Earnings Call Insights: Avnet (AVT) Q4 2025
Management View
CEO Philip R. Gallagher reported that Avnet delivered $22.2 billion in revenues and $3.44 of adjusted diluted earnings per share for the fiscal year. Gallagher highlighted continued focus on cost control, supplier and customer relationship management, and investments in long-term strategy. "We delivered another quarter of financial results that exceeded our sales and EPS guidance. In the quarter, we achieved sales of $5.6 billion and adjusted operating margins of 2.5%, highlighted by a 4.3% operating margin in our Farnell business. We also generated $139 million 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."
Gallagher announced key executive moves including appointing Dave Youngblood as Chief Digital Officer and promoting Gilles Beltran to President of the EMEA region, with a focus on succession planning and leadership development.
CFO Kenneth A. Jacobson stated, "Our sales for the fourth quarter were approximately $5.6 billion, above the high end of our guidance range, up 6% sequentially and up slightly year-over-year." Jacobson explained the impact of regional mix on margins, with Asia’s higher sales proportion impacting overall gross margin. He added, "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." Jacobson also noted, "Adjusted diluted earnings per share of $0.81 exceeded the high end of our guidance range for the quarter."
Outlook
Management guided for first quarter fiscal 2026 sales in the range of $5.55 billion to $5.85 billion and diluted earnings per share in the range of $0.75 to $0.85. Gallagher expressed optimism: "We have a number of reasons to be optimistic about fiscal 2026, beginning with Asia's double-digit growth in fiscal 2025."
The guidance assumes "sequential sales growth of approximately 2% at the midpoint and assumed sales growth in all regions. This guidance also assumes similar interest expense compared to the fourth quarter, an effective tax rate of between 22% and 26% and 85 million shares outstanding on a diluted basis." (Jacobson)
Financial Results
Avnet achieved sales of $5.6 billion for the fourth quarter, with adjusted operating margins at 2.5% and cash flow from operations of $139 million. Electronic Components business sales increased both sequentially and year-over-year, while Farnell sales rose 3% year-over-year and 5% sequentially.
Gross margin for the quarter was 10.6%, down due to the shift in sales mix to Asia. Operating expenses were $451 million, up $1 million year-over-year. Adjusted operating income was $143 million, with Electronic Components operating income at $157 million and Farnell at $17 million.
Inventory management remained a focus, with reported inventories down $185 million excluding currency effects compared to last quarter, and down over $400 million year-over-year in constant currency. Return on working capital was 9.4% for the quarter.
For the fiscal year, Avnet returned $415 million to shareholders through share repurchases and dividends, and reduced outstanding shares by nearly 7%.
Q&A
Joseph Michael Quatrochi, Wells Fargo Securities, LLC: Asked about EMEA optimism and inventory trends. Gallagher replied, "We have more optimism, okay, as we look at EMEA right now. ... the bookings are coming back modestly. When I look at the backlog buildup in EMEA, it's starting to increase year-on-year. ... So I'd just say it's modest, but we're definitely starting to see some movement there."
Quatrochi followed up on inventory. Jacobson shared, "We expect the EC business to continue to drive inventory down -- a modest decline next quarter and then offset a little bit by Farnell."
Ruplu Bhattacharya, BofA Securities, Research Division: Asked about Asia’s growth and margin impact. Gallagher emphasized, "We're super proud of our team in Asia Pac. ... they have 4 quarters in a row of year-on-year growth. ... we feel pretty good about Asia."
Bhattacharya also questioned Farnell’s margin improvement. Gallagher detailed, "We've probably turned over roughly 70% of the executive team ... and have been very assertive on reducing non-value-added expenses. ... the overall activity in Farnell, line item wise that goes through digital 70% from an activity standpoint, probably close to 50-plus percent from the revenues."
Bhattacharya asked about inventory correction. Gallagher replied, "I think we're getting close, Ruplu. ... book-to-bill started to increase ... There's no question, if you look at the semi set of suppliers that have reported so far. The inventory days are definitely down in total, roughly 11 to 12 days from a couple of quarters ago."
Melissa Ann Dailey Fairbanks, Raymond James: Inquired about normalized Farnell margins. Jacobson responded, "We are modeling -- I don't want to say a peak, but they definitely get into double digit, 10%, 11%, 12%, 13% operating margin over the next couple of years."
Sentiment Analysis
Analysts adopted a slightly positive tone, focusing on regional optimism, inventory normalization, and Farnell’s margin recovery, while seeking specifics on improvement targets and operating leverage.
Management’s tone in prepared remarks was confident and optimistic, especially regarding Asia, EMEA stabilization, and Farnell’s trajectory. During Q&A, management remained constructive, emphasizing continuous improvement and cautious optimism, using phrases like "I think we're getting close" and "we feel confident about our Asia -- continuing to perform well."
Compared to the previous quarter, both management and analysts’ tone was more optimistic, especially on EMEA’s outlook and Farnell’s recovery.
Quarter-over-Quarter Comparison
Guidance for Q1 2026 reflects a higher sales range than the prior quarter’s Q4 2025 guidance, alongside stable or slightly improved regional growth expectations.
Management signaled greater optimism about EMEA’s prospects, whereas the previous quarter emphasized persistent weakness in the West.
Key financial metrics such as operating margin, cash flow, and inventory reduction improved sequentially. Analysts’ questions shifted from concerns over persistent softness to inquiries about margin recovery and operational leverage.
Management’s confidence in digital investments and leadership changes at Farnell was more pronounced, highlighting a strategic shift toward operational efficiency and double-digit margin targets.
Risks and Concerns
Management cited ongoing inventory reduction as a work-in-progress and noted "still have work to do there on the inventory side, but would expect despite the up sales a little bit to bring inventory down a little bit still."
EMEA remains a mixed market with only modest signs of improvement, with Gallagher stating, "we're not celebrating, I'll be really clear. But the bookings are coming back modestly."
Operating expense headwinds are expected in fiscal 2026 due to merit pay increases aimed at employee retention ahead of market recovery.
Risks from sales mix shifts, particularly the higher proportion of Asia sales impacting margins, and the need for continued improvement at Farnell were discussed.
Final Takeaway
Avnet’s fourth quarter showcased stronger-than-expected sales, led by significant growth in Asia, ongoing cost discipline, and momentum in both core Electronic Components and Farnell businesses. Management is optimistic about fiscal 2026, targeting sequential growth, continued inventory optimization, and a path for Farnell to achieve double-digit operating margins over the next several years. Strategic leadership appointments and investments in digital and e-commerce capabilities are expected to support this trajectory, even as the company remains vigilant regarding regional demand shifts and operational cost headwinds.
Read the full Earnings Call Transcript
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