I would now like to turn the floor over to Joe Burke, Investor Relations at Avnet, please go ahead.

Thank you, operator. Earlier this afternoon, Avnet released financial results for the fiscal fourth quarter of 2019. The release is available on the Investor Relations section of the company's website. A copy of the slide presentation that will accompany today's remarks can be found via the link in the earnings release as well as on the IR section of Avnet's website. Lastly, some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward-looking statement or supply new information regarding the circumstances after the date of this presentation. Today's call will be led by Bill Amelio, Avnet's Chief Executive Officer; and Tom Liguori, Avnet's Chief Financial Officer. Also, Phil Gallagher, Global President, Electronic Components joins us to participate in the Q&A session. With that, let me turn the call over to Bill Amelio. Bill?

Thank you Joe and thanks everyone for joining us for our fourth quarter and fiscal year 2019 earnings call. I'm pleased to report that in our fiscal fourth quarter we delivered sales of $4.7 billion. This was the midpoint of the target guidance range we provided to investors in April. We closed our fiscal year with sales growth of 3% despite the deceleration we saw in the second half of our fiscal 2019. Since April, companies across the industry have seen signs of slowing due to macroeconomic headwinds and tariffs. Avnet was no exception. We remained agile as market conditions worsened and we acted quickly to accelerate cost reduction programs that were already part of our long-term plan. By taking these swift actions, we met our commitments to keep SG&A expenses on a downward trend. Year-over-year spending was down meaningfully and we remained very disciplined in our spending and our investment priorities. Pricing and margin pressures certainly were greater than anticipated. This was due to multiple factors. These include the shortening of the lead times and reduced average selling prices or ASPs. This occurred at Farnell, which happens when supply rebounds and demand moves back to broadline distributors. The pricing pressure is felt broadly across the catalog space and is expected in a down market. Based on our suppliers and our outside analysts checks, Farnell’s decline was equal to or less than the market. Assuming working conditions improve, we see a clear path achieving Farnell’s long range goals of 15% operating margin. Now I'll talk about that more in a few minute. Let me first finish reviewing some of the key metrics. Avnet's adjusted operating income margin for the fourth fiscal quarter was 3.3%. This was down from 3.6% a year ago, and down from 3.8% in the March 2019…

Thank you, Bill, and good afternoon everyone. This quarter, we effectively managed those variables that were within our control by responding to shifting market dynamics, a well executed strategy and contingency plan. We are disciplined in our efforts to control costs and improve cash flow, while product and customer demand were negatively impacted by external factors. Let me take you through our key metrics for the quarter on Slide 14, to discuss in more detail how our fourth quarter operating margins and earnings were affected, and the actions we took to mitigate those impacts. We delivered revenues of $4.7 billion in line with our guidance. This was down 7.5% from a year ago and down 0.4% from the prior quarter. Gross margin declined 30 basis points year-over-year to 12.7%, predominantly due to lower sales and margins in Farnell. We continued our focus on managing costs with SG&A expenses declining $40.6 million year-over-year. Our cash rate improved to 18.9% in the quarter to 20.5% for the total year. We continue to opportunistically repurchase shares at attractive valuation. We ended fiscal year 2019 with diluted shares of 106 million down from 118 million a year ago. Adjusted earnings per share total $0.95 a 4% decline year-over-year reflecting the items just discussed. Turning to business performance on Slide 15, starting with Farnell, revenue declined 12% year-over-year to $343.5 million with inventory and lead times stable for passive component. The market demand shifted from catalog distributors including Farnell back to high volume distributors. This drove price erosion during the quarter as well. Farnell operating income decreased $12.4 million sequentially predominantly due to the decline in passive. Q4 Farnell operating margins were 9.7%. More on Farnell later in this discussion. Electronic Components results were fairly very solid in a slowing demand environment. Revenues were flat…

Thank you. Ladies and gentlemen we will now be conducting a question-and-answer session [Operator Instructions]. Please limit yourself to one question and one follow up. Thank you. Our first question comes from Param Singh with Bank of America Merrill Lynch. Please state your question.

Hi. Thank you for taking my question. So, just wanted to first dive into your guidance and how -- your EPS guide in particular. It would just imply that on a sequentially flat revenue guide you’d probably have to see a significant dip in electronics marketing margin and possibly even Premier. Maybe you could help me bridge the gap? And then I have a follow up.

Sure, Param I’ll take your question, I’ll pass it on to Tom. So what we saw in the back half of the quarter was a falloff in the catalog space and as you know lead times are coming in significantly and then there is a migration as I pointed out in my remarks from the catalog space, the broadline guys, which affects our margin because the mix can change between Farnell and the core. Core held up pretty well with respect to margin. So, in the next quarter guidance which you’ll see is a full quarter of Farnell at a different place than we saw at the end of this quarter. And that’s explains the majority of why the guide is down the way it did. Tom?

Hi, Param. Demand softened throughout the quarter and pricing softened throughout the quarter. Pricing, it was somewhat across the board but mostly notably in passive. So, what you see from Q4 to Q1 is Q1 has the full effect of what we saw.

So, I’m sorry, for my follow up just to get a breakdown. If I were to assume that EM margins are down only marginally year-over-year that would imply a significant falloff up in Premier Farnell margin, probably even lower to when you acquired them, unless my math is off. And then I also wanted to have a follow up after that.

Yes, so Farnell is in the 7% to 10% range, but still higher than when we acquired them but most likely down sequentially from our fourth quarter.

And most importantly we see this as a temporary thing as the market rebounds again. We've positioned ourselves extremely well to able to play heavily upside. And we also did channel checks with what's happening with all the catalog suppliers. This is not a phenomena that's Farnell-only. This is essentially across the entire catalog space. Each of the catalog players also significantly declined quarter-over-quarter with this particular slowdown that we're seeing. As the market rebounds back which is looking like something towards the end of the year or into next year, we'll see this respond well. And as you know we're putting in our new warehouse and we will have lots more SKUs as I mentioned us bringing on board a lot this quarter but we plan to bring on even more by the end of the year, just in time but when the market rebounds.

Got it, so as my follow up, I mean you had previously alluded to getting towards the 4% margin by the end of the year so you can keep on your trajectory for 4.5%, 5%. Do you think that 4% margin even exiting fiscal '20 is possible? And if so, what would be the moving pieces to get those back, what would be the core improvement particularly in Americas, maybe EMEA volume, Premier really should help you bridge that if you still think that's possible?

So Param, this is all about the work we’re doing today position us for when the demand picks up and that's why we're focused on OpEx, working capital, cash, buyback. I don't want to put out a timeframe because we clearly would need markets to stabilize and pick up to where they were to hit the 4%. But when we think of this as far as whether we’re executing to our plan, really what we're missing is, we're missing the top-line growth and we're missing the mix because Farnell is bearing the brunt of a lot of this downturn. The good news is when you do your models, take our metric, take what we're talking about and I think you'll see where we plan to land.

Thank you. Our next question comes from Shawn Harrison with Longbow Research. Please state your question.

Wanted to not surprisingly follow up on Farnell. The 15% EBIT margin target, is that required to get back to a similar scenario that was out there in '16 through 2018 because pricing and lead times don't get that far out of whack very often in semis and passives. And so, wondering what type of environment you really need to be in to hit that 15% operating margin?

Shawn, if you recall, last earnings call I laid out the investment plan that we have within Farnell. We still are very bullish on getting to the 15%. I think in the near term we will be back to 12% to 13% first and more or like three to five years to get us to 15%. What we’re investing in is more SKUs, that was one of the areas that -- if you looked at our growth gap versus the other competitors was because we didn't have the same SKU coverage that they did. So that's going to be fixed as we move into next year. We're also investing in some improvements in pricing and quoting tools, our web speed, our infrastructure which was one of the things that we pointed to when we acquired the company that we had a sort of changing our systems that were relatively old. And finally we’ve started really solid piece of work on marketing so pay per click and how we do SEO more efficiently and more effectively in order for us to be able to get more traffic on the site, more conversion at higher margin.

Okay. And there is a follow up, you pulled forward $50 million of savings. Tom, if you could talk about just what were the savings realized last fiscal year? And are you -- or what is the total target of savings that you’re forecasting for this fiscal year?

So, we’re still on the $245 million plan and $50 million is part of that $245 million. So, we’re planning -- I think we said, which should be in the high $100 million by the end of this year. We have a line of sight to $210 million out of $245 million. We have a number of projects to pull into $245 million. To help everybody with the model, we expect that this quarter will be flat to slightly up perhaps. You’ll see the $50 million reduction in the December quarter and all of it being in our financials by the March quarter.

And how much did you receive this past fiscal year in savings, sorry?

We were down $117 million net of [investment].

Our next question comes from Adam Tindle with Raymond James. Please state your question.

Good afternoon, this is Madison on for Adam. Thanks for taking my question. So I think you mentioned on the call, you expect some of this pricing pressures to persist throughout calendar year ‘19 and into 2020. So should we think about similar levels of negative operating leverage during these quarters or are there some accelerated offsets where negative leverage should begin to be more muted?

Well, the $50 million of cost reduction will definitely improve our OpEx and GP ratio going forward.

I’ll go over to cash flow which has actually been fairly robust over the last several quarters. I know you have generally thought about cash flow as converting greater than 75% in net income. Is this something we should continue to see on a forward basis? And as we think about fiscal year 2020, what are the puts and takes to cash flow that you are thinking about?

Yes. I think you should continue to see more of what we’re doing. We’ve explained before our buybacks are based on our pricing grid. So the lower the share price, the more we buy back. The higher the share price, the less we buy back. So it will fluctuate a bit every quarter. We still have plenty of opportunities for the working capital reduction, so that will contribute to the cash flows going forward on top of our operating income -- net income.

Our next question comes from Matt Sheerin with Stifel. Please state your question.

Yes. Thank you. Just following up on the questions around the margins and how they may play out over the next few quarters. It looks like sort of backing into your -- the gross margin number, it looks like it’s going to be in the low 12s or lower. And so it sounds like it’s -- the ASP and pricing impact you’re seeing is clearly affecting your both businesses. I guess the question is, as you look forward for the next couple of quarters particularly given that December should be a down quarter at least in your higher margin the regions, why should we not expect margins to be depressed here, gross margin at least for the next few quarters?

We would agree with your assumption. I think what we were trying to say Matt that we expect the softness to continue at least through December. It's hard to predict when it will recover. You're correct, the gross margin percentage will most likely decline in the current quarter due to pricing. Again, so therefore, in the meantime focus on put into place our metrics that will land is in a good place once the recovery begins. But -- so, clearly our margins will be at this or lower level for next quarter or so.

Exactly the reason that we pulled in some of the OpEx improvement, we're going to continue to look for opportunities to do more.

Okay. And then I mean, just on that in the OpEx and as we roll through FY '20 on an absolute dollars basis do you expect operating -- sorry, OpEx or SG&A to be down significantly, like in the $50 million to $80 million range?

Yes.

Okay. And just lastly. Just on the -- your commentary about the more stable demand in Asia. That sounds encouraging. But you're also guiding I think kind of stable in Asia that’s typically up sequentially. So are you seeing sort of the tail end of inventory correction and would you expect the December quarter to be up sequentially at this point?

So let me get Phil take that one.

Hi, Matt. How are you doing? Yes, as far as Asia goes, we see stabilizing -- we're not stabilized, there’s still so many variables playing there. Seasonally we're actually up in Asia. I'd say a bit this quarter, which is good news. Tough to call December quarter yet, but we're pretty optimistic about it, then stabilizing plus a bit of a bump in the December quarter, which is really tough to call with everything going on. But just talking to our team there the other day it’s stabilizing at a lower number, as you know, again December which is our last quarter, so still down substantially, but doesn't appear to be continuing to fall. And I think -- and we starting to see the book-to-bill stabilize there as well. Including Japan, by the way, we're back to 1 to 1 book-to-bill in Japan.

Our next question comes from Tim Yang with Citi. Please state your question.

It seems like you are one to two quarters lagging versus component vendors in terms of seeing the end demand weakness. So my question is, based on your experience, if the end demand recovers maybe next year, would it still be a lagging indicator to see that recovery compared to the vendors? And if so, are you using any tools to monitor or increase your visibility you’re seeing in end demand? And then I have follow-up.

Yes. Let me talk about the visibility end demand. One of the things that’s great about having a catalog company with us is we got a lot of data that we can look at and whether it's actual lead times versus stated lead times, whether it's gross margin, ASP declines, book-to-bills, you name it, we have a lot of indicators that we're looking at. We're hopeful we'll be able to sort this out and be able to give better headlights on when this starts to turn back around again. And we don't think there's going to be much of a lag between us and our suppliers. We think we'll come right back again. And I think it will jump forwards, what's happening with the China tariff and Brexit. Those two are major overhangs on the entire market and hopefully we'll get some certainty sooner than later

Got it. Thanks. That’s very helpful. You mentioned softness in industrial and automotive. Can you talk about other segments particularly in communication as some of your component vendors recognition for demand softness in that space as well? Thanks.

Our exposure to communication is a lot less and I will give you another vertical that’s doing well. Aero is still doing well. It’s very healthy and continuing to be robust and we have seen pressure in the industrial and automotive as you pointed out. But hopefully as we turn back around we’ll see more robust growth there. And I pointed to IoT as a real bright spot for us. We’ve seen pipeline increase dramatically there, that $630 million three-year pipeline we expect that, that will -- half of that will convert over the next three to five years. So that’s a really encouraging sign for our solutions piece of our business which is a much higher margin opportunity for us. That’s more or likely 15% operating income business.

Yes. If I can jump on that and defense/aero clearly a strength for us and a strength in the market and a strength for Avnet which is great. And then tying to Bill’s last comment and with IoT sort of new solution processing, quite a amount of opportunity to medical too. So medicals is one that particular comes to IoT that’s when we see some nice opportunity, there’s some new customers emerging in that space.

Thank you. [Operator Instructions]. Our next question comes from William Stein with SunTrust Robinson Humphrey. Please state your question.

Hi, guys this is Joe dialing in for Will. Thanks for taking my question. You’ve done a good job of explaining like what’s going on at Farnell. I’m just wondering if in the process of doing that you’re channel checks with the catalog guys, if you’ve put any reason why customers are shifting to the more broad-based players?

Yes, sure. This is a common phenomena we probably should have described it in earlier calls. But when lead times are extended what happens is our supplier will shift more the allocated supply into the catalog guys because it’s a higher margin opportunity for them and of course higher margin opportunity for the catalog guys. Then you saw most catalog to be -- actually put all the catalog companies together you’d see that outweigh or grew the broad line at the same time. When lead times start to collapse, what happens is supply becomes more available and then becomes -- is back into the broad line guys, and customers will naturally shift on something that cost them more to something that cost them less and that’s the phenomena that you see.

Thank you. There are no further questions. I would now like to turn the call back over to Bill Amelio for closing remarks.

In summary I’d like to make the points that we are controlling those areas of the business where we can make an impact regardless of the macroeconomic situation. We firmly believe that successful execution of the strategies that we put in place will add significant value to all of our stakeholders including our investors. We look forward to reporting to you on our progress in the coming weeks or months ahead and I want everyone to have a great day. Thank you.

Thank you. This concludes today’s conference. All parties may disconnect. Have a great day.