gross of allocation, our generate leverage quarter to in fiscal capacity. continue third operations borrowing expect to million We to We cash cash business first capital and half X.Xx, of and we positive including used had we approximately the flow during capital the the working available excess existing needs, the regard prioritize $XXX committed quarter our With ended with expenditures. for of

for During being the $XX new to constructed second quarter, EMEA. CapEx support million, in cash used a distribution primarily was center

expect quarters. levels $XX approximately $XX We second half second in from quarter. during In We to million first to buy to settlement shares. [ per repurchased million legal the used proceeds ] CapEx for shares $XX approximately of recent to our XXXX historical of return the we fiscal second and the quarter, cash the back million

million current repurchase share the authorization $XXX on third our have quarter. We left entering

million. of share or We also per dividend paid $XX our $X.XX quarterly

are value shareholder our shares $XX Book delivering by increase when the of reliable remain a or sequential $X share a approximately For repurchases long to a undervalued we map the and believe of share term, we improved a dividend per to share our and increase our increasing market. share. to value road committed approximately

operations As of cash the for back for flow half paydown second a debt we buying XXXX, expect the generate to cash and of fiscal we from in shares. combination use

Turning to guidance.

$X.XX XXXX, of of range the are sales the earnings diluted per $X.XX of billion fiscal share in and guiding to we range $X.XX. billion For quarter the third to $X.XX in

quarter is due guidance operating This conditions compared guidance margin of sales X% sequential income an regions growth market XX% expense sales between in and seasonality Year. rate effective XX% the is third and and to the typical of interest a shares decline guidance on diluted Lunar our million versus basis. from Asia sales Implied above implies and decline to to current This similar guidance assumes seasonal for XX%. of New XX declines a X%. sales Western an quarter, a assumes second the Our on tax EC based outstanding in

we currently the influence. market in being or things environment disciplined Although on includes operating This there uncertainty we can is focus our the expenses, overall will that some to team are in, continue our with winning drive back working driving and open the flows gains. With profitable operator new cash that, capital market turn for it will opportunities questions. I continued it and reductions up over to Operator? and share to that growth control

Operator

is question Securities. first Stein William Our with Instructions] [Operator from Truth

William Stein

addressed I'd chain issue. inventory, it's it I like a going about it maybe was sounds like to way to already, more ask -- really but ask the of supply given you

So -- a supply chain engagement issue.

inventories core that dynamics turns separately? separately returns that you're sort a inventory okay. invested in instead engagements can about for more me the heard differences the Avnet might that and chain ask the I time. if reporting to some targeting So metrics it other follow-up, have supply that. let components that talk between on different We've And quite traditional I that the wonder and in maybe the of for the distribution about capital, business? talk do that's there And about revenue if business versus whether you business electronic us warrant about talk

Philip Gallagher

and Yes. it probably to over I'll WIll, thanks. turn This Ken. is Phil,

core compound, today And a really service are services coming customers, years even breaking kind chain capital large forward. is to et we we'll we're of financial string that you're okay, it out traditionally systems, pull supply script, be in couple The a for whether chain still So the use and they clarify of point maybe kind utilizing why as right, OEMs we're as our part to the are and us. inventory implant we're chain kind That's are to because generic breaking we've that ago, That more. chain we that of different That's -- our financing. ones start term, supply consignments doing bit in of now Supply exists. models, little what defining different traditional that been weren't carrying too. models, a chain of different that And our calls that working out and for [ big service started traditional And that's of a supply working we with with the point business. as our do. is et it and move cetera, stores, a call cetera. a what supply of ] still to

give work that But to color a continue break on can Ken. in let out that He appreciate So We'll little me over I -- to more explain Ken? more the question. it that. turn future. bit articulate to and the

Ken Jacobson

say, hasn't do, to to couple disappointed that in to go the next business just right, is actively see that down sight kind of in some the I'd inventory core broader that's the driving team that we line because to message EC We're is is want but inventory of for yet, it of gone the we convey stable. reductions do quarters. something the

service more supply on accounting, is I inventory. the within a the sheet least mean happens our We're balance beginning color our as chain As to inventory, reporting, be that give our to a will. bit at little

think clarity those the then I path the engagements and moving would sheet the for balance as So ramp. be first P&L to on further

here's so thing, engagements And much service I characterize OEMs. that partners and large suppliers is relationship the, use. because comment bigger. to mostly of And large business So the it, they we try own components been end these mean, let's say, the difference. are how in right? doing typically ones arrangements I'd the really what have with we the by direct these they on magnitude here typically fact customer are of they have the these And with haven't their the that think the driven first are typically, I that's throughput

so because And really space. the we in for us new played OEM is haven't opportunities this big

behalf all let's And the that. seeing, But or engagements procuring their inventory across normally likely, they markets kind really happening networking and is that the So were including, one that pricing. on is might driven buying their at what's pricing most a but typically, contract we're and typically, communications have like OEM. So they are the by say, it's other end transportation right? things opportunity, direct of we're

So is it's normal based really like not, contract. anything This or fulfillment let's buying that. on their course say,

their we providing main such. we see on even it's difference behalf. it contractual their inventory try restrictions, the it's about is our so And So there's profile inventory the really though It's service not report as really the we to right? talk inventory,

want for things these tail like have normal and so or, an of long engagements that and, from top our this So return at from a bring gross better, but third-party an to and services of the really or really finance capacity. our other that to OEMs at. working find invested the but help components. From overall We be supplier would partners, times, restrict But sale of for capital engagements. we these typically our only protect cases, really to have the for want fund revenue a to capital not revenue it's fact of return programs We because profile, on it's that. creative and don't or versus consume really also we'll own it the is want us fund of teams typically fact it grow trying an borrowing we're In engagements margin to looking revenue look cash our that to customers not line lot it's of to where table types our capital, or on working the to horse we'll not capital either is the the trying business business, to we're to that or commitment because capital, our to be working finance our working right? not a to above existing through solutions some we

for. bigger. add ramp adds And hopefully, as we'll things color again, these So the to transparency get continue and looking that you're

Philip Gallagher

stoppages customers we right, know, late caught these X the question. for And is the want to Great because well, a it what all short explanation, got a as it chain. on some Ken. and good complex, supply chain and of is transparent. in the shortages where breakdown lengthy And with answer years, is Apologize last and be we the and supply brought over

suppliers So to be to things asked have being core. that these asked not some maybe beginning even from their opportunities come in is of our is those do

So they bring it work it go to us we together. and

at it we if that, then I'll up So like. it pick you can and leave later,

William Stein

I just follow-up. If ask could one

explanation All you or and think the the EC Farnell in from significant -- chain of you points and every help this reconcile trying were when last So obvious cover I core service in channel for being many said can't companies the but couple but don't you can decline have the these cover in revenue about a I semi the from -- to the any quarters. me talked channel think talking just supply larger trying increased that wondering obviously, the I are engagements I you've flattish down to the data supply of able And a to to company I'm not it as of I companies the made world, me. engagements, sales inventory you be -- might of semi I'm that chain was down. recognize, business, them semi most it's bring way have sort reconcile about it so that or of if

Philip Gallagher

us. to [ sales our Will, about channel into are and you ] sales sales the channel. out talking Clarification,

William Stein

In.

Philip Gallagher

we out, mean, so sales I the I our think guided. we hit Well, December.

So pleased that. we were with

be be mean all use this I ship might that not of across we we we're still debit. It's that are -- that believe the a and heavier more even But could handful tight. little a said in a little in Obviously, areas help in might more we're inventory It's some lot all bit in few of need even I've Sales -- in a than probably others. inventory gained suppliers we bit different. a there's up before. So when suppliers the share. little a suppliers.

outlook balance mean behavior on thing the it's been think the see X script, partners. as the as good important been the win-win. customers advantage suppliers, we day with said think said, in They've can I the trying X we and and the we in I or been pipeline some overall, a to X, we've from I best And opportunities that is true of, working we has our as there's we're it So every our calls opportunistic had suppliers we've good. But [indiscernible] taken accordingly. demand

Operator

from Ruplu is question Bank America. next Bhattacharya of with Our

Ruplu Bhattacharya

can you Phil, or think conversations softness with that been that couple XXXX. the your you CEOs said in of the in have prepared through -- remarks, I last showing market quarters the

I your correction, through quarter thought thought spoke, is that be which the viewpoint inventory you think inventory going mid do to think last it that that the when like the weaker the an you you we just until correction was think the longer. is take -- channel like And markets your as process see are do changed going of on changed XXXX. longer? Has sounded that

overall on Just that? thoughts your

Philip Gallagher

Yes.

we'll and into still things industrial out, pointing with days then the think kind a growth dictates it's would are we that too -- in I XX ] some quarters. point we correction. then mid-'XX see down, think days ago spin time. Things our We'll XX think would bring around changed. midyear. we'll there's whatnot, pointed next it's from XXXX. as Ruplu. might still through in the softness September suppliers the But several positive do flat -- and sign. see and It's have which of think off the there, what in from stretch I to at for our we changed far somewhere And I if and That believe we'll quarter, remains that. I But out out. the inventory market I call growth statement December mean, inventory just [ of into be cash in I do or we go

Ruplu Bhattacharya

Okay.

a Ken, question Let me margins. ask, on

the said in I above EC guide margins can stay you think X%.

can quickly margins. level should -- revenue above couple next quarters? What you of are see takes comment trending So chance need there's the same Do how this think recover? and you What need about And to on was to X% a you it keep we think that Farnell How question what I over there? there? that mean can the those on you X%. at do to that the quarter. margins see puts

Ken Jacobson

in which Farnell a of question we say had take hurt December Maybe the little margin. think quarter, were sales kind a I'll Yes. healthier I than ability operating the the I'll just the softer anticipated, Ruplu. Farnell to first, provide

We really pressures on I the have challenge the Farnell competitive think ongoing. components. the But with expense board actions is

Now putting down, inventory, there's so demand more with top including a then And high lead of components competitors high available of on-the-board Farnell are pressure from a less catalog that of having that, times lot the coming the the distributors. on inventory, on pricing. have lot further right, or service service that's the

So we're seeing those X headwinds.

stabilized, that than And had well. tough And take going decent inventory anticipated. of a time cost that's as gets going for that the levels but we are why little quarters the business we little lower actions kind it's they're of outlook through a have Farnell a gave so unfortunately, to be couple the we to as feel that margin

typically modestly couple uplift -- kind same Farnell I of that's of to kind which business, perhaps with think over is be getting the that talked quarter why it's we is West the would I we I shift of West, March be is a down margin to the what the still opportunity the normally, that up, we mix. the for in favorable some the more because we next So to right? about the guidance, going about not say We're we're but that, from in the So seasonal normally margin. seeing a to helps on see uplift in robust get expected of would West, get which a the versus there a signaled EC of quarters would the in we Asia as year. Talking business little the with bit ended implied with uplift

is, maintain And we're to you going the of of I hey, at Year. we're New a But coming quarter. revenue would little Lunar that. kind so what off levels, But right, fourth bit the into not get kind to rebound say typically, the Asia typically, see

to little a the what to Phil from would it. as control on be we happen going said, from you'd team noted, up being working continuing And is that would the we're drive wanted and go that Asia that going core quarter. But it. to is inventory, do bit stable as to we're in in So we're elevated, March continue the expenses. to quarter, down fourth typically And whatever on where they work that inventory with see to

to definitely some opportunities. ago. have And market focus well And challenging seeing we try cash so days more We're it's opportunities in down. going we're the to flow getting it out still was than the X the and on compete but inventory there, where

Ruplu Bhattacharya

Okay.

me just in. Let one sneak more

mentioned You for think Phil. mean making and both the demand embedded. creation talked you Phil, you're expenses. IP&E investments you about I and I said in force? sales you and Maybe

do time, guess question Farnell. to train I to or people. hire them you my in At sales to force the more you're restructuring need same invest So more is, doing in

of mean of you over is like the you next quarters? So as profit going the your expectation happening reason can what see couple if of percent for gross investments a and I OpEx forward type

Philip Gallagher

make percent. always increased we're yes, actually I'll been reducing let [indiscernible] it that have expenses. to managing while our And Ken need I we've investments. expenses we GP. answer expenses in -- we as I got that our say been that, a you Yes, always we've not Ruplu. Look, mean

on intelligence/machine And learning. might in RPAs, artificial productivity be things some investments now tools, lines those

I'll of the the we're more it, side more call behind investment and digital So the, equation. putting

engineers, design our invested yes, We've force, mentioned solutions well sales and staffed embedded. field there. as our there appropriately. far we application We're As

and not that profitability space are investments the growth of in that removing the We company. the drives

as is in articulated foot those So Farnell GP. the Ken in net we've movement to pointed out. come separate we'll more adjust restructuring on on Ken, core there's no clearly, the back anything And of areas.

Ken Jacobson

Yes. guidance March we Obviously, the focused is just coming sales as down implied think making the expense terms I But are to going in of I mean we're GP Ruplu be it are I think where to kind that trying self-fund would are investments, accordingly mean, discipline. we I about on flattish. of OE impacted in percentage. to

may we're the and softness long view focus we is expense But more the how the Farnell, the and So opportunities the see protect of same term look what at, do is long beyond have demand soft. depending harder we out of anything horizon say look again, kind on to demand we're at there, actions. I more outside going on our term would for a but medium of take to where we really might of of the

Operator

Our next question Fargo. is from Joe Quatrochi with Wells

Joseph Quatrochi

I million cost A restructuring The that couple think if to $XX could. about million with Farnell. just kind in first you're do we the sticking place, is $XX putting Maybe that maybe flowing thinking kind bit little there's for a bottom are perspective the total about that of to P&L? of the OpEx? Or cost a as areas there just we're from line offset company of

Ken Jacobson

Yes.

other I to think thing an first I'd consider. annual I it's amount, are is think factors there and say

exit don't on things. margin one. the you for think as I'd say direct I would that It that But we the a So year. volume to know think operating one can Farnell depends of I and right, start that from a kind to other be in I I perspective, build

Joseph Quatrochi

follow-up areas do that incrementally ago maybe year. relative that. Okay. And to the a and guess, just of what's days how regions And your incremental weaker about exposure understand then just to what's fiscal mix understanding just meant maybe I it's changed as to last see kind like I you to to and kind starting from XX assume just of Asia exposure, of, just I the mix weakness kind the of say, the of trying of quarter? Maybe demand industrial are to Western think relative

Philip Gallagher

Joe. I'll Yes, that, take Thanks.

industrial. of that's particularly quarters has until XX% bit we've seen space, our industrial It's quarter. And very let's it broad, seen business XX% -- little strong particularly it And been really That's strong. some out, come been be record is that's our I'd strong been sequentially year-on-year. okay? the in Europe, vary had as and would in we Europe. industrial we've and okay? But greater sum has basis, The really a the that this between down call and it's it past pointed of and X those what think weakness up probably I global where

been affects that performing got well soft we've obviously that So as us.

at would That's up and year-on-year, the there's I say sequentially good. look signals of but pretty down you on lot It's a overall, still in digit. out transportation. If down transportation know I modestly holding single mixed

with the quite in that in on Defense, actually Americas unfortunately, continuing down it's actually is up and which see second strong. the up our So still largest more we holding going is vertical. world and what's in was again, today Europe, healthy, to stay

Operator

[Operator Instructions] next from question is Our Matt with Sheerin Stifel.

Matthew Sheerin

more as a inventory, Phil, -- like carrying it service. the you're inventory But the capital about you're you. buying actually the commentary chain I you're a I burden inventory, seems the appreciate to working back for wanted it's the get to engagements that's issues. supply

about a model where your target inventory, when it's it's XXX that there working because when a X actually of right? to the it's inventory. it's true more seems given you're days restricted, like know next X quarters? customers, carrying consigned so inventory on inventory, they're where talk and still but so we your the the the think it for thought traditional And to inventory, what's you I OEM model to is over about of that's a And as-a-service books, with owning So cost

Ken Jacobson

you're may like -- mean I service, to about the you part OEM is, manufacturing really things custody, I accounting is I of the So of you you physical think versus warehouses funding right how start what and the the guess perform I'd in there's of components right? our in it, inventory You actually need that have not is about of right? talking that. Matt, need move Ken. with alternative an forms this general, think

get there's how that, account footprints this gets legal financials, that that service lot how without for tax do the and and how like the parties. things I So other terms one, there's there's OEMs actually step are into think for a provide service in report to it of entity versus things we right? you our So manufacturing to needs in in things, conduct like it X, and why Avnet to someone you of complications is

of feel let's how guess versus, we've product. do course product it, I got risk a different say, we it's characterize I'd protection So normal profile. that for We business this enhanced feel do

do the get right? And it's provide trying business it could So view In the of restrict on fact capital the our supply service, a won't is being it then in mixed that by part need opportunities, and of is their part provide the some to to right? bag. course the in that's our we're becomes right, measure that based OEMs it's they cases, returns want So own, other the even we with inventory the and maintain provided compounding that services flexibility normal the been means let's convey. will currently of cases, that you we're we we're as how differently, capital not enough, it's with. if chain it's the if our it the what already to OEMs And something do if engagements. do the on consigned But service. not issue, in, line with We've the levels of it's elevated got restriction, business, working with item we're And inventory, customers some view in same normal but you say, capital they transparent trying right? reported that's the but -- course consigned, these

that separate. understand of is of this kind kind they so And

Philip Gallagher

days a bad thing. just -- not as Yes, it be. in I than the Matt, we'd like up a it's we're Yes, said script, higher Ken. -- are not bit And certainly thanks, mean, little so I inventory is the to inventory

not as the We to inventory. little it's want it's math start much, to the days We sales, bring aged, March issue, a it's too quarter the relative have in it down do a we it a of maybe bringing liability. but down not

cash. down So just we down, the is making it we But would inventory as sure to got well. bring come quality we as more expect [indiscernible] key the start generating

market and of the inventory to in the investments right is we balance see the So going that one ones. again, got support we big forward

Matthew Sheerin

it. kind was just related That's interest it's like in obviously then X million. ago, for a Got fiscal your gone run million has expense huge $XXX And it's it it up swing years a significantly, -- looks 'XX. EPS. obviously that, to rate of $XXX

that getting borrowings is Ken, down. terms interest in that at of short-term and a down priority So working expense

Ken Jacobson

and get that XXX%. I to than think there's flow down, piece is inventory driving Matt, even Yes, a in elevated that used debt a going pay the over year cash is I I factors the of for the -- past that. that. But right? to longer cash mean, we of big clearly, mean combination be the and need part

is definitely would get to time, to down. than And we expensive some need I I would but past, So take more going a was is in much that say of it focus. borrowing the though, it's And cost caution. the that

Operator

from Hari Sachs. Toshiya question Goldman last is Our with

Toshiya Hari

to cycle. as medium-term or the a Farnell, X%. operating one trough this think the mid-teens. I close The But at realize back a But threw long-term is above on the of And first Day, margin Analyst 'XX we're in you of in Investor time, were Ken, June you target I at operating predates at margins. And out CFO. the margins the the guys I think

X% X%. currently You're at or

well. have permanent that? of swing is that target view? and comfortable medium-term that really has But Or do EC still held in think X% fundamental with of there you intact would been changes I think or sort cycle the cross above you're kind

Ken Jacobson

And I'm not say targets would with, out. Yes. those familiar are to targets. opportunity. of off We I Thanks, obviously, coming Toshiya. I those see mean put generally we

Now clearly, holding got a where EC backwards, back were. But business we're we we've quarter. get to the again, little to in bit third So up right? the

pretty knocked that You right the growth, we're mentioned the trough. Phil in let's we -- I've pricing But well. general opportunity, wood that have see holding some commentary see in there. some markets we do now, made and is just see on up we of

on focused gross still margin. are We

talked of there use on solutions supply is products. opportunities. those what service if about Phil chain pricing, So creation, demand even embedded IP&E, higher we're margin as some our margin. level higher on We focused of pressures as some a

couple all has back than to type Farnell, then the and to the here to how and talk So would business of definitely our have. excited next we of partners, -- that's kind baseline expected opportunities going opportunities think come, those longer but we're it's margin And choppy getting relative going our is take because seeing higher-margin overall the obviously, that I key, for when are of overall supplier think to term. those though see or health we quarters. still we're even mean be waters future, we have And liked for we where the opportunities I medium far we some of the down

Toshiya Hari

That's then free on my forward. And generation follow-up Okay. as going helpful. cash flow

You spoke that a declining or forward. guys better managing inventory to going

lower, forget at normalize that. but also about I that You CapEx what you noted should talked point,

tailwinds from free think quantitative it on like pretty free of back for guidance half flow year. about flow; of got year, way 'XX. trajectory helpful provide there's the is and a sort right cash A, the So cash if perhaps any super to you've that that good b, part of feels the be can calendar of middle that, would perspective, the you

Ken Jacobson

of we question, half then inventory into but to what the Yes, opportunity down, normalized, want I sight we wouldn't right, third -- we this see was line the so the we cash get cash and positive in what QX the as goes in drive would I I of cash mean free and 'XX, in we for large first are flow to levels numbers, fiscal not And we did the for used quarter and see calendar quarter. numbers. to next We're right. that's cash give flow your March so say to accelerates, expect QX. the lots think excess but that that year flow flow the of quarter quantitative answer going CapEx of in

Operator

to Ladies questions remarks. like over for I'd this and gentlemen, hand Phil the there floor are Gallagher time. back closing no at further to

Philip Gallagher

thank I May. Have third to in speaking you look earnings report our again forward of to at Thanks And rest and call, much. today's a I attending earnings Thank lot. want fiscal the a you for Great. to very quarter everyone week. great

Operator

conference. and Ladies this does today's gentlemen, conclude

lines participation. your for you this time. your disconnect Thank may You at

Avnet (AVT) 31 Jan 242024 Q2 Earnings call transcript