Avnet - Earnings Call - Q4 2020

Transcript

Speaker 0

Welcome to the Avnet Fourth Quarter Fiscal Year twenty twenty Earnings Conference Call. I would now like to turn the floor over to your host, Joe Burke, Vice President, Treasurer and Investor Relations for Avnet. Thank you. You may begin.

Speaker 1

Thank you, operator. Earlier this afternoon, Avnet released financial results for the 2020. The release is available on the Investor Relations section of the company's website. A copy of the slide presentation that will accompany today's remarks can be found via the link in the earnings release as well as on the IR section of Avnet's website. Lastly, some of the information contained in the news release and on this conference call contain forward looking statements that involve risks, uncertainties and assumptions that are difficult to predict, in particular, the scope and duration of the COVID-nineteen outbreak and its impact on global economic systems and our operations, employees, customers and supply chain.

Such forward looking statements are not the guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10 Q and 10 ks and subsequent filings with the SEC. These forward looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward looking statements or supply new information regarding the circumstances after the date of this presentation. Today's call will be led by Phil Gallagher, Avnet's Interim CEO and Tom Liguori, Avnet's CFO. With that, I'm pleased to turn the call over to Phil Gallagher.

Phil?

Speaker 2

Thank you, Joe, and thanks to everyone for joining us for our fourth quarter and fiscal year twenty twenty earnings call. Before we begin discussing earnings, we want to start by thanking Bill Amelio for the many contributions he made while serving as CEO for the past four years. We are grateful for Bill's hard work during his time at Avnet, and we wish him the best in his future endeavors. Next, we want to thank our 15,000 employees for their continued dedication and support during the pandemic as well as during this leadership transition. I know I'm not alone when I say that I believe Avnet has a solid foundation from which to grow with valuable assets and some of the most talented people in our industry.

Finally, I wanna say that I've been that I've been long enough to know what we do well and what we need to do better. One of my immediate priorities as interim CEO would be to lay the groundwork to truly reinvigorate our business. It's a new fiscal year and a new chapter for Avnet, and you will see we have a renewed focus. We will build on our one hundred year history in distribution while continuing to accelerate the profitable growth of Farnell, IoT and our ecosystem. We will show our suppliers and customers that our commitment to them has never been stronger.

We will relentlessly pursue superior execution. Put simply, we will work harder than ever before. I'm truly excited and I hope you are too. Now turning to our fourth quarter and fiscal year twenty twenty results. Similar to other companies, we spent the quarter continuing to navigate the COVID-nineteen operating environment.

On our last earnings call in April, we told you that the macroeconomic headwinds resulting from the pandemic as well as other factors will likely impact our fiscal fourth quarter financial results. We also told you we were taking numerous steps to prepare for a significant downturn to ensure financial stability for Avnet during these uncertain times. Although we did not give quantitative guidance for the fourth quarter, the qualitative expectations we provided in April were in line with our fourth quarter results. This included our expectations for performance in Asia, EMEA and The Americas, as well as for Farnell. Importantly, our actions during the quarter were consistent with the commitment we made to ensure financial stability for our company.

Looking at our overall performance for the fourth quarter, our revenues were down sequentially and year over year. Our adjusted diluted EPS was up sequentially and down year over year. Softer demand, particularly in EMEA, impacted our quarterly results as well as softer pricing and some additional costs related to the impact of the COVID-nineteen on our logistics operations. Similar to last quarter, we focused on conserving cash and managing our debt. We generated positive operating cash flow for the seventh consecutive quarter.

Looking at our electronic components business, revenues and operating margins were down both sequentially and year over year in the June. The region that was most negatively impacted was EMEA, while Asia showed signs of recovery and continues to. Our book to bill ratio at the end of the fourth quarter was slightly below parity, but has shown signs of improvement in July. Since our book to bill is based on lower quarterly revenue base, we are primarily focused on our rate of bookings and backlog to ensure the integrity of our supply chain. In terms of vertical segments, as you've likely heard from other companies this quarter, weakness was driven primarily by auto and commercial air transportation.

However, we saw some strength in the industrial, communications, defense and technology segment. Notably, a bright spot during the quarter was added our global demand creation trends and design wins are remaining steady. Turning to Farnell, both sales and operating income margins in the fourth quarter were down sequentially and year over year, which is what we expected as we indicated on our last earnings call. This again was primarily impacted by the slowness in EMEA. In the quarter, Farnell's new customer acquisitions rose around 13% year over year, largely driven by products supporting COVID-nineteen safety requirements.

We also added multiple new suppliers to Farnell's line card globally. While we've adapted our near term priorities to respond to the pandemic, we're still executing against our five long term strategic priorities as outlined on this slide. In fact, we brought our distribution, traditional demand creation, design services, and IoT strategies closer together in a way that will enable us to scale faster and drive better results for Avnet overall. Our customers, suppliers, and investors are recognizing how IoT solutions are an extension of our key capabilities, driving more demand creation. Our suppliers are particularly excited about this direction because it's creating significant component demand for them.

As we think about what's ahead, it's important to note that we are reviewing some of the lessons we've learned during the COVID-nineteen and how we can apply them to improve our business. For example, we have seen that many of our roughly 15,000 employees around the world can work effectively from home. We have also seen how productive our meetings can be over video conferencing. So we are assessing opportunities for cost rationalization that could benefit our business in the future from decreased travel spend to decreased real estate costs. We are confident that identifying these areas now and reviewing our potential options can allow us to operate more efficiently in the future.

As we mentioned last quarter, we are doing everything we can to ensure the safety and health of all of our employees while keeping our business running as smoothly as possible. And as I mentioned earlier, we are so grateful for our employees' continued dedication through this pandemic, a period that has been challenging and filled with uncertainty. We are truly proud of how AdNet's team members are collaborating across our businesses and around the world to support our customers and supplier partners in the fight against COVID-nineteen. In closing, we acknowledge that this past year has had obstacles for us and for many other companies. We have adapted our business in response to the operating environment and will continue to do so.

We are focused on increasing our profitability by building on our century long foundation and distribution. We are diversifying and growing our revenue streams with comprehensive solutions that will equip our customers and suppliers to succeed in an evolving world of connected technology. With that, I'll turn the call over to Tom to report on the financials for the quarter. Tom?

Speaker 3

Thank you, Phil. Good afternoon, everyone. I want to start by congratulating Phil on his new role. I know I speak to the global Avnet team in saying we look forward to your leadership and you have 100% of our support. I'm going to keep my commentary brief so as to allow a good amount of time for Q and A.

Turning to the financials on Slide 10. Our revenues for the fourth quarter were $4,200,000,000 adjusted EPS was $0.64 and cash flow from operations was $288,000,000 Both our revenues and adjusted EPS in the quarter were well above the consensus estimates. Although there was softer demand in EMEA, our EMEA revenue came in better than expected. GAAP and non GAAP diluted EPS were positively impacted by $0.42 from a favorable effective tax rate, primarily related to the reduction in value in certain assets and the CARES Act. Also contributing to the bottom line were favorable foreign currency gains and lower interest expense, contributing another $08 to adjusted EPS.

Revenues of $4,200,000,000 were down slightly from $4,300,000,000 in the third fiscal quarter. Gross margin of 11.4% was down 62 basis points from last quarter, primarily due to mix. Our Asia revenues came in sequentially stronger, while our higher margin Americas and EMEA businesses declined. Adjusted operating expenses of $432,000,000 were lower by $16,000,000 sequentially, as we implemented actions to control costs in the face of the pandemic uncertainty. Excluding the onetime $42,000,000 tax gain, our adjusted tax rate was 19%.

On Slide 11, we show results by segment and region. Electronic components revenue of $3,900,000,000 declined 2.7% versus the previous quarter. Sequentially, Americas and EMEA revenues both declined by 4.511.1% respectively. Meanwhile, Asia revenues increased by 4.6% And at the same time, Asia produced positive cash flow during the quarter. So I have to commend the team there, Prince, Alan, CH for their continued hard work and results.

Electronic Components operating margins were 1.5%, a sequential decline due to the lower sales volume. Revenues for the quarter totaled $292,000,000 down 12.9% sequentially. As we mentioned last quarter, we anticipated a challenging quarter for Farnell. The segment had an operating margin of 3.6% in the quarter. Regarding the Texas Instruments transition, our revenues from TI in the fourth quarter were $324,000,000 with a gross profit of approximately 8%.

We expect to see a continued steady decline in TI revenues in the second half of the calendar year as the transition is completed by December 31. Turning to cash flows and balance sheet on Slide 12. We ended the quarter with a cash balance of $477,000,000 and debt of 1,400,000,000.0 Our gross debt leverage was 3,100,000,000.0 and our net debt leverage was 2,100,000,000.0 Our net book value per share was $38 up slightly over the prior quarter. Tangible book value per share remained relatively constant at $29 Turning to liquidity on Slide 13. Our liquidity position remains strong.

Recall that during calendar year 2019, we put in place improved processes and tools to enhance our focus on cash generation. These actions reap benefits for fiscal year 2020 with $730,000,000 in cash flow from operations. In the fourth quarter, we generated $288,000,000 of cash flow from operations. This is the seventh straight quarter of positive cash flow from operations. We used the cash to pay down $300,000,000 of debt to satisfy a June maturity date.

And the banks are supporting us. We amended the terms of our revolving credit facility to prepare for any potential headwinds over the next few quarters. With these changes to our financing, we are well positioned to maintain ample liquidity. Turning to Slide 14. Looking ahead, we will focus our financial efforts on managing our inventories and receivables, generating cash and paying down debt during the pandemic.

Today, we also announced plans to reduce our operating expenses by $75,000,000 annually and our working capital levels by another $100,000,000 Both are expected to be fully realized by the December. Turning to business outlook on Slide 15. We are guiding revenue in the range of 3,800,000,000.0 to $4,200,000,000 and adjusted EPS in the range of zero zero to zero one six dollars This guidance reflects a wider range than in the past quarters given the continued uncertainty from factors related to COVID-nineteen. Turning to Slide 16, we currently are seeing a demand environment similar to the just completed June. Seasonally, the September has lower EMEA revenues with Asia and The Americas being somewhat flat.

For September, we are seeing a slight uptick in Farnell revenues. We expect TI revenues to decline sequentially to the range of 100,000,000 to $150,000,000 Overall, with the lower TI revenues and seasonally lower EMEA, we expect a slight decline in operating margins. In summary, our ability to generate cash flow remains intact and our balance sheet is healthy. We are taking steps to reduce both our cost and working capital, are expected to improve our financial results starting in the December quarter. With that, let's open the line for Q and A.

Operator? Thank you. Ladies and gentlemen,

Speaker 0

we will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you like to remove your question from the queue. For participants using speaker equipment, question queue.

Our first question comes from Adam Tindle with Raymond James. Please proceed with your question.

Speaker 4

Okay. Thanks. Good afternoon, and congrats to Phil. Phil, I just wanted to start out thinking about the portfolio holistically and strategic options. Last time we had a CEO change, you acquired Farnell and divested TS in fairly short order.

So just want some color on your thoughts on the portfolio, how you're thinking about strategic options. And if you want to tie in some of the color on enhancing your core distribution capability, that would be helpful.

Speaker 2

Yes. Thanks, Adam. I appreciate that. I Haven't thought through all of it yet in the last four days, but we're we're certainly working on it. I'll tell you what the what we're gonna be doing is, certainly reinvigorating the foundation, okay, of the core business and Admin integrated as well, getting extremely close with our supplier partners and customers and then driving the demand creation, design services, supply chain.

We'll continue to be doubling down on Farnell. We know we're not where we need to be Farnell with Farnell right now, but we are tracking it and making progress appropriately. So we need to we're proud of where we are in the center of technology. We're right smack in the middle of it. I think we weren't even more adamant about the value we're bringing to the customer suppliers through the last three, four months of the pandemic with the global logistics capabilities we have.

So we're going to double down on that, reinvigorate that, while building out the new businesses, okay, and the things like the IoT that we've talked about and the ecosystem. So some of this is about buttoning down the execution, buttoning down the fundamentals, while then looking ahead to the future diversification of the portfolio.

Speaker 4

Understood. And then maybe just as a follow-up, I thought it was notable to see Cypress returning. If you could maybe just walk us through that. It seems to have come full circle. It was one of a string of losses years ago and is now returning.

Just some color on why and still your relationship guide you perceive this sort of thing becoming more of a trend?

Speaker 2

Well, I'm not sure about the latter part yet. I absolutely believe in, as I call, the upstream and the value of the supplier relationships, key and critical to our success in servicing our customers globally. With regards to Cypress specifically, we're the number one distributor today with Infineon globally. We have a great relationship with Infineon. So with this acquisition of Cypress, we're proud to be bringing Cypress back onto the line card.

We hope that's going to happen in the next few months. And it's similar to what happened with Microsemi. We were able to get Microsemi back with the Microchip acquisition. So we're feeling confident, okay? We feel good about where we are.

We still have some work to do. But this is a big win for the team.

Speaker 4

Got it. Thanks. And Tom, congrats on cash flow again.

Speaker 3

Thank you. Thank you.

Speaker 0

Our next question is from Matt Sheerin with Stifel. Please proceed with your question.

Speaker 5

Yes. Thank you. Phil, your comments regarding the demand environment, if you take out the loss of TI, you're looking sort of flattish sequentially. It sort of sounds in line with some of your peers and suppliers. Could you talk about particularly what you're seeing in Europe as you look maybe to the December, particularly auto?

Because I know you have decent amount of auto exposure there. Are there any signs of light there in terms of backlog or bookings that gives you any hope that that's

Speaker 2

going to recover? Yes. Thanks, Matt. I appreciate that. And yes, when we net out the loss of that one supplier, we feel pretty confident with guidance and pretty good with the guidance given what's going on in the marketplace.

Specific to Europe, Europe is the toughest region for us right now, probably consistent with others as well. The book to bill in Europe is starting to come back a bit, still still below parity. But I can just tell you that the internal guidance we had for Europe for the June, the team in Europe exceeded that. And it's looking you know, December is a tough call, Matt. You know, we're with all the shutdowns, you know, through the past four or five months, you you now you get the holidays, you know, the summer quarter in Europe.

So it's really a tough one to to call, but we we feel it's gonna start to bounce back in December then, but more into the March. But it's a lot. I mean, proud of our Europe team. We're proud of our performance over there. And given the share data we've gathered, we've increased share in the past quarter.

Speaker 5

Okay. And Tom, on OpEx reduction efforts, that $75,000,000 that you talked about, will any of that be coming out of the September? And can you give us a feel for what you should expect that we should expect OpEx to be?

Speaker 3

OpEx, Matt, for the September should be about the same, and you'll see most of the reduction well, you'll see all of the reduction in the December. Why don't I add a couple of points around it? You know, it's about 5% of the total. Part of it, half of it is temporary measures because this is all related to matching expenses to the lower volume. So projects on hold, travel, things of that nature.

You know, I wanna be very clear to everybody. We're not touching our market facing activities. The engineering is staying intact. In fact, this is net of some investments because as Phil said, this is all about, you know, growing our share, growing our business, executing. And so we'll have selected investments in geographic specific geographic locations, specific industries to grow our business, but this is more aligned in cost of revenues.

Thanks.

Speaker 5

Okay. All right. Thanks a lot, and best of luck, Phil.

Speaker 3

Thanks, Matt. Thanks, Matt.

Speaker 0

Our next question is from Ruplu Khattacharara with Bank of America. Please proceed with your question.

Speaker 6

Hi, thanks for taking my questions. Phil, congrats on the new assignment. It's well deserved. I'm sure you're going to do

Speaker 3

a great job. I just

Speaker 6

wanted to ask you a high level question first. When you look at the quarter, did the end markets pretty much play out as you had expected? I'm looking at Farnell margins at 3.6%. They came in better than we have thought. So has it changed your thinking on the cadence of how Farnell margins can improve back to the double digit range?

So any thoughts on how the quarter progressed? How should we think about margins, especially in Farnell progressing from here?

Speaker 2

Yes, thank you. It did progress as we expected. As we noted, still our internal goals are a little bit better. Again, not where we need to be, but certainly better than we had originally forecasted. The end markets, yeah, figured out exactly what we put in the script.

And for sure, we're seeing the automotive transportation market soft. And of course, aerospace very, very soft. And some of the challenge compounds, Farnell, is their strength is Europe. So it's kind of a double dip for them because that's strength market. And Europe being a little softer, it impacted them.

On the margin side, we're very pleased with Chris Breslin and the team. They've got good processes, good management, and we are encouraged and confident that the road map we have for Farnell for the next three, four quarters, we can continue to increase the operating margin to the goals that we've set.

Speaker 6

Okay. Thanks for that. And just for my follow-up, Tom, I just wanted to clarify, you had a cost reduction plan in place. Was that completed or was there anything remaining in that? And for the new $75,000,000 OpEx reduction that you announced, is there a cost associated with that as well?

And how much is cash and how much is noncash? Thank you.

Speaker 3

No, good question, Ruplu. Okay. So the original OpEx reduction program was $245,000,000 and to date, we're through a 190,000,000 of that. So there's more to come there. Then on the 6 75,000,000, you know, the about half of this permanent measures, which should be on top of that.

In the $75,000,000 roughly a little over half of it would be a cash cost implement, and I think most of the implementation costs would be cash related. Great. Thanks for all the details. You bet.

Speaker 0

Our next question comes from Tim Yang.

Speaker 2

Very close to one:one in The Americas. Okay. So again, to the earlier question, Europe being a little bit of the lagger. Early as we see it through the quarter, we are today sitting above one to one, closing out July, and all regions shown positive trending there. But I do want to remind you that the base is a little bit lower, so we're still not we don't think where we need to be, but at least the book to bill is improving.

Speaker 7

Got it. Thanks. And then next question is on margins. If I look at your guidance, I think it implies your component segment margin would remain at roughly 1.5% or maybe even a little bit below order. My question is, is my math right?

And if so, why would the last t TI your margin for the component?

Speaker 3

Tim, you were breaking up slightly lower operating margins in in our core distribution, and most of the revenue decline in the guidance is associated with, you know, the transition of TI. We have taken steps as you can see in this quarter, our OpEx is down $16,000,000 sequentially. And the President, the teams around the world have made progress in in replacing some of the TI revenues through chair shift and other measures. So, you know, I I think, you know, we're pretty well on track to what our original plan was, which was about twenty four months to make up the gross profit dollars. Hope that answers your question.

Speaker 2

Hey. Tom, I'll add on, Tim. The other thing, in addition to TI mix is the, the Asia mix. It's a little seasonality in here with Asia coming back a little bit stronger and Europe still at where it needs to be. That's going to drive a bit of the margin mix issue.

Speaker 7

Will. Thank you.

Speaker 3

Tim.

Speaker 0

Our next question is from Shawn Harrison with Loop Capital. Please proceed with your question.

Speaker 8

Hi. Afternoon, everybody. My congrats as well, Phil. I guess, I wanted to dig into your comments on Farnell maybe not being where you'd like it to be. What still has to happen to get this business, in in the exact same competitive lane as, you know, the the peers in that business?

Is it is it solely inventory? Are there the best practices? Are there other factors that we can watch over the next six to twelve months to to to see that business more in a more competitive, dynamic with the peers?

Speaker 2

Yeah. It's it's a good question, Sean, and, I'm sure Chris Breslin's listening. So you get we've we've got first of all, give give credit to the the the couple of the leaders out there. They're very good at what they do. Okay?

So we're definitely coming in from from a different position. I would say, as I said earlier, in Europe, we we hold our own in Europe in the catalog, e commerce space. We're expanding in Asia and doing well there. The one that we're really working on from a regional standpoint is The Americas. And Newark is really good at what they do, we're traditionally MRO, but expanding that line card and getting the more accessibility to the global inventory view on the expanding SKUs.

So that's the one, and Uma is probably on the call as well, runs The Americas, that's the one we're really driving hard. As far as the other big things we've done is expanded the SKUs. That's not all on the shelf yet. We've expanded our SKUs well over 150,000 in the plan, and that will help. You've got to have first call effectiveness, particularly in digital side of the world, e commerce.

So they're the two big things we're doing. And then we're also expanding the marketing campaigns with Farnell and expanding the line card. For example, I think last quarter we announced we picked up Micron, a large memory globally, when they did not have that support. It's not just the fact that we're bringing Micron, but we're bringing Micron plus the associated step around the Micron. Continue to expand the line card.

We've got the Leeds Logistics Center are gonna be ramping up closer to the end of calendar year. That's that's slightly delayed due to the COVID virus the COVID situation and getting, you know, getting some work done there. So that's been a a little bit of a delay, but we don't think it's impacting us too much at this point in time. I think you'll see to the earlier question that quarter, quarter, quarter, we'll we'll to see that come back.

Speaker 8

Okay. Great. And then, Tom, if I may have two clarifications. One, is the buyback restarted? It looks like there was a little bit

And then second, if I do my math correct, looks like $200,000,000 of TI supplier sales will have to come out in the calendar fourth quarter.

Speaker 3

Okay. So the first question, the buyback remains on pause. The second question, just for clarity, June was $325,000,000 That will go down to 100,000,000 to 150 in the current quarter. So December would go down by the remaining 100 to 150. Thank you.

You bet. Thank you.

Speaker 0

Our next question comes from Joe Karachi with Wells Fargo. Please proceed with your question.

Speaker 9

Yeah. Thanks for taking the question. Tom, I might apologize if I missed it. But what was the estimated COVID-nineteen cost? I think last quarter, was $10,000,000 and I think you had assumed that freight costs kind of return more to a normalized level.

I'm just curious if there's an update on that.

Speaker 3

Good question. So freight did come back to a normalized level. So in this quarter, it remained at about $10,000,000 And the way to think about this, this is a full three months of PPE and different, work rules in our distribution center.

Speaker 9

Okay. That's helpful. And then maybe on the demand side, can you talk about the growth that you've seen in design activity this quarter? Maybe, you know, how do I think about that kinda going forward for or in terms of how we think about revenue growth? Phil, you wanna take that?

Speaker 2

Yeah. Yeah. No. I got that, Tom. Yeah.

Actually, the demand creation continues to move at a at a really good pace and and and holding holding steady both on design registrations and actual design ins and design win production. So we're actually very pleased. I have to say probably somewhat surprised with something to go kind of hand to hand, if you will, with the FAEs and to the customers. But with the remote capabilities now, we've actually had really good success. Trend is steady as she goes on demand creation and design ins, which is terrific.

It's actually holding up better than the core. If you look at our design win revenue, it was half if we're down x percent, it was down half. So it's actually stickier than the balance of the core business.

Speaker 3

That's helpful. Thank you.

Speaker 0

Our next question comes from William Stein with Truist Securities. Please proceed with your question. Great. Thanks for taking my question. Phil, I

Speaker 10

want to add my congrats to the new role. Well deserved. I wonder if you can talk a little bit about your vision for capital allocation. In the past, I guess maybe it's a little bit way past now, but the company used to be very acquisitive. I wonder if you see any opportunities in that regard.

You also have a dividend right now, which sort of stretches beyond what the company's current earnings power is as the risk of diminishing your tangible book value over time. I wonder if you have any thoughts in those two and other uses of capital? And then I have a follow-up if I can.

Speaker 2

I'll probably defer that a little to Tom. The short term, we're going to be focused on organic and reinvigorating the core, as I said earlier, the value add distribution we bring to the marketplace around organic growth, organic investments in FAEs, account managers, demand creation, Farnell, as we talked earlier. As far as M and A and IoT, of course, and for m and a and dividend, I'll I'll turn that over to to Tom.

Speaker 3

Thanks, Phil. And, you know, just reiterate, you know, this is reinvigorate the core, put money into that. But we'll you know, basically, the priorities today during the pandemic are balance sheet and liquidity and maintain that. So the buyback is paused. The dividend, hey.

We agree with you a 100%. It's it's greater than the net income that cannot continue forever, but, you know, we are fully aware of that. Finance committee is fully aware of that. We keep we keep an eye on that, and, you know, we do expect that we'll get a recovery. We think that our actions being taken this quarter will help that as well.

So right now, we plan to continue with the with the dividend. As far as M and A, you know, it's not a priority today. Sure, if there was something small that makes sense, we would look at it. But today, it's all about balance sheet and liquidity. Does that answer your question, Will?

Speaker 10

It does. Thank you. One follow-up, I can. I know it was under different CEOs' leadership,

Speaker 3

and it was, like, at least a

Speaker 10

couple years ago at this point. But I think the last Analyst Day, the company highlighted its expectation at the four and a half to 5% operating margin. And and we're well below that now, and I think we understand that a good part of that is, cyclical effect. But, you know, it it all of the supplier consolidation and, not only consolidation among the suppliers, but consolidation of their sort of distribution partnerships might call into question whether whether a reviewed or or renewed take on operating margin goals would result in something much lower. I wonder what your take is, Phil or Tom, if you have a view you could share as to what might be a realistic goal for when demand returns to a more normalized level.

Thank you.

Speaker 3

Sure. Phil, you want me to take that?

Speaker 2

Yeah. Go ahead, Tom. Thanks.

Speaker 3

You know, this is this is Phil's let's see, Phil. This is your seventh sixth sixth day. So, you know, obviously, know, Phil Phil has a vision. He's very focused on core and continuing to grow a higher margin business as well. So I think it'd be presumptuous of me to put any target out there right now.

We'll be working through that. I think what is important to know is, you know, this is probably like an evolution of strategy. That's what Phil was saying earlier. It's not a, you know, not a revolution of strategy. And so, you know, I think, you know, we all look historically.

Historically, distribution operating margins are in the three to 4% range. So, you know, would it regardless of what we come out with as goals after working through this with Phil, you know, I think those are those are good benchmarks, in the meantime for you to look at. Does that help, Will, or any follow-up on that? Helpful. Thank you.

Good luck, guys. Thank you, Will.

Speaker 0

Our next question comes from Nick Poterov with Longbow Research. Please proceed with your question.

Speaker 11

Thanks. Good afternoon, guys. And congrats for me as well. I guess if you guys can touch on your assessment of the inventory situation at customers. I think there's been a lot of mixed data points.

Some of the connector suppliers have seen some excess inventory in auto. But generally, what is your view? How do you assess the inventory situation at end customers?

Speaker 3

Phil, do you want to start? Or do want me to start?

Speaker 2

Yes. Let me take that. Thanks, Nick. I appreciate that. It's always difficult, frankly, to get exactly the end customer inventory.

It's account by account. I can tell you what we're doing with our backlog, with our suppliers. We're managing that extremely tight. We have a regional president and asset call every single week. We use the analytics to understand what customers are, frankly, living up to their forecast and expectations, which ones aren't.

And we're we're we're, you know, one of the time kind of discussing what's going on. So as a as a whole, it's difficult. But I will say the one thing that does override, which we look at very closely, is our book to bill and the cancellations and push outs, which is an aggregate. Okay? And right now, the cancellations and push outs are are not excessive.

K? They're they're in the norm, is 20%, 25%, which is typical, and that's what we do. We're kind of a shock absorber, if you will, for the industry. So right now, I'm not yeah. I think I think it's relatively healthy.

Okay? And, there's nothing to show that there'll be that much excess inventory out there, frankly. Tom, you can comment.

Speaker 3

No, I would agree with Phil 100% on that. And our inventories are healthy as well.

Speaker 2

Yes.

Speaker 11

Okay. And as a follow-up, Abhil, just love to hear your thoughts on the overall trend of supplier consolidation in the industry. How do you see that potentially impacting, you know, not not so much interested in, you know, the potential impacts from the deals, but how does that impact customers and your ability to maybe, you know, acquire additional customers that you're not currently working with.

Speaker 2

Yeah. And, Nick, you meant you meant acquiring additional, suppliers, I think. But the so look. We don't we don't sit in our supplier boardroom, so we're we're not sure exactly who they're looking to buy or or divest or what have you. I can tell you that it's not new.

Yes. It the acquisitions and mergers have have certainly accelerated over the last several years, and we all we all know, you know, who's been acquiring who. The last couple have actually been yeah. Actually, the last couple have actually benefited us with, as we announced this week, Cypress coming in with Infineon, Microsemi with with Microchip. And we're always looking at the line card for the gaps and overlaps and adding lines where they're they're key and critical from a technology standpoint.

So all we can do is continue to execute with those suppliers that we have and be a good supplier partner for them and driving demand creation, customer expansion, revenue growth and do what's right and work hard and then no pun intended, let the chips fall where they may.

Speaker 11

Okay, great. And just a quick follow-up. Tom, what was the TI contribution in the March? I don't know. I don't remember if you guys shared that.

Speaker 3

March was $400,000,000

Speaker 11

got it. Thanks guys. Good luck.

Speaker 3

Thanks. Thanks, Nick.

Speaker 0

Gentlemen, there are no further questions at this time. I'll now turn it back to Phil Gallagher for closing remarks.

Speaker 2

Thank you, operator. Appreciate that. Well, as I mentioned earlier, it's only my first week, fourth day on the job. But I guess I am really energized by my role as the interim CEO, and I look forward to sharing my vision and the team's vision for renewed Avnet the months ahead. So thank you for your time.

We hope everyone stays healthy and safe during this time. As we enter our new fiscal twenty twenty one, we're motivated to succeed no matter the economic environment, drive execution as we know we can, and we look forward to updating you on our first quarter results in October. Thank you and have a great night.

Speaker 0

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