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AI

AVNET INC (AVT)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 revenue and adjusted EPS beat S&P Global consensus: $5.90B vs $5.73B estimate and $0.84 vs $0.81 estimate; GAAP diluted EPS was $0.61. Strength was led by Asia (+9.9% YoY) and Farnell (+14.9% YoY). Farnell YoY growth in the press release (14.9%) contrasts with CFO’s remark implying “50%” YoY; we rely on the reported table. *
  • Guidance raised for Q2 FY26: sales $5.85–$6.15B (midpoint $6.00B) and adjusted diluted EPS $0.90–$1.00 (midpoint $0.95). Assumptions: sequential growth in Americas and Asia, flat Europe; tax rate 21–25%; ~83M diluted shares.
  • Operating margin improved sequentially: 2.6% adjusted OI margin vs 2.5% in Q4; EC margin softened 11 bps QoQ, Farnell margin stable QoQ and up 375 bps YoY.
  • Capital allocation remained active: $138M buybacks (~3.2% of shares in Q1; ~8% over past four quarters) and dividends of $28M; quarterly dividend increased ~6% to $0.35.
  • Working capital and inventory positioning weighed on cash flow (-$145M CFO), leverage at ~4.0x with plan to reduce to ~3.0x over next year; available committed borrowing capacity ~$1.7B.

What Went Well and What Went Wrong

What Went Well

  • Asia and Farnell drove topline outperformance: “double-digit year-over-year sales growth in Farnell and Asia,” with Asia +9.9% YoY and Farnell +14.9% YoY.
  • Book-to-bill improved globally; backlog grew, with all regions above parity, supporting recovering demand and sequential sales growth across regions.
  • Farnell margin expansion: operating margin 4.3% (+375 bps YoY), aided by mix shift toward on‑board components; stable sequentially.

Quote: “Our sales and earnings exceeded our expectations… we remain optimistic about the increasingly positive signs of recovery.” — CEO Phil Gallagher.

What Went Wrong

  • Consolidated gross margin pressure: 10.4% gross margin, down 42 bps YoY and 15 bps QoQ, driven by EMEA mix; EC operating margin down 11 bps QoQ.
  • GAAP EPS down YoY: $0.61 vs $0.66 prior year; adjusted EPS down YoY: $0.84 vs $0.92, reflecting Western region margin declines and FX impacts.
  • Operating cash flow negative (-$145M) as receivables and inventories rose to support Asia growth and supply chain engagements; debt increased by ~$323M; leverage ~4.0x.

Financial Results

Consolidated Metrics (GAAP and Non-GAAP)

MetricQ3 2025Q4 2025Q1 2026
Sales ($USD Billions)$5.315 $5.618 $5.899
Operating Income ($USD Millions)$143.3 $73.5 $142.0
Operating Income Margin %2.7% 1.3% 2.4%
Diluted EPS (GAAP, $)$1.01 $0.07 $0.61
Adjusted Operating Income ($USD Millions)$152.7 $142.9 $150.7
Adjusted Operating Margin %2.9% 2.5% 2.6%
Adjusted Diluted EPS ($)$0.84 $0.81 $0.84

Segment Breakdown

Segment MetricQ3 2025Q4 2025Q1 2026
Electronic Components Sales ($USD Billions)$4.949 $5.231 $5.500
EC Operating Margin %3.5% 3.0% 2.9%
Farnell Sales ($USD Millions)$366.7 $386.5 $398.9
Farnell Operating Margin %3.0% 4.3% 4.3%

Geographic Sales

Region Sales ($USD Billions)Q3 2025Q4 2025Q1 2026
Americas$1.274 $1.327 $1.370
EMEA$1.559 $1.600 $1.666
Asia$2.482 $2.691 $2.863

Estimates vs Actuals (S&P Global consensus)

MetricQ3 2025 EstimateQ3 2025 ActualQ4 2025 EstimateQ4 2025 ActualQ1 2026 EstimateQ1 2026 Actual
Revenue ($USD Billions)$5.252*$5.315 $5.362*$5.618 $5.732*$5.899
Adjusted/Diluted EPS ($)$0.714*$0.84 $0.72*$0.81 $0.8075*$0.84

Notes: Values with asterisk (*) retrieved from S&P Global.

Selected KPIs and Balance Sheet

KPIQ3 2025Q4 2025Q1 2026
Operating Cash Flow ($USD Millions)$141 $139 -$145
Inventory Days (sequential)——92
Working Capital Days (sequential)——95
Share Repurchases ($USD Millions)$101 $50 $138
Dividend per Share ($)$0.33 $0.33 $0.35
Gross Leverage (x)——~4.0x
Available Committed Borrowing Capacity ($USD Billions)——~$1.7
CapEx ($USD Millions)——$25

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
SalesQ1 FY26$5.55B–$5.85B; Midpoint $5.70B ——
Adjusted Diluted EPSQ1 FY26$0.75–$0.85; Midpoint $0.80 ——
SalesQ2 FY26—$5.85B–$6.15B; Midpoint $6.00B Raised vs prior “next-quarter” midpoint (5.70B → 6.00B)
Adjusted Diluted EPSQ2 FY26—$0.90–$1.00; Midpoint $0.95 Raised vs prior “next-quarter” midpoint (0.80 → 0.95)
Diluted SharesQ2 FY26~85M (Q1 guide assumption) ~83M Lowered
Tax Rate (Adjusted)Q2 FY2622–26% (Q1 guide) 21–25% Narrowed/Lower
Interest ExpenseQ2 FY26Similar to Q4 FY25 Similar to Q1 FY26 Maintained
Regional Sales AssumptionsQ2 FY26Growth across all regions (Q1 guide) Americas & Asia up; Europe flat More conservative on Europe

GAAP EPS guidance reconciliation: Q2 adjusted $0.90–$1.00 less restructuring/integration and FX losses yields GAAP $0.74–$0.92.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25)Previous Mentions (Q4 FY25)Current Period (Q1 FY26)Trend
AI/data center exposureAsia-led growth; improving bookings; no explicit AI split Asia strength continued Hyperscaler/data center exposure “relatively small,” ~7% of Asia sales; opportunities in memory, storage, interconnect, power, cooling; downstream edge applications highlighted Growing opportunity; still small %
Supply chain servicesIndustry cycle management; working capital progress Inventories reduced FY25; cash generation Supply chain services “coming back” from FY25 downturn; inventory quality improving Recovering
Pricing/mix and marginsEC/Farnell margin compression YoY; EMEA weakness EC margin down; Farnell margin up Consolidated gross margin down YoY/QoQ; EMEA mix unfavorable; West seasonal mix expected to help next quarter Stabilizing with mix tailwinds
Regional trendsAsia +13% YoY; EMEA -24% YoY; Americas -9% YoY Asia +17.6% YoY; EMEA -16.7% YoY Asia +9.9% YoY; Americas +3.0% YoY; EMEA -0.1% YoY; book-to-bill above parity and backlog growing Recovery broadening (Americas), Europe bottoming
Inventory/working capitalCFO-driven reductions; cash flow strong FY25 inventories down; OCF strong Inventory days 92; target “8 in front” next quarter; working capital days 95; OCF -$145M due to growth investments Normalizing as growth continues
Tariffs/macro & FXFX and macro impacted results; constant currency used Similar risk factors Continued macro/geopolitical uncertainty; constant currency disclosures; FX losses adjusted in non‑GAAP Persistent headwinds
Product performance (IP&E)Mix impact; IP&E higher margin Farnell margin improvement IP&E performing well, especially in Asia; demand creation revenues 28–33% of EC with 300–400 bps incremental margin (with higher costs) Positive margin lever

Management Commentary

  • CEO positioning: “We are off to a solid start… sales of $5.9 billion above guidance and adjusted EPS of $0.84… led by strength in Asia and Farnell… sales in our Americas region grew year-on-year for the first time since fiscal 2023.”
  • Margin/mix: “Semiconductor lead times and pricing continue to be stable… extended lead times and price increases in memory, storage, and certain interconnect products… supporting data center and AI buildouts.”
  • Demand environment: “Book-to-bill ratio improved globally… backlog is growing… customers placing orders within lead times.”
  • CFO detail: “Gross margin of 10.4% was 42 bps lower Y/Y and 15 bps lower sequentially… EMEA less favorable product/customer mix… adjusted operating margin 2.6%.”
  • Capital and leverage: “Gross leverage of 4.0x… ~$1.7B of available committed borrowing capacity… anticipate reducing leverage to ~3.0x over the next year.”

Q&A Highlights

  • AI/hyperscaler exposure: “Relatively small… maybe in Asia 7% of our business… opportunities beyond GPUs/FPGAs into storage, connectivity, power, cooling, connectors; downstream edge applications expected to be massive.”
  • Inventory trajectory: Target “an eight in front” on inventory days next quarter; inventory quality/aging good; investments to support growth, with expected gradual declines thereafter.
  • EMEA outlook and margin: EMEA flattish for Q2, bookings positive and backlog building; gross margin expected flat YoY and to benefit from seasonal Western mix.
  • Farnell margins: Product mix key (on‑board components vs test/measurement/MRO); runway remains for gross margin as mix improves; sequential modest improvement targeted.
  • Demand creation/IP&E: Demand creation revenues 28–33% with 300–400 bps incremental margin (requires FAE investment); IP&E ~15–20% of EC revenue and higher margin.

Estimates Context

  • Results vs consensus: Revenue and adjusted EPS exceeded S&P Global consensus in Q3, Q4, and Q1, with Q1 revenue $5.90B vs $5.73B estimate and adjusted EPS $0.84 vs $0.81 estimate. *
  • Implication: Consensus likely to move up modestly on Q2 midpoint raise (sales +5.3% vs prior Q1 midpoint, EPS midpoint +18.8%), but margin trajectory remains mixed given EMEA and Asia mix effects; watch for revisions to FY26 gross margin assumptions. *

Notes: Values marked with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Beat-and-raise quarter: Actuals beat consensus on revenue and adjusted EPS; Q2 midpoint raised to $6.00B and $0.95, a constructive signal amid macro uncertainty. *
  • Mix still matters: Asia growth dilutes EC margins while Western seasonal mix should help Q2 gross margins; EMEA product/customer mix remains a watch item.
  • AI data center tailwinds: Early but growing exposure in memory, interconnect, power/cooling, with downstream edge applications aligned to Avnet’s demand creation capabilities.
  • Capital returns and leverage: Continued buybacks (~3% of shares in Q1; ~8% last 4 quarters) and dividend increases support TSR, while deleveraging from ~4.0x to ~3.0x over the next year should improve resilience.
  • Working capital normalization: Inventory days expected to move into the 80s as growth and mix normalize; near-term cash flow may remain volatile as receivables scale with Asia.
  • Watch Farnell mix: On‑board components drive margin; sustained mix improvement supports steady margin expansion despite Europe’s gradual recovery.
  • Trading implications: Positive estimate revision risk and “raise” guidance are near‑term catalysts; monitor margin trajectory and EMEA stabilization to gauge multiple support. *