Business
Avnet : Quarterly Report for Quarter Ending September 27, 2025 (Form 10-Q)
Avnet : Quarterly Report for Quarter Ending September 27, 2025 (Form
About this update from Avnet, Inc.
Management's Discussion and Analysis of Financial Condition and Results of Operations For a description of the Company's critical accounting policies and an understanding of Avnet and the significant factors that influenced the Company's performance during the quarter ended September 27, 2025, this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Item 1 of this Quarterly Report on Form 10-Q, as well as the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 2025. The discussion of the Company's results of operations includes references to the impact of foreign currency translation. When the U.S. Dollar strengthens and the stronger exchange rates are used to translate the results of operations of Avnet's subsidiaries denominated in foreign currencies, the result is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens, the weaker exchange rates result in an increase in U.S. Dollars of reported results. In the discussion that follows, results excluding this impact, primarily for subsidiaries in Europe, the Middle East and Africa ("EMEA") and Asia/Pacific ("Asia"), are referred to as "constant currency." In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the U.S. ("GAAP"), the Company also discloses certain non-GAAP financial information, including: ● "Adjusted operating income," which is operating income excluding (i) restructuring, integration, and other expenses, and (ii) amortization of acquired intangible assets. The reconciliation of operating income to adjusted operating income is presented in the following table: First Quarters Ended September 27, September 28, 2025 2024 (Thousands) Operating income $ 142,032 $ 142,225 Restructuring, integration, and other expenses 8,291 26,351 Amortization of acquired intangible assets 364 368 Adjusted operating income $ 150,687 $ 168,944 Management believes that providing this additional information is useful to financial statement users to better assess and understand operating performance, especially when comparing results with prior periods or forecasting performance for future periods, primarily because management typically monitors the business with and without these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in many cases, for measuring performance for compensation purposes. However, any analysis of results on a non-GAAP basis should be used in conjunction with results presented in accordance with GAAP. OVERVIEW Organization Avnet, Inc., including its consolidated subsidiaries (collectively, the "Company" or "Avnet"), is a leading global electronic component distributor and solutions provider that has served customers' evolving needs for more than a century. Founded in 1921, the Company works with suppliers in every major technology segment to serve customers in more than 140 countries. Avnet has two primary operating groups - Electronic Components ("EC") and Farnell, which are discussed further in Note 12 "Segment information" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q. Industry outlook The Company's operations subject it to tariffs and other trade protection measures. The U.S. administration has instituted certain changes, and may make additional changes, in trade policies that include the negotiation or termination of trade agreements, higher tariffs on imports into the U.S., and other measures affecting trade between the U.S. and other countries from which the Company imports. Due in part to these measures, some countries are changing their trade policies relating to goods imported from the U.S. These global trade disruptions and geopolitical tensions, together with any related downturns in the global economy, could dampen customer demand, increase market volatility, and impact currency exchange rates, all of which could materially and adversely affect the Company's financial performance. Evaluating and complying with new and future trade measures diverts management's attention from existing initiatives, which may negatively impact the Company's business operations. The impact of these changes in trade policies will depend on various factors, including (i) when trade measures are implemented, (ii) the ultimate amount, scope, nature, and duration of tariffs and other trade measures, and (iii) the extent to which the Company can mitigate impacts and pass on any increased costs associated with these changes. In addition, the impact of trade disruptions on general economic conditions and demand for electronic components is difficult to predict. The Company employs and continues to develop systems and other measures to mitigate the impact of tariffs, including selective supply chain, logistics, and pricing actions. The Company also has contingency plans to respond to a range of economic scenarios. The Company's management continues to monitor and evaluate the changing tariff situation, as well as the overall environment in the electronic components industry. However, despite these efforts, the Company may not be able to fully mitigate the impact of changes in trade policies or an economic downturn. The global electronic components market has a history of cyclical downturns followed by periods of increased demand. Beginning in the second half of calendar year 2023, the industry began to experience a downturn marked by a decrease in sales due to a combination of elevated customer inventory levels and lower underlying demand for electronic components. As a result, the Company has seen decreased sales, resulting in lower operating income. The duration of the current downturn remains uncertain, however, in the first quarter of fiscal 2026, the Company saw year over year and quarter over quarter sales improvements in the Americas and Asia regions of EC as well as in its Farnell operating group. The Company's EMEA region of EC continues to have year-over-year sales declines. The Company expects sales in the second quarter of fiscal 2026 to increase approximately 2% compared to first quarter sales of fiscal 2026. Additionally, the Company's total inventories relative to its sales continue to be higher than they have historically been as a result of this industry downturn. The Company has and may in the future purchase additional inventories in certain components even in an industry downturn, if the Company believes the purchase will benefit the Company's financial or strategic business objectives. Results of Operations Quarters Ended Q1 2026 Q1 2025 Variance Variance % ($ in millions, unless otherwise stated) Sales $ 5,899 $ 5,604 $ 294 5.3 % Gross profit 615 607 7 1.2 Selling, general and administrative expenses 464 439 26 5.9 Restructuring, integration, and other expenses 8 26 (18) (68.5) Operating income 142 142 (0) (0.1) Adjusted operating income 151 169 (18) (10.8) Other expense, net (5) (3) (2) 79.6 Interest and other financing expenses, net (60) (64) 5 (7.3) Income tax expense 25 16 9 58.8 Net income 52 59 (7) (12.2) Diluted earnings per share 0.61 0.66 (0.05) (7.6) Other Metrics Gross profit margin 10.4 % 10.8 % (42) bps (0.4) % Operating income margin 2.4 % 2.5 % (13) bps (0.1) % Adjusted operating income margin 2.6 % 3.0 % (46) bps (0.5) % Effective tax rate 32.6 % 21.1 % 1,151 bps 11.5 % Sales The following table presents the percentage change in sales for the first quarter of fiscal 2026 as compared to the first quarter of fiscal 2025, by geographic region and operating group. Quarter Ended September 27, 2025 Sales Year-Year % Sales Change in Year-Year % Constant Change Currency Avnet 5.3 % 3.6 % Avnet by region Americas 3.0 % 3.0 % EMEA (0.1) % (5.6) % Asia 9.9 % 9.7 % Avnet by operating group EC 4.6 % 3.0 % Farnell 14.9 % 12.5 % Sales of $5.90 billion for the first quarter of fiscal 2026 increased $294.4 million, or 5.3%, as compared to $5.60 billion for the same quarter last year reflecting year-over-year sales growth in both the EC and Farnell operating groups. EC sales of $5.50 billion in the first quarter of fiscal 2026 increased $242.6 million, or 4.6%, from the prior year first quarter sales of $5.26 billion, with the Americas and Asia regions contributing to the increase offset by sales declines in the EMEA region. The increase in sales is primarily due to increased demand in the Asia region, most notably in the transportation, compute and communication sectors. Farnell sales for the first quarter of fiscal 2026 were $398.9 million, reflecting an increase of $51.8 million, or 14.9%, compared to the same period in the prior year. The increase in sales in the first quarter of fiscal 2026 is primarily due to improvement in demand for single board computers globally and for on-the-board electronic components in the Asia and Americas regions. Gross Profit The Company's gross profit and gross profit margin are primarily affected by sales volume, product mix, and geographic sales mix. Gross profit for the first quarter of fiscal 2026 increased $7.4 million, or 1.2% from the first quarter of fiscal 2025. This increase is primarily due to sales volume increases in both operating groups partially offset by the decline in gross profit margin in the EC operating group including the impact from geographical sales mix. Gross profit margin decreased by 42 basis points to 10.4% for the first quarter of fiscal 2026 when compared to the first quarter of fiscal 2025. The decrease in gross profit margin was partially due to a geographic sales mix to Asia. Sales in the higher gross profit margin western regions represented approximately 51% of sales in the first quarter of fiscal 2026, versus 53% of sales during the first quarter of fiscal 2025. The remaining reduction in gross profit margin was due to declines in gross margin in the EC Americas and EMEA regions primarily due to changes in customer and product mix. EC gross profit margin decreased year over year largely due to the factors discussed above. Farnell gross profit margin increased year over year, primarily due to an increase in product mix of on-the-board components. Selling, General and Administrative Expenses Selling, general, and administrative expenses ("SG&A expenses") increased $25.7 million or 5.9% from the first quarter of fiscal 2025. The increase in SG&A expenses is primarily due to increases in variable operating expenses associated with the increase in sales volumes discussed above and the impact of changes in foreign currency translation rates. Management monitors SG&A expenses as a percentage of sales and as a percentage of gross profit. In the first quarter of fiscal 2026, SG&A expenses were 7.9% of sales and 75.5% of gross profit, as compared with 7.8% and 72.2%, respectively, in the first quarter of fiscal 2025. The year-over-year increase in SG&A expenses as a percentage of gross profit is primarily due to the decline in gross profit margin in EC discussed further above. Restructuring, Integration, and Other Expenses The Company recorded total restructuring, integration, and other expense in the first quarter of fiscal 2026 of $8.3 million, consisting of $1.6 million of severance and other employee-related expenses, and $6.7 million of integration and other costs. The after-tax impact of restructuring, integration, and other expenses were $5.8 million and $0.07 per share on a diluted basis. Comparatively, the Company recorded restructuring, integration, and other expenses of $26.4 million during the first quarter of fiscal 2025 consisting of severance costs of $3.4 million, facility exits costs of $5.2 million, asset impairments of $14.9 million, and integration and other costs of $2.9 million. See Note 13 "Restructuring expenses" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q. Operating Income Operating income for the first quarter of fiscal 2026 was $142.0 million, a decrease of $0.2 million or 0.1%, year over year. Operating income margin for the first quarter of fiscal 2026 was 2.4%, a decrease of 13 basis points compared to 2.5% in the first quarter of fiscal 2025. Adjusted operating income for the first quarter of fiscal 2026 was $150.7 million, a decrease of $18.3 million, or 10.8%. Adjusted operating income margin for the first quarter of fiscal 2026 was 2.6% compared to 3.0% in the first quarter of fiscal 2025. The decreases in adjusted operating income and adjusted operating income margin are primarily due to the decreases in gross profit margin and the increase in SG&A expenses as discussed further above. Comparing the first quarter of fiscal 2026 to the first quarter of fiscal 2025, EC operating income decreased 19.4% to $159.0 million, and EC operating income margin decreased 86 basis points to 2.9%, with decreases in the EMEA and Americas regions partially offset by an improvement in the Asia region. Farnell operating income increased 819.7% to $17.1 million in the first quarter of fiscal 2026. Farnell operating income margin increased 375 basis points year over year to 4.3%. The increases in operating income and operating income margin in Farnell are due to the higher sales and higher gross profit margin with only a slight increase in SG&A expenses. Interest and Other Financing Expenses, Net and Other Expense, Net Interest and other financing expenses in the first quarter of fiscal 2026 were $59.8 million, a decrease of $4.7 million as compared to $64.4 million in the first quarter of fiscal 2025. The decrease in interest and other financing expensesin the first quarter of fiscal 2026 compared to fiscal 2025is primarily a result of lower average borrowing rates. The Company had other expenses of $5.5 million in the first quarter of fiscal 2026 compared to other expenses of $3.0 million in the first quarter of fiscal 2025. The increase in other expenses in the first quarter of fiscal 2026 is primarily due to increases in foreign currency translation losses. Income Tax Income tax expense for the first quarter of fiscal 2026 was $25.1 million reflecting an effective tax rate of 32.6% compared to $15.8 million, reflecting an effective tax rate of 21.1% in the first quarter of fiscal 2025. The increase in the effective tax rate for the first quarter of fiscal 2026 as compared to the first quarter of fiscal 2025 was primarily due the effect of changes in tax rates enacted in foreign jurisdictions and increases to unrecognized tax benefit reserves net of settlements. Net Income As a result of the factors described above, the Company's net income for the first quarter of fiscal 2026 was $51.7 million, or $0.61 per share on a diluted basis, as compared with $59.0 million, or $0.66 per share on a diluted basis, in the first quarter of fiscal 2025. Diluted earnings per share in the first quarter of fiscal 2026 benefited from a 5.5% reduction in diluted shares outstanding compared to the first quarter of fiscal 2025, primarily due to share repurchases over the past year. LIQUIDITY AND CAPITAL RESOURCES Cash Flow Operating Activities Net cash used for operating activities was $144.6 million for the first quarter of fiscal 2026, compared to net cash provided by operating activities of $106.3 million for the first quarter of fiscal 2025. The $250.9 million increase in net cash used for operating activities year over year is primarily due to cash used for working capital and other. Cash used for working capital and other was $217.5 million during the first quarter of fiscal 2026, compared to $0.8 million of cash generated during the first quarter of fiscal 2025, with the difference attributable primarily to an increase in accounts receivable primarily to support the growth in Asia sales. Financing Activities Net proceeds of debt totaled $320.8 million during the first quarter of fiscal 2026, including net proceeds of $633.8 million from the issuance of Convertible Notes, and $277.3 million for term loans and other debt, partially offset by net repayments of $290.9 million under the Credit Facility, and $299.4 million under the Securitization Program. This compares to $15.7 million of net proceeds during the first quarter of the prior fiscal year. The Company has repurchased $138.3 million of common stock under its share repurchase plan during the first quarter of fiscal 2026 compared to $100.0 million in the same period of the prior fiscal year. The Company paid cash dividends to shareholders of $0.35 per share, or $28.5 million, during the first quarter of fiscal 2026 as compared to $0.33 per share, or $28.9 million, during the first quarter of fiscal 2025. Investing Activities Net cash used in investing activities decreased during the first quarter of fiscal 2026 by $6.9 million, when compared to the same period in fiscal 2025, primarily due to a decrease in capital expenditures. Contractual Obligations For a detailed description of the Company's long-term debt and lease commitments for the next five years and thereafter, see Long-Term Contractual Obligations appearing in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 2025 and Note 4 "Debt" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q. There are no material changes to this information outside of the issuance of Convertible Notes, entering into a term loan and other normal borrowings and repayments of long-term debt and operating lease payments. The Company does not currently have any material non-cancellable commitments for capital expenditures or inventory purchases outside of the normal course of business. Financing Transactions See Note 4, "Debt" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on financing transactions, including the Credit Facility, the Securitization Program, and other outstanding notes and debt as of September 27, 2025. The Company was in compliance with all covenants under the Credit Facility and the Securitization Program as of September 27, 2025, and June 28, 2025. The Company has various lines of credit, financing arrangements, and other forms of bank debt in the U.S. and various foreign locations to fund the working capital, foreign exchange, overdraft, capital expenditure, and letter of credit needs of its wholly owned subsidiaries. Outstanding borrowings under such forms of debt at the end of first quarter of fiscal 2026 was $119.6 million. As an alternative form of liquidity outside of the United States, the Company sells certain of its trade accounts receivable on a non-recourse basis to financial institutions pursuant to factoring agreements. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows. Factoring fees for the sales of trade accounts receivable are recorded within "Interest and other financing expenses, net" of the consolidated financial statements. Liquidity The Company held cash and cash equivalents of $175.5 million as of September 27, 2025, of which $146.0 million was held outside the United States. As of June 28, 2025, the Company held cash and cash equivalents of $192.4 million, of which $181.8 million was held outside of the United States. During periods of weakening demand in the electronic components industry, the Company typically generates cash from operating activities. Conversely, the Company will use cash for working capital requirements during periods of higher growth. The Company generated $473.6 million in cash flows from operating activities over the trailing four fiscal quarters ended September 27, 2025. Liquidity is subject to many factors, such as normal business operations and general economic, financial, competitive, legislative, and regulatory factors that are beyond the Company's control. Cash balances held in foreign locations that cannot be remitted back to the U.S. in a tax efficient manner are generally used for ongoing working capital, including the need to purchase inventories, capital expenditures, and other foreign business needs. In addition, local government regulations may restrict the Company's ability to move funds among various locations under certain circumstances. Management does not believe such restrictions would limit the Company's ability to pursue its intended business strategy. In September 2025, the Company issued $650 million aggregate principal amount of convertible senior notes due 2030 (see Note 4). The Company used the net proceeds to (i) reduce the Credit Facility by $533.8 million and (ii) repurchase $100 million of the Company's common stock in privately negotiated transactions entered into in connection with the convertible debt offering. As of the end of the first quarter of fiscal 2026, the Company had a combined total borrowing capacity of $2.0 billion under the Credit Facility and the Securitization Program. There were $122.7 million of borrowings outstanding and $0.8 million in letters of credit issued under the Credit Facility, and $200.6 million outstanding under the Securitization Program, resulting in approximately $1.68 billion of total committed availability as of September 27, 2025. Availability under the Securitization Program is subject to the Company having sufficient eligible trade accounts receivable in the United States to support desired borrowings. The Company expects to repay the $550 million Notes due April 2026 using cash on hand and availability under the Credit Facility. During the first quarter of fiscal 2026, the Company had an average daily balance outstanding of approximately $774.9 million under the Credit Facility, and approximately $484.7 million under the Securitization Program. The Company also has average borrowings that are higher than quarter end borrowings from various lines of credit, financing arrangements, and other forms of bank debt in the U.S. and various foreign locations. As of September 27, 2025, the Company does not expect to repurchase additional shares until its' consolidated leverage ratio returns to historical levels. When share repurchases resume, the Company may repurchase stock from time to time at the discretion of management, subject to strategic considerations, market conditions (including share price), and other factors. The Company may terminate or limit the share repurchase program at any time without prior notice. The Company has $225.8 million of shares of capacity remaining on the share repurchase program approved by the Board of Directors. The Company has historically paid quarterly cash dividends on shares of its common stock, and future dividends are subject to approval by the Board of Directors. During the first quarter of fiscal 2026, the Board of Directors approved a dividend of $0.35 per share, which resulted in $28.5 million of dividend payments during the quarter. The Company continually monitors and reviews its liquidity position and funding needs. Management believes that the Company's ability to generate operating cash flows through the liquidation of working capital in the future and available borrowing capacity, including capacity for the non-recourse sale of trade accounts receivable, will be sufficient to meet its future liquidity needs. Additionally, the Company believes that it has sufficient access to additional liquidity from the capital markets if necessary. Recently Issued Accounting Pronouncements See Note 1, "Basis of presentation and new accounting pronouncements" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements.