Avnet (AVT) Q2 2026 Earnings Call Transcript

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DATE

Wednesday, Jan. 28, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Philip R. Gallagher
• Chief Financial Officer — Kenneth A. Jacobson

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TAKEAWAYS

• Sales -- $6.3 billion, up 12% year over year and 7% sequentially, surpassing the high end of guidance.
• Regional sales mix -- Asia accounted for over 50% of total sales, up from approximately 48% in the prior quarter.
• Regional sales growth -- Asia up 17%, Europe up 8%, and the Americas up 5% year over year.
• Electronic components sales -- Rose 11% year over year and 7% sequentially; constant currency growth of 9% year over year.
• Farnell sales -- Increased 24% year over year and 7% sequentially; constant currency growth of 20% year over year.
• Gross margin -- 10.5%, stable year over year and up slightly sequentially; EC regional margins stable with European improvement over the prior quarter.
• Farnell gross margin -- Up over 100 basis points year over year, down 25 basis points sequentially, with stability by product category.
• SG&A expenses -- $492 million, up $55 million year over year and $27 million sequentially; 74% of gross profit dollars versus 76% in the previous quarter.
• Adjusted diluted EPS -- $1.05, above the high end of guidance and nearly 4x sequential sales growth.
• Working capital -- Decreased by $42 million sequentially; working capital days down seven to 88.
• Inventory -- Reduced by $126 million (2.3%) sequentially, ending at 86 days overall; EC inventory less than 80 days, Farnell less than 230 days.
• Dividend -- Paid $0.35 per share, totaling $28 million.
• Guidance: fiscal third quarter ending Mar. 28, 2026 sales -- $6.2 billion to $6.5 billion, with a 1% sequential increase at midpoint; Americas and EMEA sales expected to grow, Asia to decline less than seasonally typical.
• Guidance: fiscal third quarter ending Mar. 28, 2026 EPS -- Diluted EPS projected at $1.20 to $1.30; assumes interest expense, tax rate (21%-25%), and 83 million diluted shares consistent with the prior quarter.

SUMMARY

Avnet (NASDAQ:AVT) reported quarterly revenue and earnings above guidance, driven by double-digit growth in Asia and Europe and a favorable regional sales mix shift. Management highlighted ongoing inventory reduction, disciplined expense management, and improvements in operating leverage. The company’s guidance for the fiscal third quarter anticipates continued recovery in higher-margin Western regions and a less-than-typical seasonal decline in Asia.

• Chief Executive Officer Gallagher said, "book to bills were positive on top of a pretty good billing quarter," and noted improved order visibility, though "not where it needs to be quite yet."
• Chief Financial Officer Jacobson clarified that while supplier price increases were announced, "the actual quarterly results did not have a lot of impact from actual price increases in the quarter."
• Chief Executive Officer Gallagher described the focus on margin expansion for Farnell, stating, "any additional lift in Europe will further drive the drop through as for now it could. Possibly accelerate that you are right that 50 bps points of margin that we are looking to see them improve on quarter on quarter."
• Management anticipates ongoing improvement in the SG&A-to-gross profit ratio as gross profit dollars increase.
• The company reiterated its commitment to reducing leverage to approximately three times over the coming year.

INDUSTRY GLOSSARY

• Farnell: Avnet's distribution segment for kits, tools, and component products targeting engineers and industrial users, with higher inventory requirements and a digital platform sales focus.
• On the board components: Products such as semiconductors and electromechanical parts that are directly mounted to printed circuit boards, as opposed to ancillary devices.
• Book to bill: Ratio of new orders received to orders shipped and billed in a given period, used as an indicator of demand pipeline health.
• IP&E: Interconnect, passive, and electromechanical components—a major electronic parts category alongside semiconductors.

Full Conference Call Transcript

Philip R. Gallagher: Continued improvement reflects recovery across all three regions. We believe this is a sign engineers are working on developing new products, which we view as another indicator of the upturn in demand for electronic components. Operating margins improved sequentially in line with our expectations. We also continue to gain traction growing Farnell sales, which leverages the best of Avnet Core on the board components through our Power of One initiatives and Farnell digital platforms. Although we are seeing improvement in sales of higher margin on board components, Farnell continues to have a higher relative sales mix of test and measurement, maintenance and repair, and single board computers.

As the recovery of demand for the onboard components continues, especially in Europe, we expect Farnell's gross and operating margins to continue to improve. So here at the center of technology supply chain, as we look forward, there are many reasons why I am optimistic about Avnet's future and our position in the marketplace. We have in areas of need. To conclude, we are pleased with the momentum we are seeing moving into the new calendar year. For those of you who attended CES this year, there was a lot of excitement at the show.

We had the opportunity to meet with leadership of many of our supplier partners and customers, and we continue to be encouraged that 2026 will be a year of growth and margin expansion and improved returns for Avnet. With that, I will turn it over to Ken to dive deeper into our second quarter results. Ken?

Kenneth A. Jacobson: Thank you, Phil, and good morning, everyone. We appreciate your interest in Avnet and for joining our second quarter earnings call. Our sales for the second quarter were approximately $6.3 billion, above the high end of our guidance range, and up 12% year over year. On a sequential basis, sales were higher by 7%. Regionally, on a year over year basis, sales increased 17% in Asia, 8% in Europe, and 5% in The Americas. During the second quarter, sales from Asia grew to over 50% of total sales compared to approximately 48% of sales last quarter. From an operating group perspective, electronic component sales increased 11% year over year and increased 7% sequentially.

Constant currency, electronic component sales increased 9% year over year. Farnell sales increased 24% year over year and 7% sequentially. In constant currency, Farnell sales increased 20% year over year. For the second quarter, gross margin of 10.5% was flattish year over year and up slightly sequentially. EC gross margins are still being impacted by the Asia region growing than the West. From a regional perspective, EC gross margins were stable by region with gross margin improvement in Europe compared to last quarter. From a Farnell perspective, gross margins were up over 100 basis points year over year and were down 25 basis points sequentially.

As Phil mentioned, we anticipate improvement in Farnell gross margins as we see more growth in on the board components relative to other product categories. As a reminder, Farnell's Europe region has the highest regional mix of on the board components and has been the slowest to recover. Gross margins at the product category level for Farnell continue to be stable. Turning to operating expenses. SG and A expenses were $492 million in the quarter, up $55 million year over year and $27 million sequentially. The sequential increase in SG and A cost is primarily from a combination of higher sales volumes and increases in stock based compensation expense.

As a percentage of gross profit dollars, SG and A expenses were lower sequentially at 74% compared to 76% last quarter. We anticipate that our operating expense to gross profit ratio will continue to improve as we grow our gross profit dollars. Turning to expenses below operating income. Second quarter interest expense was $61 million and our adjusted effective income tax rate was 23%, both consistent with expectations. Adjusted diluted earnings per share of $1.05 exceeded the high end of our guidance for the quarter. Adjusted diluted earnings per share grew nearly 4x sales compared to last quarter. Turning to the balance sheet and liquidity. During the quarter, working capital decreased by $42 million sequentially.

Working capital days decreased seven days quarter over quarter to 88 days. From an inventory perspective, we reduced inventory by $126 million or 2.3% sequentially. At the end of the quarter, our EC business received approximately $150 million of high demand inventory related to memory and storage products, which partially offset some of the broader inventory reductions that took place across EC this quarter. Substantially, all of the memory and storage products received at the end of the quarter have already been shipped to customers in January. We ended the quarter with 86 days of inventory as we continue to make progress on reducing total Avnet inventory days to below 80.

As a reminder, the inventory turns models are different between the EC business and Farnell. Our EC business typically runs between four to six turns per year, whereas Farnell typically runs between 1.5 to two turns per year. Farnell's high service value proposition requires a breadth of on the board, test and measurement, and maintenance and repair product inventories. For further context on these inventory model differences, at the end of the second quarter, our EC business had less than 80 days of inventory and our Farnell business had less than 230 days of inventory. Even with the overall inventory improvement, our team remains focused on reducing.

We still anticipate reducing our leverage to approximately three times over the next year. We continue to deploy cash in a manner that generates the greatest long term return on investments for our shareholders. In the second quarter, we paid our quarterly dividend of $0.35 per share or $28 million. Turning to guidance. For 2026, we are guiding sales in the range of $6.2 billion to $6.5 billion, with diluted earnings per share in the range of $1.20 to $1.30. Our third quarter guidance assumes current market conditions persist and implies a sequential sales increase of approximately 1% at the midpoint.

The sales guidance implies sales growth in The Americas and EMEA, and a less than seasonal sales decline in Asia due to the Lunar New Year. Our third quarter guidance also implies further recovery in our higher margin Western regions, which accelerates the operating leverage in our business model. This guidance also assumes similar interest expense compared to the second quarter, an effective tax rate of between 21% and 25%, and 83 million shares outstanding on a diluted basis. In closing, I want to thank our team for delivering a solid quarter of improved financial results with a third quarter guidance giving us further confidence in the overall recovery of our business.

2026 should provide several opportunities for Avnet to help our customers and suppliers adapt to continually changing market conditions, and will serve us well as we continue to create value for our stakeholders. With that, I will turn it over to the operator to open it up for questions. Operator?

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from William Stein with Truist Securities. Please proceed.

William Stein: Hey, thanks for taking my question. I guess I would like to squeeze in two, if I can. First, could you talk to us about the linearity of orders during the quarter? Anything unusual or noteworthy there? I think, typically, new orders tend to fade as you go into December. Maybe I have that wrong, but whether right or wrong, maybe comment on that trend. And also, the duration of your backlog as it stands now? Do you have a bit more visibility? Are you seeing customers place it longer at a longer sort of time to request? Thank you.

Philip R. Gallagher: Yeah. Thanks, Will. I appreciate you joining the call. So I guess that was the two questions. Right? So I will go first, Ken wants a heads up. On the linearity, the December quarter is always an interesting one, right, because you know, your billings continued through the quarter. But your bookings do tail off near the end of the, you know, the December, let's say, give or take a few days. So, it is definitely a stronger booking on in this case, October, November, pretty good through December till that midway, then that booking start to trail off, you know, the billings continue because even if there are shutdowns, through the holiday, manufacturing starts up when they get back.

So, you know, you do go out some a bit more in bookings. But even that said, the book to bills were positive on top of a pretty good billing quarter. So that is it. It is improving. Will, the suppliers in part of them are on this call. They are banging us for backlog. They want to know what to build and we are banging the customers for more visibility into the future longer term bookings, if you will, or forecast. We are starting to see that increase. Still probably not at the level we would like to see it.

But, yeah, we are starting to get a bit more visibility into the future, which any customers on the call, and we will see a lot of them next week here in Arizona, that is the message. Still we still want that visibility and pipeline. So we can pipeline appropriately for them. But it is improving, not where it needs to be quite yet.

Operator: Okay. Answered your question. Our next question is from Joseph Michael Quatrochi with Wells Fargo. Please proceed.

Joseph Michael Quatrochi: Hey, thanks for taking the question. These storage controllers, certain capacitors in the IPD space, we are starting to see some pricing inflation. And a lot of that is driven obviously by the activity around data center, increase in hyperscalers, but it is really a lot of our industrial customers are increasing demand based on their exposure to the data center, if you know what I mean. So overall, it is not across the board over pretty much from Q2 is stable. But we are starting to see some increases. And I think that will continue as we move forward.

Kenneth A. Jacobson: And Joe, maybe just a point of clarity that we have seen the increases announced and we know they are coming. Right? But the actual quarterly results did not have a lot of impact from actual price increases in the quarter. So just to kind of clarify the timing of some of those things.

Joseph Michael Quatrochi: Okay. That is helpful. And then just as I guess as I am thinking about the just the guidance on the revenue, you talked about Americas and EMEA up. And then Asia maybe a bit better than seasonal in terms of, like, the rate of decline. How do I think about just, like, Americas and EMEA relative to seasonality? Like, what is your expectation for the March?

Philip R. Gallagher: Yeah. So the March, I would Ken jump in. Typically, Joe, the West bounces back in the quarter over December, a lot of that is a math equation with just more days and whatnot. But last year, it was an anomaly, you might recall, where the West did not increase over December. That was kind of the first time that saw that and ever, I think. So this year, it is back to more, you know, typical seasonality. Where the West will be up, which is positive. And outside our higher margin regions as you know. And Asia, you know, it is going to have a, you know, typical well, maybe not too well.

Lunar New Year, Chinese New Year going to have an impact but not as significant as we have seen in the past. Right? So that is also positive. So our regional mix shift is in our favor this quarter as we get into March, which is good news. Ken, anyone add that? Yeah. I think I think steady, you know, high single digit is how I think about it in terms of the growth in the West, which is kind of as expected. Impacted by mix.

Joseph Michael Quatrochi: That is really helpful. I appreciate all the color. Thanks.

Philip R. Gallagher: Glad, Joe. Thank you.

Operator: Our next question is from Ruplu Bhattacharya. And do you think the seasonality in the March quarter being different than the past couple of years impacts the seasonality going forward for the rest of the quarter? So how are you thinking about as you go through the year, you think you will see more than seasonal growth either in revenues or year over year growth in margins?

Kenneth A. Jacobson: So, Ruplu, let me take the last part first. And I think, you know, there is no reason to believe seasonality would change. And how we think about seasonality is simply just the number of shipping days. And if you had a traditional Lunar New Year, with, you know, let us say, you know, seven to ten days depending on the country of shutdowns. You know, you have less shipping days that you know, we are still, you know, roughly 20 to 25% off the top line. In The Americas and probably 30 to 35% of the top line in Europe relative.

Three thirty one to 90, 91 to one eighty, etcetera, and one eighty and above days it is encouraging. That is the word I am using with the team. It is very the signs are all very encouraging but as you know, we do not guide out beyond the quarter. But we are encouraged and optimistic about the next several quarters.

Ruplu Bhattacharya: Okay. That is helpful. Can I ask a follow-up question on the pricing comment you made? Can you remind us how like, if suppliers are raising prices, how does that impact Avnet's revenues and margins in the near term as well as in the more medium term? And, Phil, I missed this if I might have missed this, but did you specify which product categories or areas you are seeing spot prices increases?

Philip R. Gallagher: Yeah. Thanks, Ruplu. So pricing really affects the average selling price, right? So we have kind of our business is under contract and some of it is not. You know, where it is not, and it is, let us call it spot buys, if you will, customers come in, you know, time, place, utility, we can increase margins there, the price and the margins. Particularly the products, you know, tough to get. We are not breaking pillaging or anything, but, you know, just to kind of get a little bit of fair margin on that, which is positive for us.

In the contracted customers, you know, it is the price gets passed on, so it does not have as much effect on the margin percent. But it does it can affect the revenue dollars and margin dollars. That makes sense. And similar to what we saw in the last tightness in the market, and then we do not the customers are you know, we cannot absorb it. That is for sure. But we are definitely starting to see that particularly in certain areas, memory storage, storage takes memory.

So anything around memory storage we are starting to see some more in the controllers, some of the high end products in networking, and are selected parts like antenna, capacitors, things on those lines we are starting to see some price increase. So some are modest right now, others a little bit more than modest based, particularly in the memory space.

Ruplu Bhattacharya: Okay. Thanks for that. If I can sneak one more in. As Europe is recovering, right, I think you said for Farnell, maybe 50 basis points improvement every quarter. But as the region itself improves, do you think that can accelerate and you can see a faster recovery in Farnell margins? I mean how just help us level set our expectations for where this can go from a margin standpoint by the end of the year. Thank you.

Philip R. Gallagher: Yeah. Thanks, Ruplu. Yeah. So, you know, specific to Farnell, typically their largest region and most profitable is Europe. Okay? And that is not been the case here the last several quarters based on Europe's softness. Still doing well, but actually The Americas, which is a higher like we also pointed out a higher mix in The Americas of test and measurement which is really good business, just runs at a different margin level than the onboard components being semiconductors and the IP and E. So any additional lift in Europe will further drive the drop through as for now it could.

Possibly accelerate that you are right that 50 bps points of margin that we are looking to see them improve on quarter on quarter. That is the message of the leadership team as far now with who I know are on this call. You know, we need to see them and expect them to continue to show incremental improvement in operating margin that could be accelerated. To your point, with higher revenues in the right mix. And although we may not be projecting that, certainly we will really like to see them accelerate that and beyond 50 to 100 bps. So that is our commitment at this point in time. While they continue to manage their expense line. Right?

So there are still other things they are doing. We are all doing. We are always doing as a company. And for now, specifically as well, you know, driving out, more efficiencies, taking out costs where we need to take out costs, while making investments where we need to make investments, i.e., in digital, e-commerce, AI, etcetera. So that answers your question. But we do see it as a continuing tailwind for us as we move forward. And we will look to accelerate getting to that double digit operating margin.

Ruplu Bhattacharya: Okay. Thanks for the details.

Philip R. Gallagher: Yep. You got it, Ruplu.

Operator: Gentlemen, there are no more questions at this time. I would like to turn the conference back over to Phil Gallagher for closing remarks.

Philip R. Gallagher: Okay. Thank you very much. And I want to thank everyone for attending today's earnings call. We look forward to speaking to you at upcoming conferences and at our third quarter fiscal year 2026 earnings report in April. Okay? Have a great day. Thank you.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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