Avnet (AVT) Q1 2026 earnings review
Growth Accelerates Led by Asia; Q2 Guidance Signals Return to EPS Growth
Avnet reported a solid start to FY26, with revenue of $5.9 billion (+5.3% YoY) and adj. EPS of $0.84 both exceeding guidance. The results mark an acceleration in top-line growth, driven by continued strength in Asia (+9.9%) and the first YoY growth in the Americas since FY23. The turnaround at the Farnell segment also gained traction, with margins expanding dramatically. However, consolidated margins remain compressed due to the sales mix shifting toward lower-margin Asia and persistent weakness in EMEA (-5.6% in constant currency). Importantly, guidance for Q2 FY26 implies a return to YoY EPS growth for the first time in six quarters, signaling a key inflection point in the recovery.
🐂 Bull Case
The recovery is expanding beyond Asia. The Americas returned to growth (+3.0% YoY) for the first time in over a year, and the Farnell segment grew a strong 14.9% YoY.
Management noted that the book-to-bill ratio improved globally and is now above parity across all regions, signaling strengthening demand and a growing backlog.
Q2 guidance midpoint ($0.95) implies a 9% YoY increase in adjusted EPS, marking a significant reversal from five consecutive quarters of steep declines.
🐻 Bear Case
The European market continues to struggle, with sales down 5.6% YoY in constant currency. This weakness in a historically high-margin region caps the potential for overall margin recovery.
Gross margin declined 42 bps YoY, primarily due to the ongoing sales mix shift toward the lower-margin Asia region, which now accounts for 48.5% of total sales.
Operating cash flow was negative $145 million, a reversal from prior quarters, driven by investments in receivables and inventory to support sales growth. This highlights a strain on working capital.
⚖️ Verdict: 🟢
Bullish. The return to broad-based revenue growth and, most importantly, the guidance for a return to YoY EPS growth, marks a clear inflection point. While margin pressures from regional mix and a weak EMEA persist, the accelerating recovery across other segments and positive booking trends suggest the company has successfully navigated the bottom of the cycle. The negative cash flow is a point to monitor but appears linked to funding growth, which is a better problem to have than managing decline.
Key Themes
Asia Continues to Lead the Recovery
Asia delivered its fifth consecutive quarter of YoY sales growth, up 9.9% to $2.86 billion, and now represents over half of Electronic Components sales. The region is benefiting from strength in communication, transportation, and data center end markets. Management views Asia's consistent performance as a key leading indicator for the broader market cycle.
Farnell Turnaround Delivers Strong Margin Expansion
The Farnell segment showed significant progress, with sales growing 14.9% YoY. More impressively, operating margin expanded to 4.3%, a dramatic improvement from 0.5% in the prior year and stable sequentially. This performance demonstrates that management's strategic focus on cost control and enhancing digital capabilities is yielding tangible results.
EMEA Weakness Caps Profitability
While other regions recover, EMEA remains a significant drag on performance. Sales were flat on a reported basis but declined 5.6% in constant currency. As the largest region for the high-touch Farnell business and a key market for the higher-margin EC business, its prolonged weakness limits Avnet's ability to drive meaningful consolidated margin expansion.
Working Capital Investment Pressures Cash Flow
A key red flag this quarter was the negative Operating Cash Flow of $145 million, a sharp contrast to strong generation in prior quarters. This was driven by a $193 million increase in receivables and a $216 million increase in inventory. While management attributes this to supporting growth in Asia, it contradicts the positive narrative of inventory optimization and highlights the cash cost of the current recovery.
Americas Region Returns to Growth
For the first time since fiscal 2023, the Americas region posted positive YoY growth of 3.0%. This is a critical development, suggesting the inventory correction in Western markets is abating. A sustained recovery in this higher-margin region is necessary for a healthier overall profit profile.
AI & Data Center Opportunity Broadens
Management highlighted a growing opportunity in components supporting AI and data center build-outs, which now constitutes about 7% of Asia's business. The demand extends beyond core processors to include storage, connectivity, power, and cooling products, where Avnet has a strong line card. The company is seeing extended lead times and potential price increases in these areas, indicating robust demand.
Other KPIs
Decelerating. Despite sales in the core EC segment growing 4.6% YoY, the operating margin contracted sharply from 3.8% a year ago. This demonstrates the powerful negative impact of the regional mix shift to Asia, where margins are structurally lower than in the West.
Reversing. After several quarters of reductions, inventory increased by $185 million sequentially. While management cites the need to support growth, inventory days remain elevated at 92, still well above the long-term target of being in the 80s. This will be a key metric to watch to ensure working capital discipline is maintained during the recovery.
Stable. The company continued its aggressive capital return strategy, repurchasing $138 million of stock (3.2% of shares outstanding) and paying $28 million in dividends. Over the past four quarters, Avnet has repurchased 8% of its outstanding shares, signaling strong confidence from management.
Guidance
Accelerating. The midpoint of $6.0B implies YoY growth of 5.9%, an acceleration from the 5.3% growth reported in Q1. Sequentially, this represents modest growth of 1.7%, reflecting continued recovery.
Reversing. The midpoint of $0.95 implies 9.2% YoY growth, a significant reversal from the 8.7% decline in Q1 and five prior quarters of negative growth. This is a key milestone indicating that operating leverage is returning as the top-line recovers.
Stable. The guidance assumes the trends seen in Q1 will continue, with the Americas and Asia driving sequential growth while Europe remains stagnant. This confirms that the regional divergence will persist in the near term.