AVT - Earnings call transcript Q3 2024

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Operator

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

Joseph Burke

Thank you, operator. I'd like to welcome everyone to the Avnet Third Quarter Fiscal Year 2024 Earnings Conference Call. This morning, Avnet released financial results for the third 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 the could materially in performance, differ and results contained are statements not guarantee such SEC. Form differences filings detail in in factors could that described subsequent cause Several and most or XX-Q recent are with XX-K, contribute the to such and Avnet's

speak in the the of as any obligation well presentation reconciliation information Gallagher, Avnet's as full The to that, of Ken Jacobson, will or press can date turn in presentation, statements and let Relations CFO. of note, presentation. date GAAP be Phil With forward-looking CEO; no to over These be non-GAAP and of new undertakes by Investor posted will website. slides and only Please the found provided the be today unless to release this non-GAAP the call Phil? led today's regarding me circumstances supply the forward-looking after issued as Gallagher. otherwise measures. call on company this results the stated, update publicly Avnet's the statements appendix Phil all Today's

Philip Gallagher

margin profit during Components we This And flow in margin can million from and that results financial of In X.X%, operations. Electronic of we $X.X I pleased of sales the we to am with Joe, joining billion us maintain of we year call. by business. $XXX conference another highlighted quarter, X.X% on operating reasonable line everyone, face. cycles quarter the even you, and operating thank cash Thank a for achieved challenging margins our fiscal share adjusted you, earnings generated demonstrates our third we XXXX quarter in delivered nearly guidance. that our

the basis we, inventory on quarters. past made inventory in the As our been in we've working an we many through ways have have global I have still a levels, And mentioned while like on over correction progress couple down industry, go. to previous calls, working of

a of to teams the business and customer like These am inventory cash contributing are levels, flow current shortened factors among variety that diminished on constraints, the have field. of market one most some customers elevated times dedicated including lead the I visibility, memory. Our recent facing experienced are environment, conditions At challenging most and times. proud to this, challenging the in are

you of third second As declined evident quarter. markets the across economic we demand all quarter the know, the continued in Sequentially, in most conditions the end serve.

data have times defense bright lead would last basis, times months for improvement. center we However, continued demand a spot continue. year-on-year this was increasing the to stable, build-outs generally products driving growth in are and On expect certain although over globally. and data center with several to transportation a Semiconductor and decline showed markets is the lead longer

are for lead side, increasing and capacitor most notably interconnect pricing times generally families, products IP&E seeing we the and stable, On demand [indiscernible]. are and

hand. a as remained inventory and times shorter result lower is working of their through Cancellations backlog Our on lead normal levels. customers at have

cash should operations. key current This is quarter, work by our reduced I'm worth working really the It a flow capital the third reduced focus noting demonstrating we our time, from our in parity. above by improving approaching book-to-bill of our is region, in and at inventory same inventory the organization, quarter, expected, that quarter team and parity our ratio solid the drive progress though quarter, for of below position. area the finished see As end last the global modestly which management. led pleased receivables remained the which further expect at sound Asia to we

enabler key only a as Semiconductor position supply our stronger. and and getting ecosystem, more of it's in of reliable Electronic healthy, proud the Components chains I'm

to meet our allows the technology chain supply needs. opportunities pursue on Our with to their Avnet of long-standing position who customers center at us increasingly and rely suppliers

the With third so across line, of decreased markets see the turn Americas, demand I all a EMEA, to the to the in a results. Asia, the Electronic market the on in compute in third increased declined note on comparisons. basis. against transportation defense on the regions, that year-on-year Components a glad a quarter and the business market year-on-year year-on-year top we're going in some transportation revenue was and record end me In increased all demand And the In basis. At basis. market in 'XX will demand that that, let revenues year transportation, fiscal tough increased but in quarter sequentially, end our end quarter end EMEA they're consumer

registrations, margins the teams We any engineering to customers design and our continue successfully to chain. proposition deliver continued move market. which and we in and increases up the validates the and drove in with of the value quarter, revenues wins value In on suppliers engage type further our

now Chris President, Farnell's is Avnet. I leaving X let leadership our of change want to Breslin, team over the get past a years. leading you in Chris Farnell Farnell results, I know we the thank Before into for that business.

record, Avnet's and Farnell executive I announcements for the EMEA want on of organization. temporarily for asked and Given proposition, core proven part of transition. reiterate knowledge so a close oversight overall veterans, tuned remains assume I've Farnell stay success X the leadership upcoming their value critical to business Farnell proximity, to leaders, industry our track that

single-board IP&E led In by third in products were up the quarter, Farnell's sequentially, and computers. sales strength

However, be. they to margins where need are not

costs, marketing we making warehousing primarily related cost reductions costs, to a freight, and result, are headcount. As

way which in so achieving of our should the previously savings the calendar be the implemented apparent our half end on target, year. well substantially by are second improvement to disclosed We be June, should of

encouraged computing. With in run the bottom all of top our the I course, proposition its grow long right just our embedded we player difficult signs term. and to key in global will continue Avnet and we capabilities, I to this And believe areas our over I sales it's creation, a market. the chain, while at and see resources a demand and number by force have leverage the as have correction in supply to IP&E, As am say such the when technical value lines

First, current the of through business activity balance sequential in our likely and move see potentially near is bottom some we Asia region that XXXX. the are calendar we may growth as indicating

in pickup are in seeing at nice as and our we well. Second, a Farnell business IP&E bookings

year meet follow Finally, return are growth into projecting the we regularly to a we move XXXX. as well industry the sources I executives calendar customer with supplier as as

our we bringing relationships to focused bear remain considerable choppy experience on this and we as conclude, navigate To period.

Again, to reducing the drive managing increasing dive team our control, costs, the working shareholder I'll both work and With quarter want We into to we team the Avnet strategy is it's place and from things third return. turn in every unmatched capital, our believe we to It thank important deeper market recovery. I I to delivering customers results. especially and members and their to to our to have important aligning right inventory, are over to day. and for driving bringing Ken supplier expertise industry. it that, can the partners, benefit value

Ken Jacobson

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

were in down approximately billion, year-over-year. in XX% constant currency X% sales expected are to quarter in sales declines third and the with sequential guidance for $X.X line basis, On a in down due sales Asia, Our the Asia currency, XX% Western declined sales in a in X% Americas. a constant in and Year. regions decline On Lunar New seasonal the XX% EMEA, in to due basis, year-over-year and

grew sequentially sales Components quarter-over-quarter declined constant XX% group sales constant in currency. sales From year-over-year declined XX% Farnell Electronic XX% an in XX% year-over-year currency. operating in Farnell constant perspective, and and currency. X%

margin a margin quarter, up due year-over-year margin points from demand pricing year-over-year the lower due the for Western sequentially, gross third primarily regions. of continued gross Farnell Western down be sequentially. margin but increased down basis the mix year-over-year EC due products. sequentially, was the to XX gross mix the to was lower was stability XX.X% to regions. sales and XX EC but IP&E largely to higher of an basis gross improved primarily to seasonal For shift points

quarter, $XXX increase the to and currency administrative with slight due exchange Turning were sequentially, general year-over-year a to largely rates. in expenses foreign flat in and operating expenses. differences Selling, X% down million

the As in a were percentage of gross expenses third profit dollars, XX% quarter. general and selling, administrative

margin third quarter, X.X%. million being was adjusted of the of $XXX By operating This income consecutive operating operating quarter EC the X.X%. income For reported margin was Components was operating we adjusted million X%. operating operating EC above and and margin Electronic was $XXX ninth group, our

Farnell was X%. at operating Farnell income $XX remained million and margin operating

to the the million are when to which cost annual we third over next As between of as approximately quarters. couple exited actions provide we $XX quarter, of The have completed reductions million. Farnell, communicated initiated completed expense X/X reduction last of remainder the be completed, will of quarter. We had reductions we at expected the reductions $XX

These Additionally, permanent $XX reductions by $XX demand total million and per to sales action due all expenses a across outlook reduce to include environment, of regions. are operating cost we current combination actions Avnet our taking million and to year. temporary

to the actions. make operating continue conditions current require investments where but needed, expense cost some We incremental will market

below expenses income. operating to Turning

increased interest million million quarter $X million approximately sequentially. by year-over-year $XX down Third was expense $X and of

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

Turning and liquidity. to balance the sheet

Working quarter, the XXX receivables, in $XXX $XX days. payables. million days decreased working During reported quarter-over-quarter decrease capital million decrease inventories in of to million, and including increased a million $XXX sequentially, a X in increase days capital $XXX

Our on return accordingly on lower working income. capital operating decreased the

within Our across Farnell. X% quarter, and, decreases regions extent, lesser reflecting to during the inventories EC down a were all

in inventories end inventory quarter are these the the of to The were the into by selling expected opportunities. net decline through for with to in year. arrangements build the Inventories underlying increases inventory June strategic calendar EC of due

inventory continued overall progress quarter, expect strategic during these achieving on arrangements. excluding fourth the reductions We

be times, as disciplined inventory. are evaluating business opportunities in present play that environment, current such such themselves, many center new mentioned still market may but want opportunities has the making in and require a there's additional role of opportunities a to those our is opportunistic Despite between proper near-term of chain our any part any suppliers a take Avnet supply Phil sure approach arrangements. absorber challenges for holistic we to even As shock ROI at when We technology the customers. of the the

cash in of cash quarter, $XXX Our We X nearly a working capital decrease to of generated in of debt we million operations past generated $XXX from led have over the decrease million the quarters. $XXX from in operations million. and

committed although quarter with the the ended leverage borrowing quarter. we generate capacity. expect more positive X.Xx, We modest in operating flow available had a We million to and in fourth cash approximately this $XXX gross of past quarter, of

we With regard allocation, existing our to capital business our needs. to continue prioritize

we noted, driving working level current are of with our reductions be capital previously As line to more in sales.

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

CapEx quarter, In the to levels expect quarter quarterly return approximately of $XX of $XX per $XX million We quarter. paid per of XXXX to share in the million. $X.XX historical fourth to fiscal dividend million third we our or

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

our result As generation, of we cash quarter. a fourth Avnet to in expect strong shares repurchase the flow

continue was discount quarter. to shares as share meaningful third to for trade a book the Our $XX book a at value value

to guidance. Turning

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

assumes third a rate Our Asia. guidance region to X%. growth tax declines sequential assumes effective in basis. quarter, and and persist This seasonal of fourth X% sales decline This sales XX% million an assumes below in XX%, sales of a similar the and market outstanding in on Western below guidance interest XX compared to and seasonal guidance quarter shares between current conditions the diluted expense implies

gains. operating quarters, will Before questions, team importantly; sentiment growth and in cash echo to I sales monitoring from in flow Operator? want thanking profitable success the to market we on winning share to reductions, Phil's for the generating expenses, closely to most With things staying it coming focused for the capital questions. turn continued over our working that, opportunities up drive I will take that new and operating us for open drive operator

Operator

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

Matthew Sheerin

in your again, below in just sequential of in question for first growth all forecast but Phil, seasonal regions, Asia. terms

see and So EMEA. it of, I may to Are to least year-over-year terms be the you that expect think here? know, at start will, then that, of anything that's may if and this else Americas in of to XX% don't makes orders? declines you optimistic last that that that getting sort be the would do we're year-over-year of drawdown, any you customer going more do you in the imply signs bottom XX% stability terms And in you Or inventory? --

Philip Gallagher

you Could down. Coming hear me?

Matthew Sheerin

you Yes, I Phil. didn't the part, hear first

Philip Gallagher

let Okay, start That's fine. again. me

So I it. with thanks, Matt. start said Asia. Appreciate I'd

As in a to seeing But but XXXX. start Asia We're and we I script, Asia. news. [indiscernible] sign in where forecasting historically, of kind know lot And said in believe circle of that's going, we through and the we some do as to around good think. again, time moderate then you're the West moderate,

I I to it's Europe is the coming image, compounding It the if call we highs, with But we're Europe, you of want off drop but so mixed In mean, do just in in it think the that's the feels project year-on-year Matt, be, challenge so part slowly, will to signals the will. bottom. more start we tough there. if record -- won't second very But XXXX. absolute. out there into are bouncing like it half back many as that might

Matthew Sheerin

then I the And on be Will costs Will Okay. in And it coming start that should was quarter? When sequentially? about about down June said million the what annual a rate. think we think out? run cost we or those think should you up? $XX it will be that OpEx cutting,

Ken Jacobson

'XX say it of of is decline. occurring actions quarter speak so Farnell being Yes, slightly beyond the I'd Ken. benefit. we of due FY kind more that next an think just the actions kind as And Farnell are lot of about this during those be new the Matt, the to actions OpEx expect incremental quarter, to down a plus for actually volume

Matthew Sheerin

And holds mix? of down actually that imply great. be would Okay, just as gross And that would steady. margin I think because that fairly quickly follow-up, might a that, the

Ken Jacobson

Yes.

EC out, mix gross a that is offset opportunistic margin kind so up slightly the of business. I are it to there's up some holding think things by balancing in

Operator

with Wells is question next Quatrochi from Our Joe Fargo.

Joseph Quatrochi

that EC Maybe like you just benefit, quarter? the that, that on about can still guess, remain X% margin for on June mix as front. I margin that that threshold assume think above the we

Ken Jacobson

the within characterize I above slightly could be Joe, guess below, slightly as X%, be it of could It's range. Yes, it I'd that right? it kind

on but guidance could depends regional the So could be the the out slightly below, it shakes ultimately. But slightly it's around be how X%, implies mix above. -- right

Joseph Quatrochi

about way I of percentage I XXXX then suggested think bit this last And that Okay. still think even follow-up, year? year. about returning about any your as in XXXX? with reductions this I of suppliers my through think that you a you maybe about change how a reductions to inventory to were really Or pushed trajectory it? in into has guess, kind that growth just has and as thinking of talked quarter, you right customers about of base little you the the think is, question there to And continuing guess is discussions inventory large the the calendar

Ken Jacobson

No, change. say a really wouldn't I

progress. started been of or progress much in we quarters. that haven't has been our there. last stable I Flattish that the we we has are Again, commentary couple some think happy had

direction So of feel good is about characterize headed. to we're a I'd work Still the do it. how lot

down think it knocking sales about at calendar year, are the So of through remainder the away well. that the because as levels still

Operator

William is Our next with Securities. from Stein Truist question

William Stein

how order on what last comment you follow-up. might the I'm a relative And trends quarter progressed first of First, can you month have they then hoping in current do characterized the to I and quarter. for the have

Philip Gallagher

improvement Pac. -- IP&E, the in in We're Thanks. balanced. as even and connectors seeing modestly. Farnell Will. improved IP&E, -- the Asia out, is had Yes, more we I'll we're as And probably as take more seeing some called within in [indiscernible] it's well book-to-bills the that, Yes, improvement order and but it's

So seeing book-to-bill. we are some recovery in

And on visibility is it working the help issue the we're the and what quarter. for, customers looking to with and give there, just visibility the times basis, that improved just pipeline you last us this The is But But real that's that's quarter on. inventory to still if trying more we're suppliers beginning a key. down will. get we're middle lead get a guy not the course, versus and to slightly they're of has wholesale happening out

William Stein

market semis was surprising seem And their helps. and Xs and end upticking. Tier in OEs and checks a It's least now sort in looking the doesn't see That bit doing we reflected of because thing. a business the Channel head the the quarter to one at a really let's follow-up. conditions recovery Great. say, few a still you're to from themselves at of citing I better-than-expected middle and scratcher same automotive, and investors maybe they're or, of that some be did the

I there is place would you EVs [indiscernible] too material for -- Or got they new dynamic? this wonder some us so mismatch might of an if a this take sort inventory it be combustion just orders Like they hybrids? of because However did demand help all for pipelined and they've that internal is or low? for go to inventory helpful. is other really bunch understand,

Philip Gallagher

Yes. last outs see bag. really mean, a or mixed the Well, report it you in I so. the week is different

out calling negative, as are as positive. others Some

it content you even EV now. depends the content the numbers EV, Really answered combustible on content ADAS, is, looking your But it kind think be where question. have really in much -- the the I'm I that of the and automobile at is in again, or you whether higher. and

X-quarter trend, little fair last Yes, is it's it transportation on be globally, it. bulk a saw quarter. a automotive we than it still up we up so just year-on-year but the saw year-on-year. call automotive, to And broader And we of

X last only but last the quarters. not quarter So over

might of region, little looking how point a kind that's bit So of we're now seeing it different at time. this it -- that but at it kind by be in it's

Operator

[Operator Bhattacharya from Instructions] Bank Our question is with America. Ruplu next of

Ruplu Bhattacharya

you start revenue some that split Maybe do Farnell us the with this restructuring in can components keeping control. operating and like Ken, talked -- much you what level margin for I between is I'll and need about time, X%? know above order How to of remind Components? Ken. you keep cost

Ken Jacobson

actions guidance before of of X% remainder going say, X%? executing Farnell Is and X%. implies through just flip process core the some mean, year kind at to depending the it things. of X%. the kind got was mix, I Ruplu, below would more probably implied kind I be of I'd in of this we're the most that because regional say, because the guidance the of right I is cost the at I question revenue, the the maintain see business those think Yes. of to on you're of So it of level where kind is "Hey, around would

how on lot there's And plus mix points, and or that of minus EMEA have and basis meaningful other take -- or obviously depending is supply of some in service or versus Americas much increase chain those more scaling but implied. demand things, absent a at put Asia, XX some kind that's creation of level, we're than we

Ruplu Bhattacharya

Okay.

flow? any that's cash not? cycle How in laid of opportunity talk think we next Ken, your and quarters? out you cash about environment about buybacks helpful. Can conversion Then thoughts you free on this you for the us cash. M&A uses And over of I mean, or about trending can give think you. Okay, you should the for one another maybe how couple

Ken Jacobson

Yes. I expect we'd I positive free cash think mean, flow.

market I considering fourth year. to going at the a this through are be great We We the of not still they're they're anticipate below buying believe calendar back M&A value. well book would shares. value, remainder in in any quarter the

IP&E this going acquisitions, looking I always in again, few type to quarters. CapEx think at should looking. return not the levels. probably But we're like point, over at nothing we're be And normal active M&A to next transformational. smaller But

think rate. million a as run $XX to $XX a So about it quarter million as normal

Ruplu Bhattacharya

Okay.

you one grow to now, helpful. right talk is which more Phil. tough you, about for areas focus in I or But think think Maybe XX the question, can either as next sneak a operating over your revenue comes markets you what can months? mean, of I some Where end like that's the which Phil. high-level sooner? do Okay, geography do back are environment

end Avnet to -- happens, recovery? And there you that in investing anything there like this when which company in better for And even geographies? is verticals, where you're see positioned? best do now which right the is markets, investing is climate, position like anything which the Like you're

Philip Gallagher

but Yes. I I'll it Thanks, Ruplu. best Well, already talked can do to A lot packed down. into pare we question, the regionally. that

is Asia We're Pac Pac's and there. we well positioned continue bounce going start So back, to to gain positive. in share which Asia feel to

we're momentum a shared We're the on great So a trying earnings the high-level before quarters overreact the had team keep to intact. trying row calls, to statement. many to now. market. We've not We've in

being very we while where So we're making expenses reduce still careful investments.

continuing to we're verticals. the invest And in

positioned everybody well We Will has continue continuing kind there. So us. stay in going that market earlier we -- and extremely to good us, continues be future, in industrial of going It and although to about be to That's and for that's a talked the a space. we're knows we're be we're will transportation positioned bit. industrial invest to for and been to play in big harder hit industrial with a

unfortunately, defense/aerospace, the grow many the on that's what's today, going world in fronts. to vertical, other to The with continue going

And to into handful book-to-bill. continued our So the there a are inside news, We're verticals. move script, is on particularly of back positive, from company, see about focus the talked a that a is in starting good which we then IP&E.

the generate and same I about talked while the be continue us. swing okay? cash areas would including servicing maintain and our verticals past, that customers Those want to medical. we have that's again, not manage talked continuing couple can, inventories that a a margins where that's about, we That's into suppliers. and designing what actually boards now to overreact, just to pendulum the we're of focus, -- focused manufacturing on building down, generates we're to seen go and we we And higher again, building have grow, in And drive And for those Avnet business that right Embedded. may

Operator

at There like Phil back I'd over are comments. no this closing to the time. further for floor Gallagher any questions to hand

Philip Gallagher

Great. our want summer. speaking in report to fourth fiscal everyone attending and again thank Well, quarter look Have for August. to forward you year great call, earnings a today's I I to earnings in XXXX

Operator

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

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

Avnet (AVT) 1 May 242024 Q3 Earnings call transcript