Electronics components distributor Avnet on Wednesday reported strong sales and profit growth for its third quarter of fiscal 2022, despite supply chain issues plaguing the IT and electronics industries and Russia’s war on Ukraine.
Resilient and improving demand for electronics components, including at Avnet’s Americas and Asia Pacific businesses, the UK Farnell business acquired in 2016, and across a variety of industries, drove Avnet’s revenue growth 32 percent year-over-year, it said Phil Gallagher, CEO of Avnet.
Gallagher (pictured) speaking to analysts during the company’s quarterly financial conference during his prepared remarks said that not even the Lunar New Year holidays in Asia could slow Avnet’s strong revenue or margin growth.
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“We compete positively throughout and are pleased with the continued improvement of our Americas business, where strong demand and expanded supply chain orchestration capabilities have helped us grow revenue by over 40 percent year-on-year and deliver our fifth straight quarter of operating margin achieve growth,” he said. “We are also particularly pleased with the strong results from Farnell, which has proven to be a key enabler for Avnet as a whole and is now responsible for 7 percent of our revenue and 23 percent of our adjusted operating income.
Robust demand was widespread across Phoenix-based Avnet’s end markets, with the company seeing strength in its automotive, transportation and industrial segments, with aerospace and defense segments in particular expected to remain strong in the coming quarters, Gallagher said .
“Overall, we continue to forecast favorable demand conditions for the second half of the calendar year,” he said.
Avnet also showed strength in its design and engineering business, Gallagher said.
“Our continued investments in digital and design tools and field application engineers are paying off, as evidenced by another solid quarter of design and engineering activity across all regions,” he said. “These high levels of design registrations and wins over the prior quarters resulted in another quarter of record demand for sales and gross profit.
Gallagher also addressed the conflict in Ukraine, saying Avnet continues to closely monitor the safety of its employees in the region.
Avnet has few employees in Ukraine, most of whom have safely left the country, he said. The company also has some employees in Russia and has many partners, suppliers and customers across the region, which means the distributor expects a minor impact on their business.
“Although we have no distribution or integration centers in the region, we have ceased all business activities in Russia, which accounts for less than 1 percent of our annual revenues and gross profits,” he said. “Our focus remains on supporting our affected employees and partners. And while I am deeply unsettled by the situation in Ukraine, I am heartened by the incredible efforts being made by Avnet and Farnell staff to directly assist Ukrainian refugees entering Poland, including through the delivery of relief supplies and equipment. I couldn’t be prouder of those efforts and the supportive culture we’ve built here at Avnet.”
During the question-and-answer portion of the conference call, when asked by an analyst whether Avnet was better prepared for a potential recession than it was during the 2007-2009 downturn, Gallagher said Avnet is now 100 percent focused on components and has nothing more the computer business that had it then.
“A lot of our costs are variable from the standpoint of commissions, freight and logistics costs and so on,” he said. “So we’re going to adjust these little by little. And some of them are self-adjusting.”
On the components side, Avnet has a sustainable, high-margin business, including with Farnell, Gallagher said.
“We contend that this will maintain double-digit operating margin even if there is a downturn,” he said. “So what we’re thinking between the mix and creating demand to continue to grow our line card, we think we can pull that through. We may need to make some adjustments. [And] If there’s a downturn, we’re going to spin off a lot of money, which Tom is doing [Liguori, CFO] happy.”
Avnet is also working with its suppliers on increasingly advanced capabilities, Gallagher said. “Even in a downturn, they use us as much as possible because of the variable model we bring to them from a scale perspective,” he said.
Asked if there were any signs of an easing of supply problems, Gallagher said he didn’t see any clear signs as some lead times are improving and others are deteriorating.
“But overall it’s still pretty tight up there,” he said. “I’m on the phone with customers and suppliers almost every day and try to get the express orders done,” he said.
For the third quarter of fiscal 2022 ended April 2, Avnet reported revenue of $6.5 billion, up 32.0 percent from the $4.9 billion that the company reported for its third quarter of fiscal 2021.
The distributor also reported GAAP net income of $183.4 million, or $1.84 per share, up from $107.5 million, or $1.07 per share, a year ago. On a non-GAAP basis, the company reported earnings per share of $2.15 compared to $0.74 in the year-ago quarter.
According to Seeking Alpha, revenue exceeded analysts’ expectations by $780 million and non-GAAP earnings beat expectations by 61 cents per share.
Looking ahead, Avnet expects fiscal 2022 fourth quarter revenue of $6.0 billion to $6.4 billion versus analyst consensus of $5.8 billion and non-GAAP earnings per share of $1 $.90 to $2.00 versus $1.50 consensus.