Avnet, Inc. (AVT), a leading global electronic component distributor and solutions provider, has demonstrated its ability to navigate the industry's cyclical challenges with resilience and strategic focus. Despite the ongoing market downturn, AVT has continued to deliver solid financial results, showcasing its operational expertise and adaptability.

Financials

For the fiscal year ended July 1, 2023, Avnet reported annual revenue of $26,536,881,000 and net income of $770,828,000. While AVT's annual operating cash flow was negative $713,703,000 and free cash flow was negative $908,377,000, these figures reflect the broader industry dynamics and Avnet's proactive efforts to manage its working capital during this period.

In the third quarter of fiscal year 2024, Avnet reported sales of $5,653,591,000, a 13.2% decrease compared to the same period in the prior year. AVT's gross profit margin for the quarter was 11.8%, down 62 basis points year-over-year, primarily due to a shift in product mix and geographic sales mix. Adjusted operating income for the quarter was $202,710,000, with an adjusted operating margin of 3.6%.

Business Overview

Avnet's Electronic Components (EC) business, which accounts for the majority of its revenue, saw a 13.4% year-over-year decline in sales, with all three geographic regions – the Americas, EMEA, and Asia – contributing to the decrease. AVT attributed the sales decline to reduced demand and an unfavorable product mix of lower-priced electronic components.

Farnell, Avnet's other operating group, reported a 10.4% year-over-year decrease in sales, primarily due to lower demand for on-the-board electronic components, partially offset by increases in demand for single-board computers. Farnell's operating margin remained at 4% for the quarter, as AVT implemented cost reduction actions to improve profitability.

Geographically, Avnet's sales performance was mixed. The Americas region saw an 18.2% year-over-year decline, while EMEA and Asia experienced 14.2% and 8.7% decreases, respectively. AVT noted that the EMEA region was coming off a record revenue quarter in the prior year, contributing to the more significant year-over-year decline.

Outlook

Looking ahead, Avnet provided guidance for the fourth quarter of fiscal year 2024, expecting sales in the range of $5,200,000,000 to $5,500,000,000 and diluted earnings per share between $0.90 and $1.00. This guidance assumes a sequential sales decline of 3% to 8%, with below-seasonal sales declines in the Western regions and below-seasonal growth in Asia.

AVT's management team remains focused on navigating the current market challenges by closely monitoring operating expenses, generating operating cash flow through working capital reductions, and pursuing new sales opportunities to drive profitable growth and market share gains.

Liquidity

Avnet's liquidity position remains strong, with $218,473,000 in cash and cash equivalents as of March 30, 2024, and approximately $889,700,000 in available committed borrowing capacity under its credit facilities. AVT has prioritized its existing business needs, including driving working capital reductions and maintaining disciplined capital allocation, while also returning capital to shareholders through its quarterly dividend and share repurchase program.

Conclusion

Despite the industry-wide downturn, Avnet continues to leverage its position at the center of the technology supply chain to serve its customers and supplier partners. AVT's global sales force, technical capabilities, and focus on value-added services, such as demand creation, IP&E, and embedded computing, position it well to capitalize on future growth opportunities.

Avnet's management team has demonstrated its ability to navigate challenging market conditions, and AVT's long-term strategy and diversified business model provide a solid foundation for weathering the current industry cycle. As the market recovery takes shape, Avnet is poised to leverage its strengths and continue delivering value to its stakeholders.