Avnet, Inc. 2026 Q4 Earnings Call

Please go ahead. Thank you, operator.

I'd like to welcome everyone to Avnet's Fourth Quarter Fiscal Year 2026 earnings conference call. This morning, Avnet released financial results for the fourth quarter of fiscal year 2026, 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 a 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-K 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, Lisa, and thank you everyone for joining us on our fourth quarter and fiscal year 2026 earnings call.

I am very pleased to report an exceptional finish to fiscal 2026. The fourth quarter results that came in well above our expectations and capped a year of strong performance and meaningful progress for Avnet. We delivered a record quarter across all key metrics in both our Electronic Components and Farnell businesses, supported by improving demand across all of our core markets, strong execution by our teams, and expanded margins from the operating leverage inherent in our business model. For the full fiscal year, Avnet delivered substantial revenue, margin, and earnings growth as market conditions improved and our team remained focused on execution in areas we can control.

Looking back, fiscal 2026 was a year where many of the indicators we have been discussing for several quarters began to translate into stronger results. Book-to-bill has improved, backlog grew, customer demand visibility and ordering patterns strengthened, lead times extended in most product categories, and demand creation activity remained healthy. Just as important, we stayed disciplined on working capital, operating expenses, and capital allocation while continuing to invest in the capabilities that differentiate Avnet in the market. Throughout the year, we continued to demonstrate the value we bring at the center of the technology supply chain. We strengthened supplier relationships, supported customers through a more complex demand environment, and expanded our technical and digital capabilities. We also ensured that we are well-positioned to participate in several end markets that are demonstrating high growth potential or are already showing high growth in electronic components demand.

I want to thank our employees around the world for their hard work and commitment. These results reflect the experience, resilience, and dedication of our team. Now, turning to the recently completed fourth quarter. It was a record quarter for Avnet that exceeded our sales and EPS guidance. We achieved record sales of $8.3 billion and an adjusted operating margin of 3.8%, highlighted by an electronic components operating margin of 4% and a 9% operating margin at Farnell. We also improved inventory days to 71, the lowest level in nearly four years, and believe we have the capacity to continue improving in fiscal 2027. The sales improvement we saw was broad-based. We are excited not only by the magnitude of the growth, but the breadth of the recovery across all regions and end markets.

This gives us confidence that the improvement in demand is not tied to a single end market or trend, but reflects a broader demand recovery across the diverse applications that require electronic components. The supply environment continued to tighten during the quarter, with lead times moving higher across most of the component categories we track for both semiconductor, interconnect, passive, and electromechanical, or IP&E products. What initially appeared to be demand concentrated around AI and data center-related deployments has broadened considerably, with extended lead times now evident across a wider range of applications and end markets. As the quarter progressed, pricing increases became more prevalent beyond memory. We expect additional price increases from a number of semiconductor and IP&E suppliers in the months ahead. Artificial intelligence continues to be an important catalyst for the industry and for Avnet, but we believe the improving demand environment is broader than AI alone.

While we benefit from sales into data center applications and technologies that support AI infrastructure, we are also seeing positive effects across our diversified end markets. Investments being made to support AI are accelerating demand for power management, connectivity, automation, and other enabling technologies across a wide range of applications. That impact is increasing semiconductor and component content across the broader markets we serve. We also see new demand from customers that are deploying AI at the edge. These customers are in our industrial sweet spot, which we are well-positioned to serve. Robotics, drones, and autonomous systems The early stages of adoption, but each application requires a combination of sensing, connectivity, embedded computing, power, and thermal management. These are areas where our supplier line card engineering resources, global scale, and supply chain expertise create meaningful value. Now with that, let me turn to the highlights for our businesses.

Our electronic components business delivered another record sales quarter. All three regions grew double digits year-over-year and sequentially. Sales growth was the highest in the Americas, marking its fourth consecutive quarter of year-on-year growth. All end markets showed sequential growth. Year-on-year, aerospace and defense, networking, and data center were the strongest end markets. In Asia, sales reached another record high of $3.9 billion, marking our eighth consecutive quarter of year-on-year sales growth in the region. Similar to last quarter, demand increased across all the geographies and end markets we serve, led by data center, transportation, networking, and industrial. In EMEA, sales grew both sequentially and year-on-year for the third consecutive quarter. We are seeing improvement with a mix of higher-performing end markets such as data center and industrial, alongside markets with a somewhat slower growth, like transportation.

We continue to see positive signs, including improved book-to-bills and our expectations that the region will see continued growth in the second half of calendar year 2026. Within Europe, we also continue to see steady improvement in our embedded business, which creates tighter customer relationships and better margins. Customers continue to see the value embedded boards and displays bring as a part of our total solutions offering, helping them solve for their product design requirements. Turning to Farnell. We were pleased with the continued progress in the business. Farnell benefited from improving demand, continued execution against its strategy, and the benefits of leveraging Farnell's digital platform and high service distribution model within Avnet's global relationships and scale. Our Power of One initiatives continue to create opportunities for both organizations, and we are excited by Farnell's trajectory as market conditions improve, particularly in Europe.

This quarter demonstrated that our model is designed to generate significant profit expansion as we grow the top line. We delivered meaningful margin expansion and earnings growth while managing our operating expenses. We still have ample capacity in our sales, engineering, digital, and distribution infrastructure, and that capacity becomes more valuable as demand improves and market conditions tighten. Our higher-margin IP&E business is another example of how we benefit from complexity, and the fourth quarter was another record quarter for IP&E sales. For the full fiscal year, IP&E sales are approaching $5 billion. As AI infrastructure, industrial automation, robotics, drones, and edge applications expand, customers need more complete technology solutions. Our ability to bring semiconductor and IP&E products together through demand creation, technical support, and supply chain expertise is an important part of our value proposition.

Our supply chain solutions business continues to build momentum as large OEM customers increasingly turn to us to help navigate complex and evolving supply chains. We are expanding our engagements with a growing number of leading OEMs, particularly in markets such as data center infrastructure, networking, and transportation, where demand trends remain favorable. The strength of our capabilities was recently recognized by General Motors, which named Avnet a 2025 Creative Supplier of the Year, recognizing our relationship, innovation, and supply chain support. This award reinforces the value we bring to customers through our global reach, deep industry expertise, and ability to deliver creative supply chain solutions. Another good example of the differentiated capabilities within our company is Avnet Integrated Solutions, which helps customers bring complete technology solutions to market by providing system assembly, rack integration, configuration, testing, and deployment services globally.