Avnet’s New CEO Tells Investors He Knows ‘What We Do Well And What We Need To Do Better’

Phil Gallagher, thrust into the top job at the global component distributor four days ago, is working to navigate the coronavirus crisis while laying a foundation for renewed growth

Just four days into his new job, Avnet’s interim CEO, Phil Gallagher, told investors he plans to reinvigorate the electronic components distributor while navigating through a coronavirus-induced slump.

Gallagher kicked off Thursday’s fourth-quarter earnings call by thanking his predecessor, Bill Amelio, for his contributions in leading the company for the last four years.

“I’ve been with Avnet long enough to know what we do well and what we need to do better,” Gallagher told investors.

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While the business faces challenges, Wall Street seemed encouraged by Q4 financials, and the stock, which closed at $28.92, shot past $30 per share in after-hours trading.

The new leader said his mission is to lay the groundwork for the 100-year-old business to return to growth. That involves accelerating its Premier Farnell division, pouring fuel on a rapidly emerging Internet-of-Things business, and expanding its ecosystem.

Under his stewardship, Avnet will focus on “buttoning down execution and fundamentals,” Gallagher said, while diversifying its catalog of over 100,000 SKUs.

“What we’re going to be doing is certainly reinvigorating the foundation of the core business,” Gallagher said.

Gallagher took the helm at Avnet this week amidst a global economy hobbled by the coronavirus crisis.

“We spent the quarter continuing to navigate the Covid-19 environment,” he told investors.

Revenue of $4.2 billion for the quarter ended June 27 was down from the $4.7 billion of the same quarter in 2019, and the $4.3 billion in the immediately preceding quarter.

Avnet delivered 64 cents earnings-per-share, with cash flow of $288 million.

In its previous earnings call, Avnet’s leadership shared thoughts on preparing for a downturn brought on by the pandemic, and adjusted guidance based on the macro-economic headwinds the company faced.

Those expectations turned out to be in line with Q4 results, Gallagher said.

The crisis has softened demand, particularly in the AMEA region, and also impacted the distributor’s logistics operations. Auto and aerospace were particularly weak.

But Avnet sees positive signals.

While the company knows it is “not where we need to be right now with Farnell,” Gallagher said, that business has a lot of growth potential. Avnet will “continue doubling-down” on the British distributor it acquired in 2016 for $908 million.

Farnell saw encouraging demand generation, particularly from health care suppliers addressing the needs of customers grappling with Covid-19.

Connected devices will be an important driver of business going forward, Gallagher said.

“IoT solutions are an extension of our key capability, driving more demand generation,” he said, and “creating significant component demand for suppliers.”

The Covid-19 crisis has imparted lessons that could make the business more efficient after the pandemic ends.

Avnet has seen its roughly 15,000 employees effectively transition to working from home thanks to video conferencing, Gallagher said.

When assessing cost rationalization in the future, the success of that experiment will create options for reducing travel and real estate expenses, Gallagher said.