Avnet, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended July 1, 2023 (52 weeks), compared with fiscal 2022 ended July 2, 2022 (52 weeks). This is an annual filing, not a standalone 2022 Q4 report. Avnet distributes electronic components and related solutions through Electronic Components (EC) and Farnell.
Financial results and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Sales | $26.54 billion | $24.31 billion | +9.2% reported; +13.4% in constant currency |
| Gross profit / margin | $3.18 billion / 12.0% | $2.97 billion / 12.2% | Profit +7.3%; margin down 21 basis points |
| Operating income / margin | $1.19 billion / 4.5% | $939.0 million / 3.9% | +26.4% |
| Adjusted operating income / margin | $1.22 billion / 4.6% | $985.6 million / 4.1% | +23.9% |
| Net income / diluted EPS | $770.8 million / $8.26 | $692.4 million / $6.94 | Net income +11.3% |
| Cash from operating activities | $(713.7) million | $(219.3) million | Cash use increased |
- Working capital used $1.68 billion, including a $1.17 billion inventory increase and a $461.1 million receivables increase. Capital expenditures were $194.7 million; operating cash flow less capital expenditures was approximately negative $908 million.
- Cash and equivalents were $288.2 million at year-end, up from $153.7 million. Total debt was approximately $3.06 billion, versus $1.61 billion a year earlier; long-term debt on the balance sheet was $2.99 billion. Interest and other financing expense rose to $250.9 million from $100.4 million.
- Combined availability under the revolving credit facility and receivables securitization program was $846.7 million. Avnet reported compliance with applicable covenants at year-end.
- Total assets were $12.48 billion and shareholders’ equity was $4.75 billion. Dividends paid were $1.16 per share ($106.3 million).
Business trends and changes versus prior year
- EC sales increased 10.2% reported (14.4% constant currency) to $24.80 billion, supported by demand in industrial, transportation, and aerospace and defense markets. Farnell sales fell 4.0% reported to $1.73 billion, but rose 0.9% in constant currency.
- Sales growth was broad across regions in constant currency, though reported Asia sales declined 0.7%. Semiconductor sales were $21.37 billion, approximately 81% of consolidated sales.
- Gross margin declined mainly because certain Farnell component pricing premiums unwound and product mix was less favorable. Lower SG&A as a share of sales and operating leverage supported higher operating margins.
- Interest expense increased substantially with higher borrowings and borrowing rates. Debt increased with the issuance of $500 million of 6.25% notes due 2028 and additional facility and securitization borrowings.
Outlook, unusual items, and risks
- The filing provides no formal numeric FY2024 earnings or sales guidance. Management said it expects to continue purchasing sufficient inventory to meet customer demand and believes operating cash generation, borrowing capacity, and capital-market access will meet future liquidity needs.
- FY2023 included $28.0 million of restructuring, integration, and other expenses, including $8.0 million for estimated environmental remediation obligations. A distribution-center closure and related restructuring are expected to generate approximately $16 million in annualized operating-cost savings once completed; the plan included reducing more than 200 positions.
- Avnet recorded a $74.4 million pretax gain from capacitor-manufacturer settlements, received $69.9 million in cash during FY2023, and disclosed a further settlement of approximately $85.9 million net of legal costs expected to be realized in FY2024. A separate non-cash $37.4 million pension settlement expense was also recognized.
- Key risks include semiconductor demand and supply cycles, inventory obsolescence and customer cancellations, supplier concentration and contract terms, foreign exchange and geopolitical/trade uncertainty, cyber and IT disruption, receivables collection, and higher financing costs. The company disclosed one supplier at or above 10% of consolidated billings for FY2023.
- Pending compliance-related legal matters were not expected by management to materially affect financial position or liquidity, but could be material to results in an individual reporting period. Estimated liabilities for reasonably estimable matters were $22.7 million at year-end. Unrecognized tax benefits were $130.5 million.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether elevated inventory and receivables unwind into operating cash flow, and how inventory demand, pricing, and obsolescence evolve.
- Debt maturities, variable-rate exposure, interest costs, and continued covenant compliance, especially as borrowings have risen.
- Execution and timing of the distribution-center closure, expected savings, severance payments, and environmental remediation estimates.
- Timing and cash realization of the additional approximately $85.9 million capacitor settlement and its accounting treatment.
- Share-repurchase disclosures: the cash-flow statement reports $221.7 million of repurchases, while the equity note reports $212.8 million; reconcile the amounts and timing.