Electronic components distributor Avnet Wednesday reported strong revenue and profit growth for its fiscal 2022 third quarter despite the supply chain issues plaguing the IT and electronics industry and Russia’s war against Ukraine.
Robust and improving demand for electronics components, including in Avnet’s Americas and Asia-Pacific business, in its U.K.-based Farnell business, which it acquired in 2016, and across a wide range of verticals, gave Avnet 32-percent year-over-year growth in revenue, said Avnet CEO Phil Gallagher.
Gallagher, (pictured), speaking to analysts during the company’s quarterly financial conference call, said during his prepared remarks that not even the Lunar New Year holiday in Asia could slow down Avnet’s strong revenue or margin growth.
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“We are competing favorably across the board, and are pleased to see continued improvement in our America‘s business where strong demand and expanded supply chain orchestration opportunities helped us grow revenue by over 40 percent year over year, and achieve our fifth consecutive quarter of operating margin growth,” he said. “We are also especially pleased with strong results from Farnell, which has proven to be an important needle mover for total Avnet and is now responsible for 7 percent of our sales 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 the automotive, transportation, and industrial segments, with the aerospace and defense segments in particular expected to remain elevated over the coming quarters, Gallagher said.
“Overall, we continue to forecast favorable demand conditions throughout the second half of this calendar year,” he said.
Gallagher stated that Avnet’s engineering and design business was also strong.
“Our continued investments in digital and design tools and field application engineers are paying off as demonstrated by another solid quarter of design and engineering activity across all regions,” he said. “These high levels of design registrations and wins in prior quarters resulted in yet another quarter of record demand creation of sales and gross profit.
Gallagher also addressed Ukraine’s crisis and said that Avnet continues monitoring the safety of its employees.
Avnet had only a few employees in Ukraine. Most of them have left the country. The company also has a few Russian employees, and there are many suppliers and customers throughout the region. This means that the distributor expects to have a minimal impact on its business.
“While we have no distribution or integration centers in the region, we‘ve ceased all business activities in Russia, which represents less than 1 percent of our annual revenues and gross profits dollars,” he said. “Our focus remains on supporting our impacted employees and partners. And while I am deeply unsettled by the situation in Ukraine, I’ve been heartened by the incredible efforts undertaken by Avnet and the Farnell employees to provide direct support to Ukrainian refugees entering Poland, including through the delivery of supplies and equipment. I couldn‘t be more proud of these efforts and the supportive culture we’ve built here at Avnet.”
Gallagher stated that Avnet has shifted to components and no longer has the computer company it had during the 2007-2009 downturn.
“A lot of our costs are variable from the standpoint of commissions and freight and logistics cost and whatnot,” he said. “So we adjust those as we go. And some of them self-adjust.”
Avnet is a high-margin and sustainable business on the components side, Gallagher noted.
“We maintain that will maintain a double-digit operating margin line, even if there is a downturn,” he said. “So we think between the mix and the demand creation continuing to grow our line card, we think we can drive through it. Maybe we‘ll have to make some adjustments. [And] if there is a downturn, we’ll spin off a lot of cash, which makes Tom [Liguori, CFO] happy.”
Gallagher stated that Avnet is also working closely with its suppliers to explore more advanced opportunities. “Even in a downturn, they leverage us as much as they possibly can because of the variable model that we bring them from a scale stand point,” he said.
Gallagher was asked if there were any signs that supply issues are easing. He said that he doesn’t see any clear indications as some lead times are getting longer and worse.
“But overall, it‘s still pretty tight up there,” he said. “I’m on calls pretty much every day with customers and suppliers trying to work the expedites,” he said.
Avnet reported revenue of $6.5 Billion for its fiscal 2022 quarter, which ended April 2. This is 32.0 percentage more than the $4.9 Billion reported by the company for its third fiscal year 2021.
The distributor also reported GAAP net income of $183.4 million, or $1.84 per share, up from last year’s $107.5 million, or $1.07 per share. Non-GAAP earnings per share were $2.15, as compared to $0.74 for the previous quarter.
Seeking Alpha reports that revenue beat analyst expectations by $780million and non-GAAP earnings beat expectations with 61 cents per share.
Avnet anticipates fiscal 2022 fourth-quarter sales of $6.0 billion to $6.4 billion, versus the consensus estimate of $5.8billion. Non-GAAP earnings per share are $1.90 to $2.00, versus the consensus estimate of $1.50.