AVT — FY2026 Annual Financial Report Analysis

Avnet's fiscal 2026 (the 52 weeks from June 29, 2025 to June 27, 2026, which we label as its 2026 annual report) was the year the electronic-components upcycle showed up in its numbers: sales rose 24.5% to $27.63 billion, with the fourth quarter alone up 47.7% to a record $8.30 billion. Because Avnet's costs grew much more slowly than its sales, profit rose faster still: operating income was up 40.9% and diluted EPS rose 45.8% to $4.01. The catch is cash. Funding all that extra stock and all those unpaid customer invoices pushed operating cash flow to minus $280.9 million, against $724.5 million of cash generated the year before.

At a glance

• Sales of $27.63 billion, up 24.5% (22.4% excluding currency moves). Growth came from every region and both businesses; Avnet says it was mainly more units and a richer mix of higher-priced parts, with memory price increases a smaller factor.
• Operating margin of 2.6%, up from 2.3%. That is about 2.6 cents of profit from running the business per dollar of sales, which is normal for a distributor. The improvement came from overheads growing 14.8% while sales grew 24.5%.
• Operating cash flow of -$280.9 million versus net income of $334.4 million. Avnet had to fund $802.4 million of extra working capital (inventory and customer invoices) to support the growth, and borrowed to do it.

What Avnet does, and why the cycle matters

Avnet buys chips and other electronic parts from manufacturers and resells them to companies that build electronics. It earns a thin markup (gross margin, the share of sales left after paying for the parts, was 10.4%) on a very large volume. Two businesses report separately:

• Electronic Components (EC), 93.6% of sales: high-volume distribution of semiconductors, connectors and similar parts across the Americas, EMEA (Europe, Middle East and Africa) and Asia.
• Farnell, 6.4% of sales: a catalog-style business selling smaller quantities to engineers and small manufacturers, at a much higher gross margin (27.7%).

Distributors ride the semiconductor cycle. When customers are working off excess stock, sales fall and the distributor turns inventory into cash. When demand recovers, sales jump and the distributor has to spend cash on inventory and carry larger customer balances. Fiscal 2026 was clearly the second kind of year.

Key metrics

(bps = basis points; 100 bps = 1 percentage point. SG&A is selling, general and administrative expense, i.e. overheads.)

Where the growth came from

"Constant currency" strips out the effect of exchange-rate changes when foreign sales are converted into dollars. The gap matters for EMEA: of its 20.5% reported growth, only 13.1% was underlying. The rest came from a weaker dollar making euro- and pound-denominated sales worth more. Asia, the fastest-growing region, had essentially no currency boost.

The year also sped up as it went on. Fourth-quarter sales of $8.30 billion were 16.5% above the third quarter and 47.7% above a year earlier. EC sales rose 49.0% year over year in the quarter, and Americas sales rose 55.3%.

Margins: lower gross margin, higher operating margin

Two margin numbers moved in opposite directions, and both have specific causes in the filing:

• Gross margin fell 31 bps to 10.4%. EC gross margin fell 44 bps to 9.24% "primarily due to a higher mix of sales from the lower-margin Asia region." Asia rose to about 51% of EC sales from 49%. Asian customers tend to be large contract manufacturers buying in bulk at thin markups, so growth there adds dollars of profit but dilutes the percentage. Farnell's gross margin went the other way, up 168 bps to 27.73%, helped by more sales of on-the-board components and some memory price increases.
• Operating margin rose 30 bps to 2.6%. SG&A grew $260.0 million (14.8%), much less than sales, so overheads fell to 7.3% of sales from 7.9%. This is operating leverage, meaning a large part of the cost base doesn't rise with every extra dollar of sales.

Farnell was the bigger turnaround in percentage terms. Its operating income more than tripled (+221.7%) to $105.7 million, and its operating margin rose to 5.9% from 2.3%. In the fourth quarter it reached 9.0%. EC operating income rose 26.9% to $898.5 million at a 3.5% margin, and 4.1% in the fourth quarter.

What the headline numbers hide

• Earnings did not turn into cash this year. Net income was $334.4 million, but operations used $280.9 million of cash. Receivables (money customers owe Avnet) rose 59% to $6.88 billion while sales rose 24.5%. Avnet attributes this to higher sales and "cash collection timing." Fourth-quarter sales were far above the yearly average, so year-end receivables partly reflect that late surge. Inventory rose 15.9% to $6.07 billion, slower than sales, and accounts payable (what Avnet owes its suppliers) rose 74% to $6.05 billion. Suppliers therefore funded a large share of the build. Even so, Avnet borrowed more: total debt rose to about $3.21 billion from $2.66 billion, and debt due within a year jumped to $734 million from $87 million. Management says this is normal for an upturn ("during periods of higher growth, the Company generally uses cash to fund working capital"). It still means fiscal 2026's profit sits in receivables and stock rather than in the bank.
• Pre-tax profit nearly doubled, but a tax comparison hides part of that. Income before tax rose 86.5% to $467.4 million. The effective tax rate rose to 28.5% from an unusually low 4.1% in fiscal 2025, which the filing ties to tax attributes created in fiscal 2025 that didn't recur. So the 39.2% net income increase understates how much the operating business improved.
• Buybacks added to EPS growth. Diluted share count fell 4.6% to 83.4 million, so EPS (+45.8%) grew faster than net income (+39.2%). Avnet spent $138.3 million on buybacks, $100 million of it alongside a $650 million convertible bond issued in September 2025.
• GAAP and adjusted earnings differ by $1.66 per share. GAAP EPS is calculated under standard accounting rules; Avnet's "adjusted" EPS excludes some items. Adjusted EPS of $5.67 excludes $134.7 million of restructuring, integration and other costs ($1.15 per share after tax), currency losses ($0.11) and $0.39 of tax items. The restructuring charge is real cash spending. Most of it was severance, the largest piece for closing a German distribution center affecting about 350 employees (completion expected in fiscal Q3 2027), plus start-up costs for a new EMEA distribution center. Fiscal 2025's charge of $108.3 million was similar in size, so these costs have recurred two years running.
• Interest is a large claim on profit. Interest and financing costs of $250.7 million took about 35% of operating income. They barely rose (+1.8%) because Avnet refinanced and paid off a $550 million 4.63% bond in April 2026. Even so, higher average borrowings will keep this line heavy while working capital keeps growing.

Takeaway: Fiscal 2026 showed how much an upcycle helps Avnet. Sales grew 24.5% and pre-tax profit nearly doubled, because overheads didn't grow with sales. But all of that profit, plus about $280 million more, went into customer receivables and inventory. Whether the year was as good as it looks depends on Avnet turning those balances back into cash once growth slows.

Outlook

Management guided the first quarter of fiscal 2027 (ending October 3, 2026) to sales of $9.00–9.30 billion, about 10% above the fourth quarter at the midpoint, with growth expected in every EC region and at Farnell. It guided adjusted diluted EPS to $2.80–2.90 and GAAP EPS to $2.57–2.77, against $0.84 adjusted and $0.61 GAAP in the same quarter a year ago. The guidance assumes interest expense similar to the fourth quarter, an adjusted tax rate of 21–25% and 85 million diluted shares. The earnings release also reports that inventory days averaged 81 for the year (18 fewer than fiscal 2025) and fell to 71 in the fourth quarter, so Avnet is selling through stock faster even as it buys more.

Our read: in the near term the cycle is clearly in Avnet's favour. Fourth-quarter sales were 16.5% above the third quarter, and the guidance implies another roughly 10% step up. The fourth quarter's 3.8% adjusted operating margin is the level to watch: if it holds as sales pass $9 billion, fiscal 2027 earnings will be well above fiscal 2026's. Three things to watch:

1. Cash flow. Receivables have to stop growing faster than sales. Another quarter of negative operating cash flow would mean more borrowing on top of the new $375 million term loan (signed August 2026) and the enlarged $700 million receivables facility.
2. Mix. Asia keeps gaining share and pulling EC gross margin down, so Avnet needs volume to keep growing to offset the lower margin per dollar.
3. Memory pricing. Avnet cites memory price increases as a smaller contributor to growth. Memory prices swing sharply, so some of the sales gain could reverse when they fall.

The filing also flags tariff uncertainty, including the February 2026 Supreme Court ruling striking down IEEPA tariffs. Avnet has recorded no potential refunds, and tariff billings were under 1% of sales.