Avnet, Inc. — FY2022 Form 10-K
Period clarification: Although the request metadata says “2021 Q4,” this filing is Avnet’s annual report for the 52-week fiscal year ended July 2, 2022, with comparison to fiscal 2021 (ended July 3, 2021). It is not a stand-alone quarterly report.
Business context
Avnet distributes electronic components and provides design, supply-chain, logistics, and related technology services in more than 140 countries. Its two operating groups are Electronic Components (EC), primarily serving higher-volume customers, and Farnell, primarily serving lower-volume customers and engineers through e-commerce. Semiconductors represented approximately 76% of consolidated sales.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Sales | $24.31 billion | $19.53 billion |
| Gross profit / margin | $2.97 billion / 12.2% | $2.24 billion / 11.5% |
| Operating income / margin | $939.0 million / 3.9% | $281.4 million / 1.4% |
| Adjusted operating income / margin (non-GAAP) | $985.6 million / 4.1% | $407.0 million / 2.1% |
| Net income | $692.4 million | $193.1 million |
| Diluted EPS | $6.94 | $1.93 |
| Cash from operating activities | $(219.3) million | $90.9 million |
- Sales grew 24.5% reported and 27.2% excluding foreign-currency effects; organic sales growth in constant currency was 29.2%. Both operating groups and all regions grew. EC sales were $22.50 billion, up 24.8%; Farnell sales were $1.81 billion, up 20.2%.
- Gross margin improved 73 basis points, reflecting demand and pricing, as well as product, customer, and geographic mix. SG&A rose 6.4% to $1.99 billion, but declined as a share of sales to 8.2% from 9.6%.
- Operating cash outflow primarily reflected growth in working capital: receivables increased $1.13 billion and inventory increased $1.22 billion, partly offset by a $1.13 billion increase in accounts payable. Inventory was $4.24 billion at year-end.
- Cash and cash equivalents were $153.7 million. Total debt carrying value was approximately $1.61 billion; the balance sheet reported $174.4 million short-term debt and $1.44 billion long-term debt. The company had $1.40 billion of combined availability under its credit facility and receivables securitization program, and reported compliance with applicable covenants.
- FY2022 financing included issuing $300 million of 5.50% notes due 2032 and redeeming $350 million of 4.88% notes due 2022 for $354.3 million. The securitization program had $297.8 million outstanding at year-end.
- Capital returns included $98.5 million of dividends and $193.3 million of share repurchases (4.7 million shares). The cash-flow statement reports $184.4 million of repurchase cash outflow; the filing also identifies unsettled repurchases.
Changes, outlook, and significant items
- Results improved sharply versus FY2021, when Avnet earned $193.1 million and generated $90.9 million in operating cash. FY2021 included 53 weeks versus 52 weeks in FY2022; the company estimates the extra week contributed $306 million of FY2021 sales. Foreign currency also affected reported comparisons.
- Management attributed growth and margin improvement to strong global demand and higher pricing for electronic components. It said higher SG&A supported increased sales. The filing provides no quantified fiscal 2023 sales or earnings guidance; management stated it expects operating cash generation and available borrowing capacity to meet future liquidity needs.
- Russia-Ukraine-related charges were $26.3 million, including $17.2 million of credit-loss provisions for Russian receivables and costs for product write-downs and winding down operations. Russian sales and gross profit had historically been less than 1% of consolidated totals.
- The termination of the Maxim distribution agreement may reduce future sales and gross profit unless offset by growth, margin improvements, or cost reductions. Maxim products were less than 3% of FY2022 sales.
- Risks highlighted include semiconductor supply and demand volatility, customer over-ordering and cancellations, inventory obsolescence, supplier terms and availability, competitive pricing and margin pressure, inflation and logistics costs, foreign-exchange exposure, geopolitical and trade disruptions, cyber threats, and customer credit risk. Most supplier and customer arrangements are not long-term commitments; some inventory orders can be non-cancellable or non-returnable.
- Legal and regulatory matters were not expected by management to materially affect financial position or liquidity, though they could affect results in an individual period. Estimated liabilities for reasonably estimable compliance-related matters were $14.7 million. Unrecognized tax benefits were $134.6 million; expected cash settlement payments over the next 12 months were approximately $1.1 million.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified income-tax accounting as a critical audit matter.
Important facts for investors to verify
- Whether sales growth and gross-margin gains persist as supply constraints ease, pricing and product availability change, and customer orders normalize.
- Whether working-capital investment, especially the $4.24 billion inventory balance, converts into operating cash and whether customer receivables remain collectible.
- Debt maturity, interest expense, and available borrowing capacity, including dependence of securitization availability on eligible receivables.
- The realized impact of the Maxim agreement termination and any further Russia-Ukraine-related losses or restrictions.
- Potential sensitivity of earnings to currency movements, inflation, freight costs, and changes in supplier protections or non-cancellable inventory commitments.
- Future capital returns and the use of the remaining $531.3 million share-repurchase authorization, subject to market conditions, debt covenants, and management discretion.