Avnet, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter ended April 1, 2023, with nine-month results compared with the period ended April 2, 2022. The filing describes fiscal 2023; this is not a calendar 2022 quarter.
Financial performance
| Metric | Third quarter FY2023 | Third quarter FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Sales | $6.515 billion | $6.488 billion | $19.982 billion | $17.938 billion |
| Gross profit / margin | $811.8 million / 12.5% | $813.0 million / 12.5% | $2.364 billion / 11.8% | $2.186 billion / 12.2% |
| Operating income / margin | $313.6 million / 4.8% | $274.4 million / 4.2% | $903.1 million / 4.5% | $654.3 million / 3.6% |
| Net income | $187.4 million | $183.4 million | $615.6 million | $445.6 million |
| Diluted EPS | $2.03 | $1.84 | $6.58 | $4.44 |
| Operating cash flow | Not reported separately for the quarter | $(948.2) million | $(19.4) million |
- Quarterly sales increased 0.4% reported and 3.4% in constant currency. EC sales rose 0.7% reported; Farnell sales fell 3.0%. Asia sales declined 10.1%, which management attributed in part to Lunar New Year seasonality.
- Quarterly operating income rose 14.3%; management cited sales growth and lower SG&A, including favorable currency translation. Adjusted operating income was $314.5 million, up 3.5% year over year.
- Nine-month sales grew 11.4% reported (17.1% constant currency), while gross margin contracted to 11.8%, primarily due to product and customer mix. Nine-month results include a $61.7 million pretax gain on legal settlements, or $0.51 per diluted share after tax.
- Quarterly interest and other financing expense increased to $71.7 million from $25.9 million; nine-month expense rose to $175.8 million from $70.4 million. The company cited higher borrowings and borrowing rates.
Cash, debt and liquidity
- Cash was $185.9 million at April 1, 2023, versus $153.7 million at July 2, 2022. Cash and cash equivalents included $90.0 million held outside the U.S.
- Operating activities used $948.2 million over nine months, largely reflecting working-capital use of $1.70 billion: receivables increased $320.1 million, inventory increased $1.03 billion, and accounts payable decreased $331.4 million. Management said working-capital needs generally rise during periods of higher growth.
- Capital expenditures were $137.8 million, primarily supporting a new EMEA warehouse, compared with $33.7 million in the prior-year period.
- Total debt carrying value was approximately $3.11 billion, versus $1.61 billion at fiscal year-end. Debt included $838.6 million drawn on the credit facility, $558.8 million under the receivables securitization program, and $500 million of 6.25% notes issued in March 2023 and due in 2028. Short-term debt was $76.3 million.
- Approximately $751.6 million of committed borrowing capacity was available at quarter-end, subject to eligible receivables for the securitization program. The company reported compliance with credit facility and securitization covenants.
- Management believes operating cash generation, working-capital liquidation and available borrowing capacity will meet future liquidity needs. The filing also notes that foreign cash movement may be subject to tax efficiency and local restrictions.
Other developments, outlook and risks
- No quantified revenue, earnings or cash-flow guidance is provided in the filing.
- In the third quarter, Avnet entered into a $500 million fixed-to-fixed cross-currency swap, designated as a hedge of its European net investment, maturing in March 2028. At quarter-end, 53% of debt was fixed-rate and 47% variable-rate; management estimated a 100-basis-point rate increase would reduce quarterly pretax income by $3.7 million.
- Legal matters include compliance-related investigations and other pending or potential claims. Estimated liabilities for reasonably estimable compliance matters were $14.7 million; management said outcomes could affect results in an individual period, though it did not expect a material adverse effect on financial position or liquidity.
- Key stated risks include semiconductor industry cycles and supply conditions, supplier relationships and non-cancellable orders, customer credit defaults, geopolitical events and trade restrictions, foreign exchange, inflation, cybersecurity and systems risks, supply-chain disruption, and general economic conditions. The company reported no material changes to the risk factors in its latest annual report.
- The $61.7 million legal-settlement gain relates to claims against capacitor manufacturers; $51.2 million had been received in cash by April 1, 2023. The company incurred $26.3 million of Russia-Ukraine-related expenses in the prior-year quarter, with none in the current-year quarter.
Most important facts for investors to verify
- Whether inventory and receivables normalize and operating cash flow recovers after substantial working-capital outflows.
- How the increased debt balance and higher financing costs affect earnings, covenant headroom and liquidity.
- Whether gross-margin pressure persists, particularly from product/customer mix and Farnell’s weaker sales and operating margin.
- How much current and future earnings reflect the nonrecurring legal-settlement gain rather than ongoing operations.
- Eligibility and availability under the receivables securitization program, and developments in legal and compliance matters.