DEF: Avnet's 2025 Proxy Reveals Steep Fiscal Year Declines

Avnet, Inc. announces its 2025 Annual Meeting agenda, including director elections and a new stock plan, against a backdrop of significant financial performance deterioration in fiscal 2025.

Summary

• The Annual Meeting of Shareholders is scheduled for Friday, November 21, 2025, at 8:00 am local time at Avnet's Corporate Headquarters in Phoenix, Arizona.
• The record date for shareholders entitled to vote at the Annual Meeting is September 22, 2025.
• Shareholders will vote on four key proposals: the election of ten Director nominees, an advisory vote on named executive compensation, the approval of the 2025 Stock Compensation and Incentive Plan, and the ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the fiscal year ending June 27, 2026.
• For fiscal year 2025, sales decreased by 6.6% to $22,200.8 million from $23,757.1 million in fiscal 2024.
• Gross profit dollars fell by 13.8% to $2,385.0 million in fiscal 2025 from $2,766.4 million in fiscal 2024.
• Operating income (GAAP) declined by 39.1% to $514.3 million in fiscal 2025 from $844.4 million in fiscal 2024.
• Adjusted operating income (non-GAAP) decreased by 30.7% to $624.0 million in fiscal 2025 from $900.0 million in fiscal 2024.
• Diluted earnings per share (GAAP) dropped by 49.4% to $2.75 in fiscal 2025 from $5.43 in fiscal 2024.
• Adjusted diluted earnings per share (non-GAAP) decreased by 35.6% to $3.44 in fiscal 2025 from $5.34 in fiscal 2024.
• Return on Working Capital decreased by 311 basis points to 9.97% in fiscal 2025 from 13.08% in fiscal 2024.
• The annual cash incentive payout for fiscal 2025 was 72% of target for all Named Executive Officers (NEOs), with financial performance metrics (Adjusted OI$ and ROWC) achieving 0% payout and non-financial goals achieving 200% payout.
• Performance Share Units (PSUs) for all tranches (fiscal 2025-2027, 2024-2026, and 2023-2025) resulted in a 0% payout for fiscal 2025 due to performance thresholds not being achieved.
• The proposed 2025 Stock Compensation and Incentive Plan would make 3,000,000 shares of common stock available, with an estimated dilution of 8% and a three-year average burn rate of 1.4%.

Sentiment

Score: 3

Explanation: The filing reveals significant declines across all major financial performance metrics for fiscal year 2025, including sales, gross profit, operating income, and EPS. Executive financial incentives (PSUs and parts of annual cash incentives) were largely unearned due to not meeting performance thresholds. While corporate governance practices are robust and non-financial goals were met, the core financial results are substantially negative, indicating a challenging period for the company.

Positives

• The company maintains strong corporate governance practices, with nine out of ten Director nominees identified as independent.
• The Board has separated the roles of CEO and Board Chair, with an independent Director serving as Chair, which is believed to provide independent and objective oversight.
• The company is committed to sustainability, utilizing SASB, GRI, TCFD frameworks, and UN Sustainable Development Goals for its ESG reporting.
• Executive compensation programs are designed with a pay-for-performance philosophy, focusing on long-term incentives, multiple performance metrics, award caps, and a clawback policy.
• Despite a challenging operating environment, employee engagement, morale, and talent retention exceeded internal expectations and external benchmarks, reflecting a strong workplace culture.
• Net working capital days improved (decreased) by 3.5% from 106.96 in fiscal 2024 to 103.17 in fiscal 2025.

Negatives

• Sales for fiscal 2025 decreased by 6.6% to $22,200.8 million compared to $23,757.1 million in fiscal 2024.
• Gross profit dollars for fiscal 2025 declined by 13.8% to $2,385.0 million from $2,766.4 million in fiscal 2024.
• Operating income (GAAP) for fiscal 2025 saw a significant drop of 39.1% to $514.3 million from $844.4 million in fiscal 2024.
• Adjusted operating income (non-GAAP) for fiscal 2025 decreased by 30.7% to $624.0 million from $900.0 million in fiscal 2024.
• Diluted earnings per share (GAAP) for fiscal 2025 fell by 49.4% to $2.75 from $5.43 in fiscal 2024.
• Adjusted diluted earnings per share (non-GAAP) for fiscal 2025 decreased by 35.6% to $3.44 from $5.34 in fiscal 2024.
• Operating income margin decreased by 123 basis points to 2.32% and adjusted operating income margin decreased by 98 basis points to 2.81% in fiscal 2025.
• Return on Working Capital for fiscal 2025 decreased by 311 basis points to 9.97% from 13.08% in fiscal 2024.
• Financial performance goals for the annual cash incentive plan (Adjusted Operating Income Dollars and Return on Working Capital) were not met, resulting in a 0% payout for these components.
• Performance Share Units (PSUs) for all tranches (fiscal 2025-2027, 2024-2026, and 2023-2025) resulted in a 0% payout for fiscal 2025, indicating a failure to achieve long-term performance thresholds.

Risks

• The Board oversees risks related to accounting and financial reporting through the Audit Committee.
• The Technology and Risk Committee oversees risks related to cybersecurity and ethics and compliance programs.
• The Compensation and Leadership Development Committee oversees risks related to compensation programs, ensuring they do not encourage excessive risk-taking.
• Failure to approve the 2025 Stock Compensation and Incentive Plan could limit the company's ability to issue equity-based awards, potentially impairing its capacity to pay for performance, foster an ownership culture, and offer competitive compensation.
• Equity awards and change of control payments may be subject to adverse tax consequences for participants under Sections 409A and 280G of the Internal Revenue Code.

Future Outlook

The 2025 Stock Compensation and Incentive Plan is designed to promote long-term success and increase shareholder value by incentivizing employees and assisting in attracting, retaining, and motivating highly qualified individuals. The company anticipates that the shares available under this new plan, combined with remaining shares from the 2021 plan, will meet equity-based compensation needs for approximately four to five years following the 2025 Plan's effective date.

Management Comments

• "The Board of Directors believes that good corporate governance practices provide an important framework that promotes long-term value, strength, and stability for shareholders."
• "The Company is committed to sustainability by creating sustainable operations and enabling technology solutions that improve lives."
• "The Committee and Board further concluded that the Company's senior leadership played a material role in achieving these outcomes through consistent, open, and constructive engagement with employees at all levels of the organization."

Industry Context

Avnet operates in the technology design and supply chain industry, aiming to be a preferred distributor partner. The company's executive compensation benchmarking peer group includes major players in electronics distribution and manufacturing services, such as Arrow Electronics, Inc., Flex Ltd., Jabil, Inc., and TD SYNNEX Corporation, indicating a highly competitive landscape. The emphasis on semiconductor industry experience in director qualifications highlights the critical nature of this sector to Avnet's business. The significant financial downturn in fiscal 2025 suggests the company may be facing broader industry headwinds or specific operational challenges within this competitive environment.

Comparison to Industry Standards

• The company's executive compensation benchmarking peer group for fiscal 2025 includes: Arrow Electronics, Inc., Celestica Inc., CDW Corporation, Flex Ltd., Genuine Parts Company, Hewlett Packard Enterprises, Insight Enterprises, Inc., Jabil, Inc., Sanmina Corporation, TD SYNNEX Corporation, TE Connectivity Ltd., W.W. Grainger, Inc., WESCO International, Inc., and Western Digital Corporation.
• The company's three-year average burn rate of 1.4% for equity awards is presented in the context of potential dilution from the new stock plan, suggesting it is a metric considered against industry norms.
• Employee engagement, morale, and talent retention were noted to have "exceeded internal expectations and external benchmarks," indicating strong performance in these non-financial areas relative to the broader industry.
• Relative market share is a key financial performance metric used in annual cash incentives, measuring the company's organic sales growth against its main competitor in its Core business.
• Relative Adjusted EPS Growth and Relative Total Shareholder Return (rTSR) are used as metrics and modifiers in Performance Share Units, directly comparing the company's performance to its benchmarking peer group.

Management Changes

Corporate Governance

Related Party Transactions

• The Audit Committee reviews and approves transactions with any related person in which the Company is a participant and involves an amount equal to or exceeding $120,000 per year.

Stakeholder Impact

• **Shareholders**: Directly impacted by the significant decline in financial performance, the proposals for the Annual Meeting (including director elections, executive compensation, and a new stock plan), and potential dilution from the 2025 Stock Compensation and Incentive Plan (estimated 8%).
• **Employees**: Affected by the executive compensation structure, which includes annual cash incentives and long-term equity incentives designed to reward performance and encourage retention. Non-financial goals related to talent management, leadership development, and employee engagement directly impact the employee experience.
• **Customers and Suppliers**: The company's vision to be a 'preferred distributor partner at the center of the world's technology design and supply chains' indicates a focus on these relationships, which could be indirectly impacted by the company's financial health and strategic direction.
• **Management**: Executive officers' compensation is directly tied to financial and non-financial performance, with significant portions of their pay being variable and subject to a clawback policy. Their roles and responsibilities are subject to Board oversight and succession planning.

Next Steps

• Shareholders are encouraged to vote on the election of ten Director nominees, the advisory vote on named executive compensation, the approval of the 2025 Stock Compensation and Incentive Plan, and the ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm at the Annual Meeting on November 21, 2025.
• If an incumbent nominee is not elected, the Board (excluding that individual) will decide within 90 days whether to accept their resignation and will disclose and explain its decision.
• The Compensation and Leadership Development Committee and the Board will consider shareholder opinions from the advisory vote on executive compensation in future determinations concerning the executive compensation program.
• The 2025 Stock Compensation and Incentive Plan will become effective if approved by shareholders at the Annual Meeting.
• The 2021 Stock Compensation and Incentive Plan will continue to grant awards until its 2.5 million shares available for awards are exhausted, which is expected to occur in September 2026.

Key Dates

Recommendation

The company experienced substantial declines across all key financial metrics in fiscal 2025, including a 6.6% drop in sales, a 13.8% decrease in gross profit, and a nearly 50% reduction in diluted EPS. Executive long-term incentives (PSUs) and a significant portion of annual cash incentives were unearned due to failure to meet performance thresholds. While corporate governance and non-financial employee metrics show strength, the core business performance is deteriorating significantly, indicating fundamental challenges that warrant a 'sell' recommendation for investors.

Keywords

Avnet, Proxy Statement, Corporate Governance, Executive Compensation, Stock Compensation Plan, Director Election, Auditor Ratification, Financial Performance, Fiscal 2025, Sales, Operating Income, EPS, Equity Incentives, Risk Management, Sustainability, NASDAQ