AVT Q1 Earnings Call: Revenue Meets Expectations, Guidance Trails Analyst Estimates

Electronic components distributor Avnet (NASDAQGS:AVT) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 6% year on year to $5.32 billion. On the other hand, next quarter’s revenue guidance of $5.3 billion was less impressive, coming in 0.9% below analysts’ estimates. Its non-GAAP profit of $0.84 per share was 17.4% above analysts’ consensus estimates.

Is now the time to buy AVT? Find out in our full research report (it’s free).

StockStory’s Take

Avnet’s first quarter results were primarily driven by continued softness in Western markets and ongoing customer inventory destocking, offset by stronger-than-anticipated performance in Asia and incremental improvements at Farnell, its distribution business. CEO Phil Gallagher cited Asia’s third consecutive quarter of year-over-year growth and highlighted ongoing stabilization efforts in Europe, noting, “Asia was the only region with year-on-year sales growth. In EMEA, we continue to experience weak demand across the region.”

Looking ahead, Avnet’s guidance for next quarter reflects persistent headwinds in key Western markets and heightened tariff-related uncertainty. Management emphasized caution around geopolitical factors and the complexity of new tariffs on goods from China, with Gallagher stating, “Our team has made a significant effort to adjust our processes for this latest round of tariffs.” The company expects muted revenue trends and is focused on maintaining operational discipline while managing supply chain challenges and evolving customer demand patterns.

Key Insights from Management’s Remarks

Avnet’s management attributed the latest quarter’s results to stable but challenging market conditions, ongoing customer inventory adjustments, and regional disparities in demand. Key themes included efforts to optimize inventory, manage tariffs, and drive incremental improvements at Farnell.

• Asia Outperforms, Western Weakness: Asia delivered year-over-year sales growth for the third straight quarter, aided by some customer pull-ins related to regulatory uncertainty, while Europe (EMEA) continued to experience broad-based demand weakness.
• Customer Destocking Continues: Customers across most regions remained focused on reducing their inventories, leading to lower backlog and shorter lead times. Cancellations were described as normal, but management does not foresee a rapid recovery from the destocking cycle.
• Farnell Progresses on Turnaround: The Farnell business, which caters to industrial and electronic component customers, posted sequential improvement in sales and margin. Management credited new leadership and operational streamlining for these early gains, but emphasized that further improvement is needed to reach mid- to high-single-digit margins.
• Tariff Mitigation Efforts: In response to new tariffs on goods from China, Avnet is leveraging its global logistics, alternative sourcing, and foreign trade zone capabilities to minimize impact on customers. Management noted that about 7%-10% of Americas sales are affected by these tariffs, and efforts are underway to pass through or offset costs where possible.
• Inventory Strategy Adjustments: Avnet views its inventory as a strategic asset, balancing reductions in excess stock with the need to support customer requirements. Management acknowledged that while some inventory is elevated, other product lines require further investment to remain competitive and responsive to demand shifts.

Drivers of Future Performance

Avnet’s outlook centers on ongoing regional imbalances, continued customer inventory correction, and adapting to new tariff regimes. Management expects these themes to shape revenue and margin trends in the coming quarters.

• Tariffs and Geopolitical Uncertainty: Management highlighted the dynamic nature of U.S.-China tariffs and associated supply chain complexity. The company’s ability to mitigate tariff effects and adjust sourcing will influence both customer demand and margin profile.
• Inventory Normalization Pace: The speed at which customers complete inventory destocking will affect Avnet’s sales trajectory. Prolonged correction periods may delay revenue recovery, while faster normalization could support a rebound.
• Farnell Operational Execution: Continued progress at Farnell—driven by cost control, SKU expansion, and process improvements—remains a key lever for improving group profitability. Management aims for steady margin increases but cautioned that significant gains will take time.

Top Analyst Questions

• Joe Quatrochi (Wells Fargo): Asked why Avnet’s revenue guidance was lower than some suppliers’ growth outlooks. CFO Ken Jacobson explained that ongoing weakness in Europe and the Americas offsets strength in Asia, describing the guidance as neither conservative nor aggressive.
• Joe Quatrochi (Wells Fargo): Inquired about the impact of new tariffs and supply chain services. Jacobson emphasized Avnet’s global footprint and ability to shift sourcing, but noted that tariffs on Chinese goods are largely unavoidable and must be passed through or mitigated.
• William Stein (Truist): Requested detail on Farnell’s improved margins and long-term strategy. CEO Phil Gallagher said progress is encouraging, attributing gains to new leadership and operational efficiency, while reaffirming the goal of achieving higher margins over several quarters.
• William Stein (Truist): Questioned Avnet’s inventory approach and whether higher inventory levels are a permanent strategy. Management reiterated that inventory is a strategic asset but intends to reduce excess stock where possible.
• Wamsi Mohan (BofA): Asked about order patterns related to tariffs and visibility into AI-related component demand. Gallagher reported only modest order pull-ins and estimated AI-driven sales at 3%-5% of Asia-Pacific business, with potential for future growth.

Catalysts in Upcoming Quarters

In the upcoming quarters, the StockStory team will watch (1) whether destocking trends in Western markets begin to moderate, supporting a sales recovery; (2) the effectiveness of Avnet’s strategies to offset or pass through the impact of new tariffs on its Americas business; and (3) continued operational improvements at Farnell, particularly in achieving margin expansion. Additionally, we will monitor Avnet’s inventory management as a signal of supply-demand normalization.

Avnet currently trades at a forward P/E ratio of 10.3×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our free research report.

The Best Stocks for High-Quality Investors

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.