Electronic component distributor Avnet on Wednesday reported strong revenue and profit growth for its third quarter of fiscal 2022 despite supply chain issues plaguing the computer and electronics industry and Russia’s war. against Ukraine.
Robust and improving demand for electronic components, including in Avnet’s Americas and Asia-Pacific businesses, its UK-based Farnell business, which it acquired in 2016, and a wide range of verticals , gave Avnet 32% year-over-year revenue growth, said Phil Gallagher, CEO of Avnet.
Gallagher, (pictured), speaking to analysts on the company’s quarterly financials conference call, said in prepared remarks that even the Lunar New Year holiday in Asia could not slow strong revenue growth or Avnet margins.
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“We compete favorably across the board and are excited to see continued improvement in our U.S. business, where strong demand and expanded supply chain orchestration opportunities have helped us grow our revenue by more than 40% year-over-year and achieve our fifth consecutive quarter of operating margin growth,” he said. “We are also particularly pleased with Farnell’s excellent results, which have proven to be an important driver for all of Avnet and which is now responsible for 7% of our sales and 23% 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, the aerospace and defense segments in particular. expected to remain elevated over the coming quarters, Gallagher said.
“Overall, we continue to expect favorable demand conditions through the second half of this calendar year,” he said.
Avnet also showed strength in its design and engineering businesses, 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,” it said. he declares. “These high levels of design registrations and earnings in previous quarters resulted in another quarter of record sales and gross margin demand creation.
Gallagher also addressed the conflict in Ukraine and said Avnet continues to closely monitor the safety of its employees in the region.
Avnet had only a small number of employees in Ukraine, most of whom left the country safely, he said. The company also has a few employees in Russia and has many partners, suppliers and customers across the region, which means the distributor expects a minor impact on its business.
“Although we do not have any distribution or integration centers in the region, we have ceased all of our business activities in Russia, which represents less than 1% of our annual revenue and gross profit,” a- he declared. “Our goal remains to support our affected employees and partners. And while I am deeply troubled by the situation in Ukraine, I have been encouraged by the incredible efforts made by Avnet and Farnell employees to provide direct support to Ukrainian refugees entering Poland, including the delivery of supplies and equipment. equipment. I couldn’t be more proud of these efforts and the supportive culture we’ve built here at Avnet.
During the conference call’s question and answer period, when asked by an analyst if Avnet was better prepared for a possible recession than it was during the 2007 to 2009 recession, Gallagher said that Avnet was now 100% focused on components and not on the IT business it had then.
“A lot of our costs are variable in terms of commissions and freight and logistics costs and so on,” he said. “So we are adjusting them as we go along. And some of them adjust on their own.
On the component side, Avnet has a sustainable high-margin business, including with Farnell, Gallagher said.
“We maintain that this will maintain a double-digit operating margin line, even in the face of a downturn,” he said. “So we think between the mix and creating demand by continuing to grow our range map, we think we can achieve that. Maybe we need to make some adjustments. [And] if there’s a downturn, we’ll take out a lot of money, which makes Tom [Liguori, CFO] joyful.”
Avnet is also working with its suppliers on increasingly advanced opportunities, Gallagher said. “Even in a downturn, they exploit us as much as they can because of the variable model we bring to them from a scale perspective,” he said.
Asked if there were any signs of easing supply issues, Gallagher said he didn’t see any clear indications as some lead times are improving and others are getting worse.
“But overall it’s still pretty tight up there,” he said. “I’m on the phone almost every day with customers and suppliers trying to speed things up,” he said.
For its third fiscal quarter of 2022, which ended April 2, Avnet reported revenue of $6.5 billion, up 32.0% from the $4.9 billion reported by Avnet. the company for its third fiscal quarter of 2021.
The retailer also reported GAAP net income of $183.4 million, or $1.84 per share, compared to $107.5 million last year, or $1.07 per share. On a non-GAAP basis, the company reported earnings per share of $2.15, compared to $0.74 in the year-ago quarter.
Revenue beat analysts’ expectations by $780 million and non-GAAP earnings beat expectations by 61 cents a share, according to Seeking Alpha.
Looking ahead, Avnet expects fourth-quarter fiscal 2022 sales of $6.0 billion to $6.4 billion versus analyst consensus of $5.8 billion, and earnings per share not GAAP $1.90 to $2.00 vs consensus $1.50.