Avnet ((AVT)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Avnet’s recent earnings call painted a mixed picture, highlighting strong sales growth in Asia and the Americas, but also challenges in the EMEA region and declining gross margins. While the company reported positive trends in the book-to-bill ratio and Farnell segment, concerns were raised over flat EMEA sales, increased expenses, and negative cash flow.
Sales and Earnings Performance
Sales for the first quarter reached $5.9 billion, surpassing guidance, with an adjusted EPS of $0.84, close to the high end of expectations. The company experienced a 10% sales increase in Asia and a 3% rise in the Americas year-over-year, showcasing robust performance in these regions.
Farnell Segment Growth
The Farnell segment demonstrated impressive growth, with sales increasing by 50% year-over-year and 3% sequentially. The operating margin remained stable, driven by heightened sales of on-the-board components, indicating strong demand in this segment.
Recovery in Americas and Asia
Both the Americas and Asia regions showed signs of recovery, with sales growth both sequentially and year-over-year. Asia marked its fifth consecutive quarter of growth, reinforcing its position as a key growth driver for Avnet.
Improvement in Book-to-Bill Ratio
The book-to-bill ratio improved globally, led by gains in Asia and the Americas, with all regions reporting ratios above parity. This indicates a favorable market environment and potential for continued growth.
Flat Sales in EMEA
Sales in the EMEA region remained flat year-over-year and declined by 6% in constant currency. Sequential gross margin declines were attributed to a less favorable product and customer mix, posing a challenge for the company in this region.
Gross Margin Decline
The first quarter gross margin stood at 10.4%, a decrease of 42 basis points year-over-year and 15 basis points sequentially. This decline was influenced by a regional mix shift towards Asia and declines in Western regions.
Increased SG&A Expenses
SG&A expenses rose to $464 million, up $26 million year-over-year and $13 million sequentially. The increase was primarily due to higher salary expenses and foreign currency impacts.
Negative Cash Flow
The company reported negative cash flow of $145 million for the quarter, mainly due to an increase in receivables to support revenue growth in Asia. This highlights a need for careful cash management moving forward.
Forward-Looking Guidance
Avnet’s guidance for the second quarter projects sales between $5.85 billion and $6.15 billion, with diluted EPS expected in the range of $0.90 to $1. The company anticipates continued strong demand in key verticals such as transportation, compute, and communication. Despite stable semiconductor lead times and pricing, extended lead times and price increases in memory storage and interconnect products related to data center and AI projects are expected.
In summary, Avnet’s earnings call reflected a mixed sentiment with strong growth in Asia and the Americas, but challenges in EMEA and declining margins. Key takeaways include robust performance in the Farnell segment, improved book-to-bill ratio, and cautious forward-looking guidance. The company remains optimistic about its growth prospects, particularly in Asia and key verticals, while addressing challenges in cash flow and expenses.