Quarterly Report for Quarter Ending December 27, 2025 (Form 10-Q)

For a description of the Company's critical accounting policies and an understanding of Avnet and the significant factors that influenced the Company's performance during the quarter ended December 27, 2025, this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Item 1 of this Quarterly Report on Form 10-Q, as well as the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 2025.

The discussion of the Company's results of operations includes references to the impact of foreign currency translation. When the U.S. Dollar strengthens and the stronger exchange rates are used to translate the results of operations of Avnet's subsidiaries denominated in foreign currencies, the result is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens, the weaker exchange rates result in an increase in U.S. Dollars of reported results. In the discussion that follows, results excluding this impact, primarily for subsidiaries in Europe, the Middle East and Africa ("EMEA") and Asia/Pacific ("Asia"), are referred to as "constant currency."

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In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the U.S. ("GAAP"), the Company also discloses certain non-GAAP financial information, including:

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The reconciliation of operating income to adjusted operating income is presented in the following table:

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Management believes that providing this additional information is useful to financial statement users to better assess and understand operating performance, especially when comparing results with prior periods or forecasting performance for future periods, primarily because management typically monitors the business with and without these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in many cases, for measuring performance for compensation purposes. However, any analysis of results on a non-GAAP basis should be used in conjunction with results presented in accordance with GAAP.

OVERVIEW

Organization

Avnet, Inc., including its consolidated subsidiaries (collectively, the "Company" or "Avnet"), is a leading global electronic component distributor and solutions provider that has served customers' evolving needs for more than a century. Founded in 1921, the Company works with suppliers in every major technology segment to serve customers in more than 140 countries.

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Avnet has two primary operating groups - Electronic Components ("EC") and Farnell, which are discussed further in Note 12 "Segment information" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q.

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Industry outlook

The Company's operations subject it to tariffs and other trade protection measures. The U.S. administration has instituted certain changes, and may make additional changes, in trade policies that include the negotiation or termination of trade agreements, higher tariffs on imports into the U.S., and other measures affecting trade between the U.S. and other countries from which the Company imports. Due in part to these measures, some countries are changing their trade policies relating to goods imported from the U.S. These global trade disruptions and geopolitical tensions, together with any related downturns in the global economy, could dampen customer demand, increase market volatility, and impact currency exchange rates, all of which could materially and adversely affect the Company's financial performance. Evaluating and complying with new and future trade measures diverts management's attention from existing initiatives, which may negatively impact the Company's business operations. Additionally, there are several court cases challenging U.S. administration's authority to impose tariffs, including cases pending before the U.S. Supreme Court. The outcome of these court cases could add complexity to our operations in terms of seeking refunds from the U.S. government, adjusting pricing with customers, and undertaking mitigation efforts to minimize potential impacts to our operations.

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The impact of these changes in trade policies will depend on various factors, including (i) when trade measures are implemented, (ii) the ultimate amount, scope, nature, and duration of tariffs and other trade measures, and (iii) the extent to which the Company can mitigate impacts and pass on any increased costs associated with these changes. In addition, the impact of trade disruptions on general economic conditions and demand for electronic components is difficult to predict.

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The Company employs and continues to develop systems and other measures to mitigate the impact of tariffs, including selective supply chain, logistics, and pricing actions. The Company also has contingency plans to respond to a range of economic scenarios. The Company's management continues to monitor and evaluate the changing tariff situation, as well as the overall environment in the electronic components industry. However, despite these efforts, the Company may not be able to fully mitigate the impact of changes in trade policies or an economic downturn.

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Sales related to customer billings for various tariffs was less than one percent of total sales for the first six months of fiscal 2026 and for fiscal 2025.

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The global electronic components market has a history of cyclical downturns followed by periods of increased demand. During the past two fiscal years, the Company's overall business experienced a downturn marked by a decrease in sales due to a combination of elevated customer inventory levels and lower underlying demand for electronic components. As a result, the Company's sales and operating income declined. During the second quarter of fiscal 2026, the Company experienced both year-over-year and quarter-over-quarter sales growth and an improvement in the days of inventory on hand. The Company anticipates that third-quarter sales in fiscal 2026 will grow by about 1% compared to the second-quarter sales with higher growth coming from the Americas and EMEA regions compared to the Asia region.

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Additionally, the Company's total inventories relative to its sales continue to be higher than they have historically been as a result of this industry downturn. The Company has and may in the future purchase additional inventories in certain components even in an industry downturn, if the Company believes the purchase will benefit the Company's financial or strategic business objectives.

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Results of Operations

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Sales

The following table presents the percentage change in sales for the second quarter and first six months of fiscal 2026 as compared to the second quarter and first six months fiscal 2025, by geographic region and operating group.

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Sales of $6.32 billion for the second quarter of fiscal 2026 increased $655.6 million, or 11.6%, as compared to $5.66 billion for the same quarter last year driven by sales growth across all EC regions and from Farnell. Sales for the first six months of fiscal 2026 were $12.22 billion, an increase of $950.0 million as compared to sales of $11.27 billion for the first six months of fiscal 2025 reflecting year-over-year sales growth in both the EC and Farnell operating groups.

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EC sales were $5.89 billion in the second quarter of fiscal 2026, representing a $574.0 million increase, or 10.8%, over prior year second quarter sales of $5.32 billion. All three EC regions contributed to this growth led by Asia. The growth came primarily from the compute, aerospace and defense, and transportation end markets. EC sales increases were primarily driven by increased volumes and to a lesser extent increased mix of sales of higher priced components. Average selling prices remained largely unchanged during the second quarter of fiscal 2026.

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Farnell sales for the second quarter of fiscal 2026 were $427.1 million, reflecting an increase of $81.6 million, or 23.6%, compared to the same period in the prior year, with all three regions contributing to the increase. The increase in sales in the second quarter of fiscal 2026 is primarily due to improvement in demand for single board computers globally and for on-the-board electronic components in the Asia and Americas regions. The increase in sales at Farnell was primarily driven by an increase in volumes as increases in components pricing were insignificant during the second quarter of fiscal 2026.

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Gross Profit

The Company's gross profit and gross profit margin are primarily affected by sales volume, product mix, product pricing, and geographic sales mix. Gross profit for the second quarter of fiscal 2026 increased $67.0 million, or 11.2% from the second quarter of fiscal 2025. Gross profit for the first six months of fiscal 2026 increased $74.4 million, or 6.2% from the first six months of fiscal 2025.This increase in gross profit is primarily due to sales increases in both operating groups discussed above, partially offset by the decline in gross profit margin in the EC operating group, which was mostly driven by a higher percentage of sales coming from the lower margin Asia region.

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Gross profit margin decreased by 3 basis points to 10.5% for the second quarter of fiscal 2026 when compared to the second quarter of fiscal 2025. For the first six months of fiscal 2026, gross margin decreased by 22 basis points to 10.5% when compared to the first six months of fiscal 2025. A shift in the geographic sales mix toward Asia contributed to the decline in gross profit margin. During the second quarter of fiscal 2026, sales in the western regions with higher gross profit margins accounted for approximately 50% of total sales, compared to 52% in the same period of fiscal 2025.

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EC gross profit margin decreased year over year largely due to the factors discussed above. Farnell gross profit margin increased year over year, primarily due to an increase in product mix of on-the-board components.

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Selling, General and Administrative Expenses

Selling, general, and administrative expenses ("SG&A expenses") increased $54.7 million or 12.5% from the second quarter of fiscal 2025, and increased $80.4 million, or 9.2% from the first six months of fiscal 2025. The increase in SG&A expenses is primarily due to increases in variable operating expenses associated with higher sales volumes and the impact of changes in foreign currency translation rates.

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Management monitors SG&A expenses as a percentage of sales and as a percentage of gross profit. In the second quarter of fiscal 2026, SG&A expenses were 7.8% of sales and 74.2% of gross profit, as compared with 7.7% and 73.3%, respectively, in the second quarter of fiscal 2025. SG&A expenses were 7.8% as a percentage of sales and 74.8% as a percentage of gross profit for the first six months of fiscal 2026, as compared with 7.8% and 72.8%, respectively, in the first six months of fiscal 2025. The year-over-year increase in SG&A expenses as a percentage of gross profit is primarily due to the decline in gross profit margin in EC discussed further above.

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See Note 12 "Segment information" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q for the amount of selling, general and administrative expenses by operating group.

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Restructuring, Integration, and Other Expenses

The Company recorded total restructuring, integration, and other expenses in the second quarter of fiscal 2026 of $25.2 million, consisting of $9.5 million of severance and other restructuring related expenses, and $15.7 million of integration and other costs primarily related to start-up costs associated with a new distribution center in EMEA. The after-tax impact of restructuring, integration, and other expenses were $18.3 million and $0.22 per share on a diluted basis.

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During the first six months of fiscal 2026, the Company incurred restructuring, integration, and other expense costs of $33.5 million, consisting of $11.1 million of severance and other employee-related expenses, and $22.4 million of integration and other costs. The after-tax impact of restructuring, integration, and other expenses were $24.1 million and $0.29 per share on a diluted basis.

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Comparatively, the Company recorded restructuring, integration, and other expenses of $3.8 million and $30.1 million during the second quarter and first six months of fiscal 2025, respectively.

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See Note 13 "Restructuring expenses" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q.

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Operating Income

Operating income for the second quarter of fiscal 2026 was $146.2 million, a decrease of $9.1 million or 5.9%, year over year. Operating income margin for the second quarter of fiscal 2026 was 2.3%, a decrease of 43 basis points compared to 2.7% in the second quarter of fiscal 2025. Adjusted operating income for the second quarter of fiscal 2026 was $171.7 million, an increase of $12.2 million, or 7.7%. Adjusted operating income margin for the second quarter of fiscal 2026 was 2.7% compared to 2.8% in the second quarter of fiscal 2025. The decrease in adjusted operating income margin is primarily due to the decreases in gross profit margin and the increase in SG&A expenses as discussed further above.

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Comparing the second quarter of fiscal 2026 to the second quarter of fiscal 2025, EC operating income increased 3.0% to $187.1 million, and EC operating income margin decreased 25 basis points to 3.2%, with a decrease in the EMEA and Americas regions, partially offset by improvement in the Asia region. Farnell operating income increased 475.2% to $20.0 million in the second quarter of fiscal 2026. Farnell operating income margin increased 367 basis points year-over-year to 4.7%. The increases in operating income and operating income margin in Farnell are due to higher sales and higher gross profit margin, partially offset by an increase in SG&A expenses.

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Operating income for the first six months of fiscal 2026 was $288.2 million, a decrease of $9.3 million, from the first six months of fiscal 2025 operating income of $297.6 million. The year-over-year decrease in operating income was primarily due to the lower gross profit margin and the increase in SG&A expenses. Adjusted operating income for the first six months of fiscal 2026 was $322.4 million, a decrease of $6.0 million or 1.8% from the first six months of fiscal 2025. Operating income margin was 2.4% in the first six months of fiscal 2026, a decrease of 28 basis points compared to 2.6% in the prior year first six months.

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Interest and Other Financing Expenses, Net

Interest and other financing expenses in the second quarter of fiscal 2026 were $61.4 million, a decrease of $1.0 million as compared to $62.4 million in the second quarter of fiscal 2025. Interest and other financing expenses in the first six months of fiscal 2026 were $121.1 million, a decrease of $5.7 million, as compared with interest and other financing expenses of $126.8 million in the first six months of fiscal 2025. The decrease in interest and other financing expensesin the second quarter and first six months of fiscal 2026 compared to fiscal 2025is primarily a result of loweraverage borrowing rates.

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Income Tax

Income tax expense for the second quarter and first six months of fiscal 2026 were $28.2 million and $53.2 million, respectively, reflecting an effective tax rate of 31.3% and 31.9%, respectively. In comparison, for the second quarter and first six months of fiscal 2025, income tax expense were $3.0 million and $18.8 million, respectively, reflecting an effective tax rate of 3.4% and 11.4%, respectively. The increase in the effective tax rate for the second quarter of fiscal 2026 as compared to the second quarter of fiscal 2025 was primarily related to the tax attribute carryforwards generated in fiscal 2025 but not in fiscal 2026 and from increases to valuation allowances. The increase in the effective tax rate for the first six months of fiscal 2026 as compared to the first six months of fiscal 2025 was primarily related to the tax attribute carryforwards that were generated in fiscal 2025 but not in fiscal 2026. See Note 7 "Income taxes" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q.

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Net Income

As a result of the factors described above, the Company's net income for the second quarter of fiscal 2026 was $61.7 million, or $0.75 per share on a diluted basis, as compared with $87.3 million, or $0.99 per share on a diluted basis, in the second quarter of fiscal 2025.

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As a result of the factors described above, the Company's net income for the first six months of fiscal 2026 was $113.5 million, or $1.36 per share on a diluted basis, as compared with $146.2 million, or $1.65 per share on a diluted basis, in the first six months of fiscal 2025.

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LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

Operating Activities

Net cash from operating activities was $63.7 million for the first six months of fiscal 2026, down from $444.2 million in the same period of 2025. The decline was mainly due to $100.5 million used for working capital in 2026 to support sales growth, compared to $232.5 million generated in 2025. Increases in accounts receivable and inventory in fiscal 2026 were primarily to support sales growth, partially offset by increases to accounts payable from inventory purchases and certain accruals.

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Financing Activities

Net proceeds of debt totaled $264.8 million during the first six months of fiscal 2026, including net proceeds of $633.8 million from the issuance of Convertible Notes, and $264.9 million for term loans, offset by net repayments of $416.7 million under the Credit Facility, $211.3 million under the Securitization Program and $5.8 million of other debt. This compares to $307.7 million of net repayments during the first six months of the prior fiscal year.

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The Company has repurchased $138.3 million of common stock under its share repurchase plan during the first six months of fiscal 2026 compared to $152.2 million in the same period of the prior fiscal year. The Company paid cash dividends to shareholders of $0.70 per share, or $56.9 million, during the first six months of fiscal 2026 as compared to $0.66 per share, or $57.4 million, during the first six months of fiscal 2025.

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Investing Activities

Net cash used in investing activities decreased by $21.3 million during the first six months of fiscal 2026 compared to the same period in 2025, primarily due to lower capital expenditures.

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Contractual Obligations

For a detailed description of the Company's long-term debt and lease commitments for the next five years and thereafter, see Long-Term Contractual Obligations appearing in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 2025 and Note 4 "Debt" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q. There are no material changes to this information outside of the issuance of Convertible Notes, entering into a term loan and other normal borrowings and repayments of long-term debt and operating lease payments. The Company does not currently have any material non-cancellable commitments for capital expenditures or inventory purchases outside of the normal course of business.

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Financing Transactions

See Note 4, "Debt" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on financing transactions, including the Credit Facility, the Securitization Program, and other outstanding notes and debt as of December 27, 2025. The Company was in compliance with all covenants under the Credit Facility and the Securitization Program as of December 27, 2025, and June 28, 2025.

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The Company has various lines of credit, financing arrangements, and other forms of bank debt in the U.S. and various foreign locations to fund the working capital, foreign exchange, overdraft, capital expenditure, and letter of credit needs of its wholly owned subsidiaries. Outstanding borrowings under such forms of debt at the end of second quarter of fiscal 2026 were $104.3 million.

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As an alternative form of liquidity outside of the United States, the Company sells certain of its trade accounts receivable on a non-recourse basis to financial institutions pursuant to factoring agreements. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows. Factoring fees for the sales of trade accounts receivable are recorded within "Interest and other financing expenses, net" of the consolidated financial statements.

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Liquidity

The Company held cash and cash equivalents of $286.5 million as of December 27, 2025, of which $279.6 million was held outside the United States. As of June 28, 2025, the Company held cash and cash equivalents of $192.4 million, of which $181.8 million was held outside of the United States.

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During periods of weakening demand in the electronic components industry, the Company typically generates cash from operating activities. Conversely, the Company will use cash for working capital requirements during periods of higher growth. The Company generated $344.0 million in cash flows from operating activities over the trailing four fiscal quarters ended December 27, 2025.

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Liquidity is subject to many factors, such as normal business operations and general economic, financial, competitive, legislative, and regulatory factors that are beyond the Company's control. Cash balances held in foreign locations that cannot be remitted back to the U.S. in a tax efficient manner are generally used for ongoing working capital, including the need to purchase inventories, capital expenditures, and other foreign business needs. In addition, local government regulations may restrict the Company's ability to move funds among various locations under certain circumstances. Management does not believe such restrictions would limit the Company's ability to pursue its intended business strategy.

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In September 2025, the Company issued $650 million aggregate principal amount of convertible senior notes due 2030 (see Note 4). The Company used the net proceeds to (i) reduce the Credit Facility by $533.8 million and (ii) repurchase $100 million of the Company's common stock in privately negotiated transactions entered into in connection with the convertible debt offering.

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As of the end of the second quarter of fiscal 2026, the Company had a combined total borrowing capacity of $2.0 billion under the Credit Facility and the Securitization Program. There were no borrowings outstanding and $0.8 million in letters of credit issued under the Credit Facility, and $288.7 million outstanding under the Securitization Program, resulting in approximately $1.71 billion of total committed availability as of December 27, 2025. Availability under the Securitization Program is subject to the Company having sufficient eligible trade accounts receivable in the United States to support desired borrowings. The Company expects to repay the $550 million Notes due April 2026 using cash on hand and availability under the Credit Facility. The Company expects to renew or replace the Securitization Program on similar terms, subject to market conditions, before its maturity in December 2026.

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During the second quarter and first six months of fiscal 2026, the Company had an average daily balance outstanding of approximately $544.9 million and $659.9 million, respectively, under the Credit Facility, and approximately $454.0 million and $469.4 million, respectively, under the Securitization Program. The Company also has average borrowings that are higher than quarter end borrowings from various lines of credit, financing arrangements, and other forms of bank debt in the U.S. and various foreign locations.

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As of December 27, 2025, the Company does not expect to repurchase additional shares until its' consolidated leverage ratio returns to historical levels. When share repurchases resume, the Company may repurchase stock from time to time at the discretion of management, subject to strategic considerations, market conditions (including share price), and other factors. The Company may terminate or limit the share repurchase program at any time without prior notice. The Company has $225.8 million of capacity remaining on the share repurchase program approved by the Board of Directors as of December 27, 2025.

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The Company has historically paid quarterly cash dividends on shares of its common stock, and future dividends are subject to approval by the Board of Directors. During the second quarter of fiscal 2026, the Board of Directors approved a dividend of $0.35 per share, which resulted in $28.5 million of dividend payments during the quarter.

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The Company continually monitors and reviews its liquidity position and funding needs. Management believes that the Company's ability to generate operating cash flows through the liquidation of working capital in the future and available borrowing capacity, including capacity for the non-recourse sale of trade accounts receivable, will be sufficient to meet its future liquidity needs. Additionally, the Company believes that it has sufficient access to additional liquidity from the capital markets if necessary.

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Recently Issued Accounting Pronouncements

See Note 1, "Basis of presentation and new accounting pronouncements" to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements.

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