What Avnet (AVT) Said on Its Q1 Earnings Call

Key Points

• Avnet posted record fiscal Q1 results: Sales reached $10.7 billion and adjusted EPS was $3.63, with growth across regions and both Electronic Components and Farnell. Demand was broad-based, led in part by data centers and AI infrastructure.
• Operating profitability improved despite lower gross margin: Adjusted operating margin rose to 4.7%, its highest since fiscal 2023, while tighter supply and higher memory prices contributed to growth. About one-third of sales growth came from higher memory prices.
• Avnet forecast further growth but faces cash needs: Q2 guidance calls for $11.1 billion–$11.4 billion in sales and adjusted EPS of $3.90–$4.10. Working-capital investment drove an $842 million operating cash outflow and increased debt by about $950 million in Q1.

Avnet NASDAQ: AVT reported record first-quarter fiscal 2027 sales and adjusted earnings, citing broad-based demand across regions and end markets, tighter supply conditions and operating leverage in its distribution businesses.

Chief Executive Officer Phil Gallagher said first-quarter sales reached $10.7 billion, exceeding the high end of the company’s guidance, while adjusted diluted earnings per share reached a record $3.63. The company said both its Electronic Components and Farnell businesses posted record quarterly sales.

“Our first quarter results came in well above our expectations, with record performance across all regions in both our Electronic Components and Farnell businesses,” Gallagher said. He added that the company saw margin and earnings expansion as demand strengthened.

Sales Growth Spanned Regions and End Markets

Chief Financial Officer Ken Jacobson said sales increased 82% year over year and 29% sequentially. The first quarter included 14 weeks, compared with a typical 13-week quarter. Excluding the extra week, sales rose 71% from a year earlier and 21% from the prior quarter, with foreign exchange having no meaningful effect on growth.

• Americas sales increased 109% year over year and 39% sequentially.
• Asia sales increased 79% year over year and 30% sequentially.
• EMEA sales increased 64% year over year and 19% sequentially.

Asia represented 48% of total sales during the quarter, compared with 47% in the preceding quarter and 49% a year earlier, Jacobson said.

Electronic Components sales rose 84% year over year and 30% sequentially, or 73% and 22%, respectively, after adjusting for the extra week. Farnell sales increased 46% from a year earlier and 17% sequentially.

Gallagher said demand was strongest in areas including data centers, aerospace and defense, networking, industrial and transportation. In the Americas, he said sales more than doubled year over year, aided by Avnet Integrated Solutions, which provides systems integration and services for purpose-built IT hardware. The business has seen demand from customers serving enterprise, hyperscale and neocloud data centers, with AI infrastructure build-outs contributing to that demand.

Gallagher said Avnet sees improving demand across its core markets rather than a recovery driven solely by inventory replenishment. He pointed to book-to-bill ratios above parity in all regions, a growing backlog and rising backlog delinquencies as lead times extend.

Supply Tightening and Memory Pricing Remain Key Factors

Management said lead times extended across most semiconductor and interconnect, passive and electromechanical, or IP&E, products during the quarter. Gallagher said tightness had spread beyond memory to products including power components, passives, multilayer ceramic capacitors, discretes and controllers.

Jacobson said about one-third of both sequential and year-over-year sales growth was attributable to higher memory prices. Pricing in other electronic component categories did not have a meaningful impact during the quarter, though Gallagher said Avnet expects additional price increases to begin in the new calendar year.

During the question-and-answer session, Gallagher said extended lead times had not materially limited Avnet’s growth or its second-quarter outlook. He noted that some customers with memory-heavy bills of materials may be experiencing production constraints, but said the effect was not broad-based.

Avnet’s IP&E business approached $1.7 billion in quarterly sales, which Gallagher said would equate to more than $6 billion on an annualized basis. He said the company expects increasingly complex systems to require more connectors, passives, sensors, power products and related technologies alongside semiconductors.

Farnell returned to a double-digit operating margin during the quarter. Gallagher said the business is benefiting from improving demand, its digital and high-service distribution model, and its role in engaging engineers early in the product design cycle. He also said demand-creation revenue remained roughly flat as a percentage of Avnet’s total sales despite stronger fulfillment activity tied to data-center business, meaning demand-creation dollars increased alongside revenue.

Margins Expanded Despite Lower Gross Margin

Avnet’s gross profit margin was 10%, down about 40 basis points both year over year and sequentially, mainly because of product and customer mix. Electronic Components gross margin declined about 30 basis points from both comparison periods, partly reflecting growth in Avnet Integrated Solutions, which has lower gross margins than the broader Electronic Components business.

However, Jacobson said the Integrated Solutions business contributed meaningfully to operating-margin expansion. Adjusted operating income was nearly $500 million, and adjusted operating margin reached 4.7%, up more than 200 basis points from a year earlier and more than 80 basis points sequentially. It was the company’s fifth consecutive quarter of adjusted operating-margin expansion and its highest operating margin since fiscal 2023.

Electronic Components operating income was $484 million, with a 4.8% operating margin, up 71 basis points sequentially. Farnell’s operating margin reached 10.1%, its highest level in more than three years.

Jacobson said Avnet expects Electronic Components operating margin to reach its near-term 5% target during the second half of fiscal 2027. Over time, he said the company sees potential for the business to trend toward 6%, while Farnell could move into the low-teens range as it expands higher-margin on-the-board component sales and improves efficiency.

Working-Capital Investment Increased Debt and Reduced Cash Flow

Avnet invested $1.2 billion in working capital sequentially to support higher sales. Inventory increased by about $2.1 billion, substantially offset by a $1.8 billion increase in accounts payable, while accounts receivable rose about $900 million.

Jacobson said approximately one-third of the inventory increase stemmed from memory pricing, another third was related to supply-chain-services engagements, and the remaining increase reflected sales growth and the timing of inventory receipts near the Oct. 3 quarter-end.

Working-capital days declined five days sequentially to 64 days, while return on working capital rose about 600 basis points to 25%, the highest level in 10 years, according to the company. Still, higher working-capital needs led to an approximately $842 million use of operating cash flow and an approximately $950 million increase in debt during the quarter.

The company said it expects to use cash to support growth in the coming quarter, but anticipates generating positive cash flow by the end of fiscal 2027 as growth moderates. Avnet said it expects to raise additional capital over coming quarters, including through refinancing upcoming maturities and maintaining borrowing capacity.

Avnet increased its quarterly dividend by about 6% to $0.37 per share. The company also said it has $226 million remaining under its share repurchase authorization and expects to revisit buybacks as cash generation improves.

Second-Quarter Outlook Calls for Further Growth

For the fiscal second quarter, Avnet forecast sales of $11.1 billion to $11.4 billion and adjusted diluted earnings per share of $3.90 to $4.10. At the midpoint, the sales outlook represents 5% sequential growth, or 12% growth on a comparable basis after accounting for the extra week in the first quarter.

The guidance assumes current market conditions and component availability, including memory availability, continue. Jacobson said the forecast assumes largely flat memory pricing and interest expense similar to the first quarter, with an adjusted tax rate between 21% and 25%.

Gallagher said management remains optimistic about the March quarter based on the backlog and book-to-bill trends, while noting that the timing and effect of the Lunar New Year in Asia remains a variable.

About Avnet (NASDAQ:AVT)

Avnet, Inc is a global technology distributor that helps manufacturers and design engineers source electronic components and develop products. The company supplies semiconductors, embedded processors, memory, connectivity products, sensors, power-management components and other electronic parts used in industrial, automotive, communications, computing, aerospace and defense applications.

In addition to component distribution, Avnet provides engineering and design services, supply-chain management, product customization, logistics, and technical support.

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