Avnet's sales surge comes with a heavy cash bill
The components distributor beat its original forecast by a wide margin. Funding the expansion required more inventory, customer credit and borrowing.
Avnet's electronic-components business grew much faster than the distributor had forecast. Supporting that expansion required a large investment in stock and customer receivables, turning stronger earnings into an operating cash outflow.
Research by Ticker Byline shows that sales of $10.718 billion exceeded the top of Avnet's original $9.0 billion to $9.3 billion forecast for the quarter ending October 3. Adjusted earnings per share reached $3.63, above the original $2.80 to $2.90 range.
Both the original forecast and the result cover the 14-week quarter ending October 3, compared with 13 weeks a year earlier. Avnet estimates the extra week added $654 million of sales.
More sales require more funding
Operating activities used $842.4 million of cash, compared with $144.6 million a year earlier. Inventory absorbed $2.122 billion and receivables absorbed $893.3 million, partly funded by a $1.810 billion increase in trade payables. These are cash-flow movements rather than simple changes in balance-sheet totals.
Net financing inflows of $950.8 million helped fund the expansion. Cash and cash equivalents ended the quarter at $236.8 million, while short- and long-term debt carrying amounts rose from a combined $3.213 billion at the previous fiscal year-end to $4.168 billion.
Compared with the previous quarter, inventory days were roughly flat at 72, while net working-capital days fell five to 64. Working-capital days indicate how long cash is tied up in the operating cycle.
Growth extends beyond the extra week
Avnet reported sales growth of 70.6% after excluding its estimate for the extra week. Both Electronic Components and Farnell grew. Management cited demand across industrial markets, aerospace and defense, transportation, artificial intelligence and data centers.
The company now forecasts fiscal second-quarter sales of $11.1 billion to $11.4 billion and adjusted earnings per share of $3.90 to $4.10. The central question is how efficiently cash invested in that expansion returns through customer payments. The Avnet company profile tracks earnings alongside working capital and borrowing.