Avnet's Q1 Sales Up, But Net Income Dips Amid Rising Debt

Ticker: AVT · Form: 10-Q · Filed: Oct 31, 2025 · CIK: 8858

Sentiment: bearish

Topics: Electronics Distribution, Q1 Earnings, Debt Financing, Cash Flow, Convertible Notes, Share Repurchases, Supply Chain

Related Tickers: AVT, WESCO, ARROW

TL;DR

**Avnet's Q1 is a red flag: sales growth is overshadowed by a sharp drop in net income and a massive debt pile-up, signaling potential trouble ahead.**

AI Summary

AVNET INC reported a mixed financial performance for the first quarter ended September 27, 2025. Sales increased by 5.25% to $5.898 billion from $5.604 billion in the prior year period. However, net income decreased by 12.23% to $51.745 million, down from $58.956 million in the first quarter of 2024. Diluted earnings per share also fell to $0.61 from $0.66. Key business changes include a significant increase in short-term debt to $189.311 million from $87.284 million, and long-term debt rising to $2.795 billion from $2.574 billion, largely due to the issuance of $650 million in convertible senior notes. The company also amended its Credit Facility to temporarily raise the maximum permitted leverage ratio and restricted share repurchases to $100 million. Risks include a substantial accumulated other comprehensive loss of $(315.539) million and negative net cash flows from operating activities of $(144.584) million. Strategically, the company is managing its debt structure with new convertible notes and a term loan, while continuing share repurchases, albeit with new restrictions.

Why It Matters

Avnet's mixed Q1 results, with increased sales but declining net income, signal potential margin pressures and increased financial leverage for investors. The significant rise in short-term and long-term debt, including $650 million in new convertible notes, could impact future profitability and financial flexibility. For employees and customers, the company's continued investment in supply chain services, representing 5% of inventories, suggests ongoing operational focus. In a competitive electronics distribution market, Avnet's ability to manage its debt and maintain profitability will be crucial for its market position and long-term viability.

Risk Assessment

Risk Level: high — The risk level is high due to a 12.23% decrease in net income to $51.745 million, coupled with a substantial increase in total debt from $2.662 billion to $2.985 billion. Additionally, the company reported negative net cash flows from operating activities of $(144.584) million, a significant reversal from the $106.325 million provided in the prior year, indicating potential liquidity challenges.

Analyst Insight

Investors should exercise caution and closely monitor Avnet's debt management and cash flow generation in upcoming quarters. Consider reducing exposure or holding off on new investments until there's clear evidence of improved profitability and positive operating cash flow trends.

Financial Highlights

debt To Equity
1.56
revenue
$5.898B
operating Margin
2.41%
total Assets
$12.414B
total Debt
$3.005B
net Income
$51.745M
eps
$0.61
gross Margin
10.42%
cash Position
$175.465M
revenue Growth
+5.25%

Revenue Breakdown

SegmentRevenueGrowth
Electronic Components$5,898,572,000+5.25%

Key Numbers

Key Players & Entities

FAQ

What were Avnet's sales and net income for the first quarter of fiscal year 2026?

Avnet's sales for the first quarter ended September 27, 2025, were $5.898 billion, an increase from $5.604 billion in the same period last year. Net income, however, decreased to $51.745 million from $58.956 million in the first quarter of 2024.

How has Avnet's debt structure changed in the recent quarter?

Avnet's debt structure saw significant changes, with short-term debt increasing to $189.311 million from $87.284 million and long-term debt rising to $2.795 billion from $2.574 billion. This includes the issuance of $650 million in convertible senior notes due 2030 and a new $266.5 million term loan.

What is the impact of the new convertible notes on Avnet's financial position?

The issuance of $650 million in convertible senior notes due 2030 generated net proceeds of approximately $633.8 million, increasing Avnet's long-term debt. These notes accrue interest at 1.75% per annum and are convertible under specific conditions, potentially impacting future share dilution.

Did Avnet's cash flow from operations improve or decline in Q1 2026?

Avnet's net cash flows from operating activities declined significantly, resulting in a use of $(144.584) million for the first quarter ended September 27, 2025. This is a substantial decrease compared to the $106.325 million provided by operating activities in the prior year period.

What are the key risks highlighted in Avnet's 10-Q filing?

Key risks include a decrease in net income, negative operating cash flows, and an increase in total debt. The company also reported an accumulated other comprehensive loss of $(315.539) million, indicating potential exposure to foreign currency translation and other market adjustments.

How does Avnet's share repurchase program look after the recent filing?

Avnet repurchased $138.308 million of common stock in the first quarter of fiscal 2026. However, an amendment to the Credit Facility on August 28, 2025, restricts the company's ability to repurchase shares in excess of $100 million, a limit already reached in Q1 2026.

What changes were made to Avnet's Credit Facility?

On August 28, 2025, Avnet amended its $1.50 billion Credit Facility to temporarily raise the maximum permitted leverage ratio through September 2026. The amendment also restricts certain payments, including share repurchases exceeding $100 million.

What is Avnet's current allowance for credit losses on receivables?

As of September 27, 2025, Avnet's allowance for credit losses was $104.873 million, a slight decrease from $108.195 million at June 28, 2025. The company reported credit loss releases of $(1.737) million during the quarter.

How much of Avnet's inventories are held for supply chain service engagements?

As of September 27, 2025, approximately 5% of Avnet's total inventories, which were $5.420 billion, were comprised of electronic components held for supply chain service engagements. This is a slight decrease from 6% at June 28, 2025.

What is the conversion price for Avnet's new convertible notes?

The initial conversion price for Avnet's $650 million convertible senior notes due 2030 is approximately $70.27 per share of common stock. Noteholders can convert under certain conditions, including if the common stock trades above approximately $91 per share.

Risk Factors

Industry Context

Avnet operates in the highly competitive electronic components distribution industry. This sector is characterized by complex supply chains, fluctuating demand tied to global economic conditions and technology cycles, and significant inventory management challenges. Key trends include increasing demand for specialized components, the need for robust logistics and supply chain services, and the ongoing consolidation within the distribution landscape.

Regulatory Implications

As a publicly traded company, Avnet is subject to SEC regulations and accounting standards (GAAP). The company's financial disclosures, including this 10-Q, must adhere to these requirements. Changes in accounting standards, such as those related to convertible debt or credit losses, require careful implementation and disclosure.

What Investors Should Do

  1. Monitor debt levels and covenants closely.
  2. Analyze the drivers of negative operating cash flow.
  3. Evaluate the impact of foreign currency translation on comprehensive income.
  4. Assess the sustainability of sales growth against profitability.

Key Dates

Glossary

Accumulated other comprehensive loss
A component of shareholders' equity that includes unrealized gains and losses that have not been recognized in net income. For Avnet, this is largely due to foreign currency translation. (Indicates a significant negative impact on equity from items not yet reflected in earnings, such as currency fluctuations.)
Convertible Senior Notes
Debt securities that can be converted into a predetermined amount of the issuer's equity at the option of the bondholder. (Avnet issued $650 million of these notes, impacting its debt structure and potentially diluting equity in the future.)
Leverage Ratio
A financial metric that measures the extent to which a company is using debt to finance its assets. The Credit Facility was amended to temporarily raise the maximum permitted leverage ratio. (The amendment suggests the company is operating closer to its debt covenants and needs more flexibility.)
Net cash flows from operating activities
The cash generated or used by a company's normal business operations. A negative figure indicates that operations are consuming cash. (Avnet's negative operating cash flow of $(144.584) million is a key concern for liquidity.)
Diluted EPS
Earnings per share calculated by dividing net income by the total number of diluted shares outstanding, including the effect of all dilutive potential common shares (like convertible debt). (Avnet's diluted EPS decreased to $0.61 from $0.66, reflecting lower net income and potentially a higher share count from convertible instruments.)

Year-Over-Year Comparison

Compared to the prior year's first quarter, Avnet Inc. has seen a 5.25% increase in sales to $5.898 billion, indicating top-line growth. However, this growth has not translated to the bottom line, as net income decreased by 12.23% to $51.745 million, and diluted EPS fell to $0.61 from $0.66. A significant shift is observed in the debt structure, with short-term debt more than doubling and long-term debt increasing due to new convertible note issuance. Notably, operating cash flow has turned negative at $(144.584) million, a stark contrast to the positive flow in the prior year, raising concerns about liquidity.

Filing Stats: 4,393 words · 18 min read · ~15 pages · Grade level 13.9 · Accepted 2025-10-30 18:04:40

Key Financial Figures

Filing Documents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at September 27, 2025, and June 28, 2025 2 Consolidated Statements of Operations for the first quarters ended September 27, 2025, and September 28, 2024 3 Consolidated Statements of Comprehensive Income for the first quarters ended September 27, 2025, and September 28, 2024 4 Consolidated Statements of Shareholders' Equity for the first quarters ended September 27, 2025, and September 28, 2024 5 Consolidated Statements of Cash Flows for the first quarters ended September 27, 2025, and September 28, 2024 6

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 25

Controls and Procedures

Item 4. Controls and Procedures 25

OTHER INFORMATION

PART II. OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings 26

Risk Factors

Item 1A. Risk Factors 26

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26

Exhibits

Item 6. Exhibits 27 Signature Page 28 1 Table of Contents PART I FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements AVNET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) September 27, June 28, 2025 2025 (Thousands, except share amounts) ASSETS Current assets: Cash and cash equivalents $ 175,465 $ 192,428 Receivables 4,503,478 4,327,450 Inventories 5,420,873 5,235,485 Prepaid and other current assets 227,168 263,374 Total current assets 10,326,984 10,018,737 Property, plant and equipment, net 665,980 667,247 Goodwill 818,109 837,031 Operating lease assets 200,621 201,896 Other assets 402,663 393,642 Total assets $ 12,414,357 $ 12,118,553 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt $ 189,311 $ 87,284 Accounts payable 3,688,866 3,487,419 Accrued expenses and other 440,913 497,154 Short-term operating lease liabilities 54,830 56,247 Total current liabilities 4,373,920 4,128,104 Long-term debt 2,795,948 2,574,729 Long-term operating lease liabilities 158,991 159,449 Other liabilities 237,397 244,776 Total liabilities 7,566,256 7,107,058 Commitments and contingencies (Note 6) Shareholders' equity: Common stock $ 1.00 par; authorized 300,000,000 shares; issued 81,346,458 shares and 83,853,935 shares, respectively 81,346 83,854 Additional paid-in capital 1,765,864 1,755,141 Retained earnings 3,316,430 3,430,193 Accumulated other comprehensive loss ( 315,539 ) ( 257,693 ) Total shareholders' equity 4,848,101 5,011,495 Total liabilities and shareholders' equity $ 12,414,357 $ 12,118,553 See notes to consolidated financial statements. 2 Table of Contents AVNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) First Quarters Ended September 27, September 28, 2025 2024 (Thousands, except per share amounts) Sales $ 5,898,572 $ 5,604,152 Cost of sales 5,283,807 4,996,785 Gross profit 614,765 607,367 Selling, ge

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of presentation and new accounting pronouncements In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to state fairly Avnet, Inc. and its consolidated subsidiaries' (collectively, the "Company" or "Avnet") financial position, results of operations, comprehensive income, and cash flows. All such adjustments are of a normal recurring nature. Preparing financial statements in accordance with generally accepted accounting principles in the United States ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results may differ from these estimates and assumptions. Interim results of operations do not necessarily indicate the results to be expected for the full fiscal year. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 2025. During the three months ended September 27, 2025, the Company added the following convertible debt accounting policy. Other than this update, there have been no significant changes to the Company's accounting policies. Convertible Debt – The Company accounts for its convertible debt as a liability, measured at amortized cost. Unamortized debt issuance costs incurred in connection with the issuance of the Company's convertible debt are reflected in the consolidated balance sheets as a deduction of long-term debt. Debt issuance costs are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the convertible debt. See Note 4, "Debt", for further details. Recently adopted accounting pronouncements In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conv

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) clarified by ASU 2025-01, will be effective for the Company in fiscal year 2028 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2024-03 on its disclosures. In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets ("ASU No. 2025-05"), which provides the entity an option to elect a practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of current accounts receivable and contract assets when developing forecasts for estimating expected credit losses. The election of the practical expedient is permitted on a prospective basis. ASU No. 2025-05 will be effective for the Company in fiscal 2027 and early adoption is permitted. The Company is in the process of evaluating the impact of adopting ASU No. 2025-05 on its consolidated financial statements and related disclosures. 2. Working capital Receivables The Company's receivables and allowance for credit losses were as follows: September 27, June 28, 2025 2025 (Thousands) Gross receivables $ 4,608,351 $ 4,435,645 Allowance for credit losses ( 104,873 ) ( 108,195 ) Receivables $ 4,503,478 $ 4,327,450 The Company had the following activity in the allowance for credit losses during the first quarters of fiscal 2026 and fiscal 2025: September 27, September 28, 2025 2024 (Thousands) Balance at beginning of the period $ 108,195 $ 108,504 Credit Loss (Releases) Provisions ( 1,737 ) 1,552 Credit Loss Recoveries 62 10 Receivables Write Offs ( 1,107 ) ( 1,170 ) Foreign Currency Effect and Other ( 540 ) 3,352 Balance at end of the period $ 104,873 $ 112,248 Inventories The Company's inventories are primarily comprised of electronic components purchased from the Company's supplie

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 3. Goodwill The following table presents the change in goodwill by reportable segment for the first quarter ended September 27, 2025. Electronic Components Farnell Total (Thousands) Carrying value at June 28, 2025 (1) $ 309,738 $ 527,293 $ 837,031 Foreign currency translation ( 3,082 ) ( 15,840 ) ( 18,922 ) Carrying value at September 27, 2025 (1) $ 306,656 $ 511,453 $ 818,109 (1) Includes accumulated impairments of $ 1,482,677 from prior fiscal years. 4. Debt Short-term debt consists of the following (carrying balances in thousands): September 27, June 28, September 27, June 28, 2025 2025 2025 2025 Interest Rate Carrying Balance Term loan - current portion 4.20 % — % $ 90,786 — Other short-term debt 5.01 % 5.17 % 98,525 87,284 Short-term debt $ 189,311 $ 87,284 Other short-term debt consists of various committed and uncommitted lines of credit and other forms of bank debt with financial institutions utilized primarily to support the ongoing working capital requirements of the Company, including its foreign operations. Long-term debt consists of the following (carrying balances in thousands): September 27, June 28, September 27, June 28, 2025 2025 2025 2025 Interest Rate Carrying Balance Revolving credit facilities: Accounts receivable securitization program (due December 2026) 5.01 % 5.18 % $ 200,600 $ 500,000 Credit Facility (due January 2030) 5.08 % 5.46 % 122,682 411,586 Term loan - noncurrent portion 4.31 % — % 175,745 — Other long-term debt 4.74 % 4.74 % 21,121 21,975 Public notes due: April 2026 (1) 4.63 % 4.63 % 550,000 550,000 March 2028 6.25 % 6.25 % 500,000 500,000 September 2030 (Convertible Notes) 1.75 % — % 650,000 — May 2031 3.00 % 3.00 % 300,000 300,000 June 2032 5.50 % 5.50 % 300,00

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company has a trade accounts receivable securitization program (the "Securitization Program") in the United States with a group of financial institutions, which is due in December 2026. The Securitization Program allows the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of trade accounts receivable, to provide security or collateral for borrowings of up to $ 500 million. The Securitization Program does not qualify for off balance sheet accounting treatment and any borrowings under the Securitization Program are recorded as debt in the consolidated balance sheets. Under the Securitization Program, the Company legally sells and isolates certain U.S. trade accounts receivable into a wholly owned and consolidated bankruptcy remote special purpose entity. Such receivables, which are recorded within "Receivables" in the consolidated balance sheets, totaled $ 825.0 million and $ 813.9 million at September 27, 2025, and June 28, 2025, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold. The Company has a five-year $ 1.50 billion revolving credit facility (the "Credit Facility") with a syndicate of banks, which expires in January 2030. It consists of revolving credit facilities and the issuance of up to $ 200.0 million of letters of credit and up to $ 300.0 million of loans in certain approved currencies. As of September 27, 2025, and June 28, 2025, there were $ 0.8 million and $ 0.9 million, respectively, in letters of credit issued under the Credit Facility. Under the Credit Facility, the Company may select from various interest rate options, currencies, and maturities. The Credit Facility contains certain covenants, including various limitations on debt incurrence, share repurchases, dividends, investments, and capital expenditures. The Credit Facility also includes a financial covenant requiring th

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) $ 2.66 billion and $ 2.65 billion, respectively. Fair value for public notes including convertible notes was estimated based on quoted market prices (Level 1) and, for other forms of debt, fair value approximates carrying value due to the market based variable nature of the interest rates on those debt facilities (Level 2). 5. Derivative financial instruments Many of the Company's subsidiaries purchase and sell products in currencies other than their functional currencies, which subjects the Company to the risks associated with fluctuations in currency exchange rates. This foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase from suppliers. The Company's transactions are denominated primarily in the following currencies: U.S. Dollar, Euro, British Pound, Japanese Yen, Chinese Yuan, Taiwan Dollar, Canadian Dollar, and Mexican Peso. The Company also, to a lesser extent, has foreign operations transactions in other EMEA and Asian foreign currencies. The Company uses economic hedges to reduce this risk utilizing natural hedging ( i.e. , offsetting receivables and payables in the same foreign currency) and creating offsetting positions using derivative financial instruments (primarily forward foreign currency exchange contracts typically with maturities of less than 60 days , but no longer than one year ). The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The fair value of forward foreign currency exchange contracts is based on Level 2 criteria under the ASC 820 fair value hierarchy. The Company's master netting and other similar arrangements with various financial institutions related to derivative financial instruments allow for the right of offset. The Company's policy is to present derivative financial instruments with the same

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The locations of derivative financial instruments on the Company's consolidated statements of operations are as follows: First Quarters Ended September 27, September 28, 2025 2024 (Thousands) Economic hedges Other expense, net $ ( 7,340 ) $ 24,037 Cross currency swap Interest and other financing expense, net $ 547 $ 701 6. Commitments and contingencies From time to time, the Company may become a party to, or be otherwise involved in, various lawsuits, claims, investigations, and other legal proceedings arising in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not anticipate that any such matters will have a material adverse effect on the Company's financial condition, liquidity, or results of operations. The Company is also currently subject to various pending and potential legal matters and investigations relat

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