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F500-2021-168-Avnet

Founded by Charles Avnet in 1921, the company today is one of the world's leaders in manufacturing electronic components that can be used for improving autonomous vehicles' power efficiency and Lidar detection. The company also offers a wide range of technology services to help with processes like supply chain, logistics, and software.

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This distributor and retailer of tech components and IT services was founded in 1921 and is headquartered in Phoenix.

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This year's Fortune Global 500 generated $27.7 trillion in revenues and $1.5 trillion in profits.

Fortune Global 500

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Key Financials (last Fiscal Year)

Revenues ($M)

Profits ($M)

Assets ($M)

Total Stockholder Equity ($M)

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Profit as % of Revenues

Profits as % of Assets

Profits as % of Stockholder Equity

Sector

Industry

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Previous All-Star Rank

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Total Return to Investors (10 year, annualized)

Avnet is a distributor of electronic components and an electronic solutions provider. The company serves a wide range of clients in the automotive, medical, defense, aerospace, telecommunications, and industrial sectors. Founded in 1921, the company operates in 140 countries across North America, Europe, and Asia.

Q4 2026

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Q1 2026

Q4 2025

Q3 2025

Q2 2025

Avnet (AVT): Company Profile, Stock Price, News, Rankings

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Avnet

avnet

Please standby. Our presentation will now begin. Welcome to the Avnet fourth quarter fiscal year twenty twenty five earnings call. I would now like to turn the floor over to Joe Burke, VP, Treasury and Investor Relations for Avnet.

Thank you, operator. I'd like to welcome everyone to Avnet's fourth quarter fiscal year twenty twenty five earnings conference call. This morning, Avnet released financial results for the fourth quarter and fiscal year twenty twenty five, and the release is available on the Investor Relations section of Avnet's website, along with a slide presentation, which you may access at your convenience. As a reminder, 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. 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 the 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.

Please note, unless otherwise stated, all results provided will be non GAAP measures. The full non GAAP to GAAP reconciliation can be found in the press release issued today as well as in the appendix slides of today's presentation and posted on the Investor Relations website. Today's call will be led by Phil Gallagher, Avnet's CEO and Ken Jacobson, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil?

Thank you, Joe, and thank you, everyone, for joining us on our fourth quarter and fiscal year twenty twenty five earnings call. For the fiscal year, we delivered $22,200,000,000 of revenues and $3.44 of adjusted diluted earnings per share. Looking back, this was a year of intense focus on managing the things within our control, including competing well in the market, strengthening our supplier and customer relationships by demonstrating the value AdNet brings to the technology supply chain, controlling costs while continuing to make investments that enable our long term strategy, optimizing our working capital and generating healthy cash flows and continuing to return cash to shareholders through buybacks and a dividend. We also announced a couple of key executive additions this fiscal year, including the appointment of Dave Youngblood, a twenty five year industry veteran, as our Chief Digital Officer, and more recently, the promotion of Gilles Bertrand, a twenty three year veteran of Avnet, as the new President of our EMEA region. Congratulations Jill.

Jill will be succeeding Slovenom Pucharovic, better known as Pooly, and Mario Orlandi who have co led the EMEA region with distinction for many years. They will remain with us for the next several quarters to ensure a smooth transition. Succession planning is critical to any organization, and we have a thoughtful structured process in place at Avnet. Mario and Poole did a great job leading the success of our EMEA region over the years and also developing talent for the next generation of leadership. I wanna thank them for their many years of tireless dedication.

And I wanna express my gratitude to our team for their unwavering commitment and hard work in driving us toward our objectives. In challenging markets like we have faced the past couple of years, our collective efforts truly highlight the critical role we play at the heart of the technology supply chain, reinforcing our value to all stakeholders. Now, turning to the recent completed fourth quarter. I am pleased we delivered another quarter of financial results that exceeded our sales and EPS guidance. In the quarter, we achieved sales of $5,600,000,000 and adjusted operating margins of 2.5%, highlighted by a 4.3% operating margin in our Farnell business.

We also generated $139,000,000 of cash flow from operations in the quarter. Sales were better than expected, led by Asia, which delivered 18% year over year growth in the quarter. Sequentially, demand increased across most of the markets we serve. On a year over year basis, demand increased in the compute, transportation and communication end markets globally. Semiconductor and IP lead times and pricing remained stable for most technologies.

Our book to bill ratio improved across all regions and for now last quarter. The improvement was led by our Europe and Asia regions, which were both above parity. Bookings also continued to grow in our IP and E business and remain above parity as well. We continue to coordinate closely with suppliers and customers to effectively manage our backlog, which is growing again. New customer orders within lead times, which we refer to as our turns business, also increased across all regions, and it's a positive sign that customer inventories are normalizing.

Order cancellations have remained at normal levels. I am pleased with our progress on reducing inventories, although there is still work to do. Even so, we believe we are well positioned today and remain focused on ensuring we have the right inventory at hand, balancing reductions with investment opportunities. We expect to continue to be disciplined in optimizing our inventory as we move through fiscal year twenty twenty six. Now with that, let me turn to the fourth quarter results.

At the top line, our electronic components business increased on a sequential basis and year over year. All regions were higher sequentially, and notably, this was our fourth consecutive quarter of year over year growth in Asia. Sales in Asia were better than expected, and demand in most end markets increased both year over year and sequentially. Similar to last quarter, we experienced a slight benefit from customers ordering due to the uncertainty of potential regulatory changes in The U. S.

In The Americas, demand increased sequentially for the communications end market, and compute was strongest on a year on year basis. We did not see pull ins in any magnitude and customer billings for tariffs were not meaningful during the quarter. In EMEA, the market is still mixed with some signs of improvement in certain end markets. In the quarter, most end markets increased sequentially. The communications market was the only vertical that showed growth year on year.

With that said, we are optimistic that bookings in EMEA will grow in September as the Europeans return from their typical summer vacation period. From a demand creation standpoint, revenues increased 7% sequentially as our field application engineers continued to engage with our customers and suppliers on design wins and registrations. This strength of our FAEs and technical teams is a key part of our value proposition. Now turning to Farnell. The team continued to deliver on the strategy that Rebecca and her leadership team put in place one year ago, rightsizing the cost structure, reorganizing the management team and leveraging AdNet's broader relationships and bolstering our digital and e commerce capabilities.

In the quarter, sales were higher both sequentially and year on year with improved operating margin. We are pleased that Farnell's results have stabilized, but we still have work to do to achieve its full margin potential. We are confident they are well positioned for steady improvement. To conclude, Avnet has momentum as we enter the new fiscal year despite challenging business conditions over the last two years. And with that, we have a number of reasons to be optimistic about fiscal twenty twenty six, beginning with Asia's double digit growth in fiscal twenty twenty five.

The region has historically led us out of cycles in the in the past, and this one should be no different. Stabilization at Farnell. With the right sized cost structure and synergies from the Power of One initiative, Farnell is poised for steady growth. Book to bill is above parity in all regions and in our IP and E business, which is one of our higher margin growth opportunities. We have made significant investments in our digital infrastructure to boost our customer experience and data insights.

Demand creation: As semiconductors become more pervasive, the value of AdNet's engineering capabilities will further increase. And finally, lead times have normalized. Our backlog and turns business are improving, and through it all, margins have held up well for each of our EC regions in fiscal twenty twenty five compared to fiscal twenty twenty four. I continue to feel optimistic about our value proposition and am encouraged by the positive signs that market conditions are beginning to turn in The Americas and EMEA. At the center of the technology supply chain, we are well positioned to help solve for the increasing complexity our customers and suppliers face around the world and bring resiliency to the supply chain.

With that, I'll turn it over to Ken to dive deeper into our fourth quarter results. Ken?

Thank you, Phil, and good morning, everyone. We appreciate your interest in Avnet and for joining our fourth quarter earnings call. Our sales for the fourth quarter were approximately $5,600,000,000 above the high end of our guidance range, up 6% sequentially and up slightly year over year. Regionally, on a year over year basis, sales increased 18% in Asia, but declined 17% in EMEA and 2% in The Americas. In constant currency, EMEA sales were down 21% year on year.

From an operating group perspective, electronic component sales improved 1% year over year and 6% sequentially. Farnell sales increased 3% year over year and 5% sequentially. For the fourth quarter, gross margin of 10.6% was 99 basis points lower year over year, mainly due to a higher mix of Asia sales and 49 basis points lower sequentially, mainly due to product and customer mix in addition to some impact from foreign currency exchange rate changes. The regional mix shift to Asia impacted EC gross margin year over year. Sales from the Asia region represented 48% of fourth quarter sales in fiscal twenty twenty five compared to 41% in the year ago quarter.

Gross margins for The Americas and Asia regions were lower both sequentially and year on year, while gross margins for EMEA increased year on year and declined on a sequential basis. Overall, on a region by region basis, we believe gross margins are generally stable, although they can be impacted by product or customer mix within any given quarter. Farnell gross margin declined both sequentially and year over year, primarily as a result of a higher mix of off the board components and single board computers. Farnell gross margins at the product category level, including on the board components, continues to be stable. Turning to operating expenses.

We continue to manage expenses well and take costs out where necessary. SG and A expenses were $451,000,000 in the quarter, up $1,000,000 year over year and up $16,000,000 sequentially. Foreign currency negatively impacted operating expenses by approximately $14,000,000 sequentially and $10,000,000 year over year. Excluding the impact of foreign currency and the prior quarter benefit from the gain on sale and leaseback facility, our operating expenses decreased approximately 2% both year on year and sequentially. As a percentage of gross profit dollars, SG and A expenses were slightly higher sequentially at 76%.

Moving into fiscal year twenty twenty six, we expect some operating expense headwinds as a result of our decision to invest in our people by providing merit pay increases, which were not awarded in fiscal year twenty twenty five. We believe these increases are necessary to reward and retain our employees, especially ahead of the expected market recovery this fiscal year. For the fourth quarter, we reported adjusted operating income of $143,000,000 and our adjusted operating margin was 2.5%. By operating group, electronic components operating income was 157,000,000 and EC operating margin was 3%. The year over year decline in EC operating margin was primarily due to the sales mix shift to Asia and the sales decline in EMEA.

Farnell operating income was $17,000,000, and operating income margin was 4.3%. Operating margin was up approximately a 129 basis points quarter over quarter and up 25 basis points year over year, reflecting improved sales and the benefits of prior operating expense reduction efforts. It is worth noting that this is the first year on year improvement in Farnell operating margin since '23. Farnell operating expenses were down $7,000,000 year on year and down $5,000,000 sequentially on higher sales. There is still a lot of work ahead of us at Farnell, but as expected, we are seeing steady improvement, led this quarter by the increase in sales of single board computers and the improvement in the number and size of customer orders.

Turning expenses below operating income. Fourth quarter interest expense of $58,000,000 decreased by $6,000,000 year over year and decreased by $3,000,000 sequentially due to lower average borrowings. This lower interest expense positively impacted adjusted diluted earnings per share by 5¢ year over year. We continue to look for ways to further reduce interest expense, including paying down debt with operating cash flows or reducing our average borrowing rates. Our adjusted effective income tax rate was 23% in the quarter as expected.

Adjusted diluted earnings per share of $0.81 exceeded the high end of our guidance range for the quarter. Turning to the balance sheet and liquidity. During the quarter, working capital increased $29,000,000 sequentially and included a $35,000,000 decrease in reported inventories, a $232,000,000 increase in receivables, and a $168,000,000 increase in payables. Sequential increases in foreign currency exchange rates added two zero two million dollars to working capital, including $150,000,000 to reported inventories. Excluding the impact of changes in foreign currency exchange rates, inventories decreased by $185,000,000 or approximately 4% compared to last quarter.

On a year over year basis, in constant currency, inventories are down over $400,000,000 or approximately 8%. We remain focused on reducing inventory levels where elevated, noting that we also want to make investments where needed. Our return on working capital is 9.4% for the quarter. We generated 139,000,000 of cash from operations in the quarter and $725,000,000 for the fiscal year. We expect lower cash flow from operations in Q1, primarily due to certain income tax payments that need to be made.

For the fiscal year, we lowered our debt by $237,000,000 We ended the quarter with a gross leverage of 3.4 times, and we had approximately $1,100,000,000 of available committed borrowing capacity. During the quarter, net cash used for capital expenditures was $60,000,000 which included the planned purchase of an office building. We expect capital expenditures to return to normal levels of approximately $25,000,000 to $35,000,000 per quarter in fiscal year twenty twenty six. For the fiscal year, we returned a total of $415,000,000 to shareholders through our share repurchases and dividends. In the fourth quarter, we paid our quarterly dividend of $0.33 per share or $28,000,000 We also repurchased approximately $50,000,000 worth of our shares.

We achieved our goal to reduce shares outstanding by at least five percent this fiscal year as we repurchased nearly 7% of our outstanding shares. Additionally, we have more than $300,000,000 left on our current share repurchase authorization. Book value per share increased to approximately $59 or a sequential increase of $3 per share, primarily due to the changes in foreign currency exchange rates. With regard to our capital allocation, we continue to prioritize our existing business needs and investing in areas that can make our overall business better. We also remain focused on ensuring we have a strong balance sheet and making sure our leverage remains at appropriate levels.

Turning to guidance. For the 2026, we are guiding sales in the range of 5,550,000,000.00 to $5,850,000,000 and diluted earnings per share in the range of $0.75 to $0.85 Our first quarter guidance assumes sequential sales growth of approximately 2% at the midpoint and assumes sales growth in all regions. This guidance also assumes similar interest expense compared to the fourth quarter, an effective tax rate of between twenty two percent and twenty six percent and 85,000,000 shares outstanding on a diluted basis. Our team has made significant effort to adjust our processes for tariffs. We continue to work with our suppliers and customers to mitigate the impact where possible.

During the fourth quarter, less than 3% of The Americas sales and less than 1% of global sales were from customer tariff billings. In summary, our fourth quarter performance is better than expected despite the challenging market conditions. Our team continues to focus on generating operating cash flow, and over the past year, we've been able to balance the paydown of debt with returning cash to shareholders through our share repurchase and dividend programs. I wanna echo Phil's comments in thanking our team for continuing to focus on the things we can control, our global scale and the diversification of our distribution center locations, the supplier technologies we provide, and the vertical markets we serve gives us the ability to reduce complexities and better serve our customers. With that, I will turn it back to Phil for one last word before questions. Phil?

Thanks, Ken. And before we go to questions, as some of you may know, Joe Burke will be retiring and leaving ADNET at the at the end of the year. And I want to thank him for his many contributions over his remarkable thirty seven year career at Avnet. Joe has been instrumental in setting the foundation of our finance team, having served as our long time treasurer and head of invest investor relations. Been grateful for his leadership through the years, and I'll miss his insights, wisdom, candidness, and his dry sense of humor.

Joe, I wish you the best in your retirement. Congratulations. You got it. So with that, I'll turn it over to the operator. We'll open it up for questions. Thank you.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would 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 star two if you'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Joe Quintrachochi from Wells Fargo and Company. Please go ahead with your question.

Hey. Thanks for taking the questions, and and congrats to to to Joe Burke. Thanks for all the help over the last several years. Maybe just to to to start, you know, it feels like the the commentary around EMEA is definitely maybe a bit more positive than ninety days ago. So can you talk about just kind of what's changed there and like what end markets maybe you're driving?

Yeah, Joe. Thanks. Appreciate appreciate the question and the comment on Joe. Well, it it it we have more optimism, okay, as we look at it EMEA right now. I I would I would put it that way.

I mean, says, you know, it's fallen down. And you look at our charts as a percentage of of our revenue, it's come down quite a bit. It's been soft. So we're just starting to see, again, we're not celebrating. I'll be really clear.

But the bookings are coming back modestly. When I look at the backlog buildup in EMEA, it's starting to increase year on year. I'm looking at it as we speak. And q on q. So I would just say it's it's modest, but we're definitely starting to see some some movement there.

And for us, that that's a that's a big deal. It's a critical region for us from a profitability standpoint, as you know.

And then I guess as a follow-up, you know, I appreciate that that FX is kinda making, the inventory dynamics a bit more difficult to kind of track quarter to quarter for at least just looking at it on the balance sheet at a point in time. But I guess, how should we think about just inventory trends in the September that you're thinking about you know, relative to trying to still work that down maybe in some pockets?

Yeah. Joe, I'd say, you know, we expect the the EC business to continue to drive inventory down. So, you know, a modest decline next quarter, you know, and then offset a little bit by Farnell. So I think this quarter was about a 186,000,000 net of FX. Some of that was coming from Farnell. Lot of it came from Europe, but continued progress in the core including, you know, Asia and The Americas.

So, you know, still still have work to do there on the inventory side, but would expect, despite the, you know, up sales a little bit to keep bring inventory down a little bit still.

Yeah. I'll just add to that. The, as we talked in the past, Joe, and we put in the script, we're still, you know, making investments in inventory too. So it's not all it's not all a bad thing. Right?

So it's a handful of commodities more that are driving a lot of the upside in inventory. Need to keep working that down while we continue to make sure we have the appropriate skews and inventory levels to service the balance of the customer base. And we we wanna get back into the mid eighties if we can from a days days of inventory. That's that's still our goal.

Our next question comes from the line of Ruplu Bhattacharya with Bank of America. Please go ahead with your question.

My questions, Joe. We're gonna miss you. Stay in touch. You're retiring too soon. I mean so so really, really appreciate all the help.

Alright. Phil, I wanted to start by asking on the core business. So Asia remains strong. How do you see the that trend continuing over the next couple of quarters? How do you see the mix of regions, and how does that impact the core business margins as we go forward?

Yeah. Great question. I'll let Ken jump in on the margins a a bit. Yeah. We're yeah.

I would make it real real quick too. We're we're super proud of our our team in Asia Pac. And, you know, they've been not only growing and increasing share, but holding their their their margins as well. So, to have four quarters in a row of year on year growth is is pretty good. And, again, proud of them and our position there.

As far as, the next several quarters, we feel pretty good about Asia. You know? So, they're they're still, cranking along. And as as you know, Ruplu, typically and it's it's a little delayed this time, it seems. But, typically, the turn of the market, which is why we're, you know, cautiously optimistic, you know, starts in Asia Pac and then typically swings around to the West, that just hasn't happened yet.

But but that we we we feel we feel confident about our Asia continuing to perform well. And then, yeah, as we put in the slide, you can see that Asia has grown as a bigger percentage of our business, you know, it's had a impact on the margin. That really is the impact, you know, with Europe coming down and Asia going up. It's just been been the swing in the margins. It's it's just a clear math issue, but we have no intention of slowing down in Asia, you know, the to increase the the the balance of the other regions.

We gotta get the other regions to start growing again and increasing the margin profile. Ken, you wanna jump in?

So I think Phil mentioned the script, but I wanna emphasize, you know, we kind of measure the businesses in terms of their stand alone gross margin. Right? We can't necessarily control the mix because of the fact of where the different markets are at. But but each of the regions really, you know, were were flattish, year over year for the full year. So we feel pretty good about that that, you know, fundamentally, the the gross margins are holding up.

You know, again, EMEA was down 21% in constant currency, you know, year over year this past quarter. We can kinda, move that tide. You should see normal, you know, margin uplift. Know? So how long, it takes to kind of catch up that mix, you know, from what it was before, you know, it's still to be determined based on how fast the recovery is.

But, you know, just getting back to growth in Europe, you know, has some positive benefits on on the margin and and The Americas as well. Right? So, you know, we should as the West begins to grow year over year and starts to recover, you know, we should start to see a more favorable mix to the West. But but, you know, getting back to where it was, you know, may take some more time. And and, you know, clearly, that would have an impact on the broader operating margin of EC, but you also have, you know, Farnell that's out there that could help lift that up too if that begins to recover, and expand their margin.

That helps the overall, you know, business uplift their their overall operating margins.

Okay. Well, that's a great segue into my next question, which is on Farnell. You know, what are some of the things that you guys are doing to improve margins there? One aspect was, you know, you've hired a digital ops chief digital officer, and you were can you give us, like, how much of sales for Farnell are now is now coming through the online portal? And and how do you see margins trending?

It was at 4.3% this quarter. How should we think about that? How about that going forward?

Yeah. So, some of the things we've done there, as you know, we changed we put in the script. We changed leadership at Tornel, roughly a year ago, and, Rebecca's, made a lot of changes. We've probably turned over roughly 70% of the executive team or a little bit more, and have been very assertive on reducing non value added expenses and getting that out, which is, ongoing, like, to drive more efficiency. As far as the digital side of the equation, you know, we brought Dave Youngblood in.

He's got a great background, a well respected industry, and he's, you know, ham and hanging, if you will, with Rebecca and the digital team at Farnell and making some real progress on the site and some of the the areas in which we need to improve on a digital customer experience standpoint. So we're doubling down there, not backing off at all. And the the overall activity, in Farnell, line item wise that goes through digital in some way shape before ecommerce or or an API whatnot is roughly 70%. Seven zero from an activity standpoint, probably close to 50 plus percent, from the revenues. And we and that will continue to increase.

And, Bruce, I'll also add that that we have the, you know, the the opportunity we have with, you know, more partnering with Avnet Yeah. To help drive the top line too. So in addition to, you know, the the belief that the market will recover for on the board component components, which should help their gross margin and their sales overall, you know, there are some things on the revenue side that we have within our control, including the efficiency of our ecommerce and and proposition there as well as the the partner with Avnet that that should continue to give Farnell a lift over the upcoming quarters.

Yeah. Rupo, on the margin, just going back. The message to the Farnell team is continuous improvement. Okay? Will will be a tailwind for Avnet to Ken's point.

So got the 4.3. Now we just needed, you know, quarter on quarter, see that, you know, continue to improve, and and that's the plan, over the next, let's call it, 48 quarters and and to get back into double digit operating margins plus.

And thanks for all the details there. If I can just sneak one quick one in, and it's a very top level, high level question. The industry has been going through an inventory correction over the last year, year and a half. Phil, do you think that we're at the bottom of this? Is excess inventory now out of the channel?

And and how do you see that? Are we now at a at an inflection point, you think?

I think we're getting close, Ruplu. I don't have a I don't have ball in front of me to to give you an exact answer. But when you look at some of, you know, the book to bill starting to increase, the, I'll call it, short interval or turns business, you know, drop in orders from customers are starting to increase, which means they're they're they're they're short. Right? They're they're coming in and buying.

Still would like a little bit more visibility, out there from the customers from a a forecasting standpoint. They're still a little conservative on that front. And because lead times are kind of settled down. Right? There's not much change.

I I actually look at the lead times. There's hardly any change at all across the board in semi passes and interconnect other than, you know, high bandwidth memory and things like that. We track, and I'm looking at it as we speak, and and the inventory, you know, by our top suppliers, which I won't get into by individual. But there's no question. If look at the the semi set of suppliers that have reported so far, the inventory days are are definitely down, in total, roughly eleven to twelve days from a couple quarters ago.

And, IP and E has been pretty well steady, so there's not been an issue in the IP and E. You know, we look at the EMS, again, not mentioning any names. You know, their inventories are down, you know, from a year ago, rough roughly, you know, twenty plus days. So, and then there's some OEMs we we tracked and and they're they're in a in a fifty four day range of inventory, which is also down. So there's some indicators.

Again, that's not, you know, a statement of fact across the board, you know, because I think there's still a little bit more inventory than than, we would like to see out there. But and speaking for ourselves, we brought inventory down. Know? Yeah. We wanna bring it down more, but it's it's definitely down.

And so I so that's we just do some of our optimism, not overly optimistic, but optimism, as our backlog increases and lead time stabilize and see some of these days of inventory coming down.

K. Thanks for all the details. Appreciate it.

Our next question comes from the line of Melissa Fairbanks with Raymond James.

I I have a few questions. To start with, though, Joe, I'm hopeful we can still play golf together in the spring. That would that would be great.

Just to follow-up on some of Ruplu's questions on Farnell margins in particular. Phil, I think you kind of hinted at it, get back to a double digit margin percentage. I'm wondering what we should think of as being a normalized margin for Farnell. Obviously, we had some pretty extraordinary situations, conditions going on during the supply chain crisis. Just wondering what kind of the if you could let us see that spreadsheet, let us know what the internal targets are for margins.

I would love to see whatever spreadsheet you're looking at right now with all the lead times and inventory levels. I would love to see that.

Oh, there's there's about 20 of them on the table you wanna pop over. But, anyway, so thanks, Melissa. Yeah. So we do have you know, you're right. We went to that.

We swung way up in that what's called the false false market several years ago with the shortage of supply and got into the 14% operating margin. That's all public data, as you know. And then, you know, when the tide went down and all the stuff showed up at the bow of the harbor, we went down the damn near, you know, a breakeven to 1%. We can't let that happen again. So we're we are modeling a, you know, a I don't wanna say a peak, but they definitely getting into double digit, you know, ten, eleven, 13% operating margin over the next, couple years.

And if there's a correction like we saw, you know, which will come, you know, as the market is up, it'll come down again someday. But, to not let it get down to, like, below a mid mid, you know, like, a five or something like that. So that's kind of the range, but we definitely wanna get to an average of greater than 10 operating margin was where we wanna get to.

Maybe yeah. Yeah. Any any follow-up, guys? Sorry.

I had a couple of questions for Ken. You mentioned that, you know, you would restart the merit increases that we didn't see in fiscal twenty twenty five.

Just wondering how we should model OpEx going forward, if it's the September outlook that kind of contemplates that entire uplift or if it's going to be kind of like a a rolling I don't know if it's on a a calendar year or fiscal year, for those merit increases.

Yeah. It's it's the full impacts in the, guidance in the first quarter. So, you know, how I think about it is, know, there's been some currency impact on on the q four number, but really the the impact here is really, you know, the merits. So think about it being, you know, 8 to 10,000,000 for those, and it's it's already in the run rate. Now with that being said, you know, there's a few things we're looking at to help curb, you know, potentially other inflationary things that come with the new fiscal year. So so I wouldn't expect expense to go down a lot, but there could be a little bit of movement there down.

But, you know, that was probably a a good point for your models, the the number, modeling for q one extrapolating out to the year, assuming there's no, you know, massive volume increases. We always have some OpEx tied to volumes, you know, up or down, But it it it's a pretty good run rate now, getting into the q one.

Okay. And and maybe, as a last question, asking you guys to to pull out your crystal crystal ball forecasting. It was nice to see interest expense come down a little bit in the June. I see that you're guiding for flattish during the September. Assuming that we are starting to see some stabilization, maybe even an inflection point in some of the broader demand, what should we be assuming in terms of inventory investment and then potentially what that means for, for the interest expense going forward?

Yeah. I think most of how we look at it is we have enough dollars of inventory, right, for the current level of sales even for some growth. It's really about, you know, continuing to get a higher quality mix. There's some pockets where we need to continue to work it down. So I would say, you know, we expect it still to come down again modestly, but at the same time, we wouldn't expect to utilize a lot of cash to, you know, grow the business here.

So there's still some work to do internally in terms of the inventory, but, you know, we we expect it to go down a little bit still, all things being equal. But even with, you know, more aggressive recovery, you know, we think we've got enough dollars and and we'll begin to turn it faster.

Great. Thanks very much, guys. I appreciate all the detail.

Avnet (AVT) Q4 2025 Earnings Call Transcript

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