AVNET INC Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Acknowledged the devastation in Los Angeles County and North Carolina, with all employees safe and no impact on operations.
• Second quarter sales were $5.7 billion, adjusted EPS $0.87, both above guidance. Results driven by Asia but offset by weakness in the West and Europe.
• Progress on optimizing inventory and managing costs, generating over $300 million cash flow from operations.
• Semiconductor lead times stable, pricing mixed. Global book-to-bill ratio below parity, backlog under pressure.
• Aerospace and Defense in Americas and comms/transportation in Asia saw sequential sales increases; industrial, compute, and consumer were lower.
• Farnell facing challenges from weak macro in Europe and competitive pricing, but cost reduction initiatives and growth opportunities planned.

Segment Performance

• Electronic Components: Sales increased slightly sequentially but declined year-over-year. Asia was a bright spot with sequential and year-over-year growth in industrial, communications, and transportation end markets. EMEA faced weak demand due to economic and geopolitical factors, while Americas saw sequential growth in aerospace and defense and select industrial end markets. Demand creation revenues increased 5% sequentially, with design registrations and wins also up.
• Farnell: Sales were flat sequentially and down year-on-year, challenged by weak macro environment in Europe and competitive pricing pressures for on-the-board components.

Guidance

• Third quarter fiscal 2025 sales guidance: $5.05 billion to $5.35 billion, diluted EPS $0.65 to $0.75. Implies sequential sales decline of approximately 6% to 11% assuming current market conditions persist, including seasonal factors in Asia and Western regions.

Risks

• Uncertainties around tariffs and their potential impact on customer orders.
• Continued challenges with inventory management, including pockets of aged or excess inventory and slower demand recovery.
• Geopolitical factors and economic backdrop affecting EMEA demand.

Question and Answer

• Q: Toshiya Hari from Goldman Sachs on market outlook and gross margins A: Phil Gallagher remains bullish on the industry despite challenges, expecting improvement end of June into summer. Ken Jacobson discusses mix shift impact on gross margins and expectations for normalization and higher margin opportunities.
• Q: William Stein from Truist Securities on foreign exchange and inventory A: Ken Jacobson mentions minimal foreign exchange benefit, and inventory reduction progress with pockets of aged inventory being worked through, expecting continued efforts over several quarters.
• Q: Joe Quatrochi from Wells Fargo on inventory investment and demand A: Phil Gallagher and Ken Jacobson discuss inventory investment balancing, focusing on right inventory while reducing excess, and inter-quarter demand dynamics in guidance.
• Q: Ruplu Bhattacharya from Bank of America on operating margins and capital returns A: Ken Jacobson and Phil Gallagher talk about actions to improve margins at Farnell and EC, including digital initiatives and expense control, and capital allocation priorities on dividends, share buybacks, and selective M&A.
• Q: William Stein from Truist Securities on tariffs A: Phil Gallagher and Ken Jacobson discuss minimal impact of tariffs on orders, with no significant pull-ins seen, and preparations in place to manage tariffs.