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AVNET INC (AVT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 sales were $5.66B and GAAP diluted EPS was $0.99; non‑GAAP adjusted diluted EPS was $0.87, with operating income margin at 2.7% and adjusted operating margin at 2.8% . Management said results were near the high end of guidance, driven by Asia strength offset by EMEA and Americas weakness .
  • Gross margin pressure reflected a mix shift toward Asia; CFO attributed roughly 75% of the decline to Asia mix, with regional margins otherwise “holding up pretty well” .
  • Guidance for Q3 FY2025 was lowered sequentially: sales $5.05B–$5.35B (midpoint $5.20B) and diluted EPS $0.65–$0.75 (midpoint $0.70), implying down 6%–11% QoQ, driven by Lunar New Year seasonality in Asia and modest declines in Western regions .
  • Cash generation and balance sheet actions were a highlight: $338M operating cash in Q2; inventory -$362M QoQ; debt -$385M; gross leverage 2.9x; $1.1B committed liquidity; ongoing $0.33/share dividend and $51M buybacks in Q2 .
  • Potential stock reaction catalysts: sequentially lower Q3 guidance and margin mix headwinds vs. positive cash flow/working capital progress and continued capital returns .

What Went Well and What Went Wrong

What Went Well

  • Asia delivered second consecutive quarter of YoY growth (+8% YoY, +4% QoQ), supporting sales near the high end of guidance; management cited stronger‑than‑expected Asia performance .
  • Working capital execution: inventory down $362M QoQ; $338M operating cash; debt reduced $385M; leverage at 2.9x, with ~$1.1B committed liquidity .
  • Demand creation and higher‑margin focus: demand creation revenues +5% sequentially; emphasis on IP&E (higher margin than semis) and embedded solutions as margin levers .

What Went Wrong

  • Revenue and margins contracted vs. prior year: sales -8.7% YoY to $5.66B; GAAP OI margin 2.7% (-107 bps YoY); adjusted OI margin 2.8% (-108 bps YoY); adjusted EPS -37.9% YoY to $0.87 .
  • EMEA and Americas remained weak: EMEA sales -25.1% YoY and -5.1% QoQ; Americas -13.8% YoY, despite +2.9% QoQ; global book‑to‑bill remained below parity .
  • Gross margin pressure from mix shift to Asia; Farnell saw competitive pricing pressure and unfavorable product mix; Farnell operating margin was 1.0% (up 47 bps QoQ but down sharply YoY) .

Financial Results

Consolidated metrics (GAAP and non‑GAAP)

MetricQ2 FY2024 (Dec-23)Q1 FY2025 (Sep-24)Q2 FY2025 (Dec-24)
Sales ($USD Millions)$6,204.9 $5,604.2 $5,663.4
Operating Income ($USD Millions)$236.3 $142.2 $155.3
Operating Income Margin (%)3.8% 2.5% 2.7%
Diluted EPS ($USD)$1.28 $0.66 $0.99
Adjusted Operating Income ($USD Millions)$242.2 $168.9 $159.5
Adjusted Operating Income Margin (%)3.9% 3.0% 2.8%
Adjusted Diluted EPS ($USD)$1.40 $0.92 $0.87

Segment breakdown

Segment MetricQ2 FY2024 (Dec-23)Q1 FY2025 (Sep-24)Q2 FY2025 (Dec-24)
Electronic Components Sales ($USD Millions)$5,812.1 $5,257.1 $5,317.8
EC Operating Income Margin (%)4.3% 3.8% 3.4%
Farnell Sales ($USD Millions)$392.8 $347.1 $345.6
Farnell Operating Income Margin (%)4.0% 0.5% 1.0%

Geography breakdown

Geography SalesQ2 FY2024 (Dec-23)Q1 FY2025 (Sep-24)Q2 FY2025 (Dec-24)
Americas ($USD Millions)$1,588.5 $1,329.9 $1,368.8
EMEA ($USD Millions)$2,113.6 $1,668.2 $1,582.8
Asia ($USD Millions)$2,502.8 $2,606.1 $2,711.8

KPIs

KPIQ2 FY2024Q1 FY2025Q2 FY2025
Operating Cash Flow ($USD Millions)—$106.3 $338.0
Inventory Change QoQ ($USD Millions)——-$362.0
Working Capital Days——102 days
Inventory Days——98 days
Debt Change QoQ ($USD Millions)——-$385.0
Share Repurchases ($USD Millions)—~$100.0 $51.0
Dividend per Share ($USD)—$0.33 $0.33; next payable Mar 19, 2025

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales ($USD Billions)Q3 FY2025—$5.05–$5.35 (midpoint $5.20) New sequentially lower vs Q2 actual
Diluted EPS ($USD)Q3 FY2025—$0.65–$0.75 (midpoint $0.70) New sequentially lower vs Q2 actual
Sales ($USD Billions)Q2 FY2025$5.40–$5.70 (midpoint $5.55) Actual: $5.66 Met/near upper end
Adjusted Diluted EPS ($USD)Q2 FY2025$0.80–$0.90 (midpoint $0.85) Actual: $0.87 In range; near midpoint
Dividend per Share ($USD)Q3 FY2025 timingPrior rate $0.33 $0.33 declared; payable Mar 19, 2025 Maintained

Guidance assumptions included similar interest expense to Q2, adjusted effective tax rate 22%–26%, 88M diluted shares, and FX rates (EUR/USD 1.04; GBP/USD 1.25) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2024 and Q1 FY2025)Current Period (Q2 FY2025)Trend
Regional Demand/MixAsia sequential growth in Q4 (+4.2% QoQ); continued Asia growth in Q1; Western regions weak Asia +8% YoY; EMEA -25% YoY; Americas -14% YoY; mix shift to Asia pressured margins Asia strength persists; West remains weak; mix headwind
Gross MarginEC margin 4.1% in Q4; 3.8% in Q1 75% of gross margin decline due to Asia mix; regional margins “holding up” Margin pressure from mix; stabilization by region
Demand Creation/IP&EOngoing focus on higher‑margin products Demand creation revenues +5% QoQ; IP&E higher mix than semis; Embedded solutions as margin lever Positive leading indicators
Inventory/Working CapitalYear‑end FY2024 operating cash $690M; inventory flat YoY Inventory -$362M QoQ; WC days 102; inventory days 98; diverse actions to reduce aged/excess Improving; further reductions targeted
Tariffs/RegulatoryN/ASlight Asia pull‑ins ahead of potential regulatory changes; Americas minimal tariff impact; price increase & EOL added 3%–4% to normalized Q2 Manageable; normalization expected
Capital ReturnsQ4: $79M buybacks; dividend $0.31 $51M buybacks; $29M dividends; plan to reduce shares ≥5% FY25; $0.33 quarterly dividend Continuing

Management Commentary

  • CEO: “In the second quarter, we delivered sales and earnings within expectations, while continuing to make good progress managing the factors within our control.”
  • CEO: “Our team’s focus on optimizing inventory and effective operations allowed us to deliver another strong quarter of operating cash flow.”
  • CEO: “Asia continues to be the bright spot… sales increasing both sequentially and year‑on‑year… a slight benefit in Asia from customers ordering due to the uncertainty of potential regulatory changes in the United States.”
  • CFO: “Gross margin of 10.5% was 86 bps lower year‑over‑year… A significant portion… was the result of a sales mix shift to Asia.”
  • CFO: “Working capital decreased by $554 million… inventories decreased $362 million… generated $338 million of cash from operations… ended the quarter with gross leverage of 2.9x… approximately $1.1 billion of available committed borrowing capacity.”

Q&A Highlights

  • Gross margin drivers: About 75% of the decline tied to Asia mix; regional margins otherwise stable; expectation for mix normalization over coming quarters .
  • Inventory trajectory: Continued reductions expected over “a few more quarters”; leveraging stock rotations and supplier flexibility; targeting aged/excess pockets while investing in “right inventory” .
  • Tariffs/regulatory and pricing: Slight Asia pull‑ins; global benefit from January price increase and high‑end EOL products added 3%–4% to normalized quarter; minimal Americas tariff effects .
  • Demand creation & digital: Demand creation up 5% QoQ; push to expand online/e‑commerce under new Chief Digital Officer to improve margins and conversion, especially at Farnell .
  • Capital returns: Maintain dividend and buybacks; goal to reduce share count ≥5% in FY2025; shares viewed as undervalued vs. book value .

Estimates Context

  • Wall Street consensus (S&P Global) could not be retrieved due to access limits during this session; therefore, a formal beat/miss vs. consensus is unavailable at this time. Values would normally be retrieved from S&P Global.
  • Management indicated Q2 results were near the high end of guidance (sales and adjusted EPS), and Q3 guidance implies a sequential decline due to Asia seasonality and modest Western declines .

Key Takeaways for Investors

  • Asia remains the growth engine (+8% YoY), but mix toward Asia is compressing margins; monitoring regional mix normalization is key for margin recovery .
  • EMEA and Americas softness persists; book‑to‑bill below parity underscores a cautious demand backdrop into Q3 seasonally weak quarter .
  • Strong cash flow and working capital execution provide flexibility: inventory down $362M QoQ, $338M operating cash, debt down $385M, leverage 2.9x, $1.1B committed capacity .
  • Q3 guidance (sales $5.05B–$5.35B; EPS $0.65–$0.75) is a near‑term headwind; upside could come from better‑than‑expected turns or faster Western recovery vs. plan .
  • Strategic mix shift opportunities: demand creation, IP&E, embedded solutions and digital/e‑commerce initiatives should support medium‑term margin improvement .
  • Capital returns remain supportive: continued $0.33 quarterly dividend and active buybacks, with a stated ≥5% share count reduction target in FY2025 .
  • Watch Farnell: margin improvement efforts are progressing (+47 bps QoQ) despite competitive pressures; execution here is a lever for consolidated profitability .

Appendix: Non‑GAAP Adjustments (Q2 FY2025)

  • Adjusted diluted EPS ($0.87) reflects removal/addition of restructuring, FX, and tax items; reconciliation shows GAAP diluted EPS $0.99, adjustments netting to -$0.12 due to “income tax expense items, net” (-$0.19), FX (+$0.04), and restructuring (+$0.03) .
  • Adjusted operating income $159.5M vs. GAAP $155.3M; adjusted operating margin 2.8% vs. GAAP 2.7% .