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SEC filingAvnet returned to YoY sales growth in Q2 FY2026, but GAAP net income fell 29% due to higher restructuring costs and a tax rate spike.
Avnet’s second quarter of fiscal 2026 marked a return to year-over-year revenue growth after a prolonged industry downturn. Total sales reached $6.32 billion, an increase of 11.6% compared to $5.66 billion in the prior-year quarter. The growth was broad-based, with all three geographic regions and both operating groups contributing. Gross profit rose 11.2% to $663 million, but gross margin held flat at 10.5% as a shift in geographic mix toward the lower-margin Asia region offset volume gains.
Despite the top-line improvement, GAAP operating income declined 5.9% to $146.2 million, and operating margin contracted 43 basis points to 2.3%. The decline was driven by a $25.2 million charge for restructuring, integration, and other expenses—up sharply from $3.8 million a year ago—and a 12.5% increase in SG&A expenses tied to higher sales volumes and foreign currency translation. On an adjusted basis, operating income improved 7.7% to $171.7 million, though adjusted margin slipped 10 bps to 2.7%.
Net income fell 29.3% to $61.7 million ($0.75 per diluted share) from $87.3 million ($0.99 per share) in Q2 FY2025. The decline was amplified by a surge in the effective tax rate to 31.3% from 3.4%, primarily due to the absence of tax attribute carryforwards generated in the prior year and increases to valuation allowances.
Electronic Components (EC) – EC sales grew 10.8% YoY to $5.89 billion, led by Asia (up 16.9% in reported currency). Growth was driven by compute, aerospace & defense, and transportation end markets, with higher volumes and a mix shift toward higher-priced components. EC operating income rose 3.0% to $187.1 million, but operating margin declined 25 bps to 3.2% as a higher proportion of sales came from the lower-margin Asia region.
Farnell – Farnell delivered standout performance, with sales up 23.6% to $427.1 million, driven by global demand for single board computers and on-the-board components. Operating income surged 475% to $20.0 million, and operating margin expanded 367 bps to 4.7%, reflecting higher sales, improved gross margin, and operating leverage.
Management provided a sequential revenue outlook for the third quarter of fiscal 2026, expecting sales to grow approximately 1% compared to the second quarter, with higher growth anticipated in the Americas and EMEA regions relative to Asia. The company noted that inventories relative to sales remain elevated but are improving, and it continues to monitor tariff and trade policy developments. Tariff-related billings were less than 1% of total sales in the first half of fiscal 2026. The company does not expect to repurchase additional shares until its consolidated leverage ratio returns to historical levels.
Cash and cash equivalents stood at $286.5M as of December 27, 2025, up from $192.4M at June 28, 2025, driven by financing activities. Total debt rose to $2.94B (short-term $463.6M, long-term $2,474.1M) from $2.66B, primarily due to the issuance of $650M convertible notes (net $633.8M) and a $266.5M term loan. The company remains in compliance with debt covenants. Shareholders' equity decreased to $4.94B from $5.01B, impacted by share repurchases and dividends.
No material purchase commitments were disclosed. Note 6 details contingent liabilities including a Mexico consumption tax audit with a $43.4M accrual and $7.6M in other compliance-related accruals as of December 27, 2025. The company does not provide a schedule of future commitments.
Avnet reports two segments: Electronic Components (EC) and Farnell. For the six months ended December 27, 2025, EC sales were $11,391.5M (+7.7% YoY) with operating income of $346.1M (3.0% margin). Farnell sales were $826.0M (+19.2% YoY) with operating income of $37.1M (4.5% margin). By geography, Asia led with $6,032.5M (49.4% of total), followed by EMEA $3,379.8M (27.7%) and Americas $2,805.2M (23.0%). EC assets totaled $11.0B and Farnell $1.7B as of December 27, 2025.