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Why Is Avnet (AVT) Up 12.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Avnet (AVT). Shares have added about 12.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Avnet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Avnet's Earnings and Revenues Miss Estimates in Q3

Avnet reported lower-than-expected third-quarter fiscal 2024 results. The company’s non-GAAP earnings were $1.10 per share, which came a penny lower than the Zacks Consensus Estimate of $1.11. Moreover, the reported figure came 45% lower than the year-ago quarter’s non-GAAP earnings of $2 per share, mainly due to lower revenues.

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Revenues declined 13% year over year to $5.65 billion and came slightly lower than the Zacks Consensus Estimate of $5.70 billion. The company’s top-line performance reflects a negative impact of weakened demand amid uncertain economic conditions and inventory correction measures adopted by customers.

During the third quarter, Avnet witnessed mixed demand across the diverse end markets it serves. The company pointed out that demand declined across most of the end markets it operates in. However, the defense and data center end markets showed improvements.

Quarterly Details

The Electronic Components segment’s revenues were down 13.4% year over year to $5.25 billion as inventory levels for certain components still remain elevated, which is delaying inventory replenishment requirements. Our estimates for the Electronic Components segment’s revenues were pegged at $5.74 billion.

The Farnell segment’s revenues decreased 10.4% to $407.8 million. Our estimates for the Farnell segment’s revenues were pegged at $409.2 million.

Avnet reported a sales decline across all geographical regions. Revenues from America, Asia and the EMEA fell 18.2%, 8.7% and 14.2% year over year, respectively.

Avnet reported a gross profit of $669.3 million, down from the year-ago quarter’s gross profit of $811.8 million. The gross margin contracted 62 basis points (bps) year over year to 11.8%, primarily due to the lower gross margin at the Electronic Components and Farnell segments. Electronic Components’ gross margin was down year over year, primarily due to a lower mix of sales from the Western regions.

The adjusted operating income came in at $202.7 million, which decreased 35.6% year over year. The adjusted operating income for the Electronic Components segment declined 29% to $217 million, while that for Farnell’s plunged 60% to $16 million. Avnet’s adjusted operating margin shrank 124 bps to 3.6%. Electronic Components’ adjusted operating margin contracted 91 bps to 4.1%, while Farnell’s declined 499 bps to 4%.

Balance Sheet and Cash Flow

As of Mar 30, 2024, AVT had cash and cash equivalents of $218.5 million compared with $272.9 million reported at the end of the previous quarter.

The long-term debt was $2.41 billion as of Mar 30, down from $2.75 billion reported in the prior quarter. Avnet generated nearly $500 million of cash from operational activities during the third quarter of 2024. In the first nine months of fiscal 2024, it generated cash worth $415.7 million from operational activities.

The company did not repurchase any shares during the third quarter but paid $28 million in dividend payments to shareholders. In the first nine months of fiscal 2024, it repurchased shares worth $86 million and $84.1 million, respectively.

Fourth-Quarter Fiscal 2024 Guidance

Avnet estimates fourth-quarter fiscal 2024 revenues in the range of $5.20-$5.50 billion (midpoint $5.35 billion). Non-GAAP earnings for the current quarter are anticipated between 90 cents and $1.00 per share (midpoint 95 cents). The Zacks Consensus Estimate for fourth-quarter revenues and adjusted earnings is pegged at $5.71 billion and $1.12 per share, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -14.98% due to these changes.

VGM Scores

At this time, Avnet has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Avnet has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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