Prepared remarks
Welcome to the Avnet Fourth Quarter Fiscal Year 2024 Earnings Call. I would now like to turn the floor over to Joe Burke, Vice President, Treasurer and Investor Relations for Avnet.
Thank you, operator. I'd like to welcome everyone to the Avnet fourth quarter fiscal year 2024 earnings conference call. This morning, Avnet released financial results for the fourth quarter and fiscal year 2024 and the release is available on the Investor Relations section of Avnet's website, along with a slide presentation which you may access at your convenience. As a reminder, some of the information contained in the news release and on this conference call contain forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Such forward-looking statements are not guarantees 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 statements or supply new information regarding the circumstances after the date of this presentation. Please note, unless otherwise stated, all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issued today as well as in the appendix slides of today's presentation and posted on the Investor Relations website. Today's call will be led by Phil Gallagher, Avnet's CEO; and Ken Jacobson, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil?
Thank you, Joe, and thank you everyone for joining us on our fourth quarter and fiscal year 2024 earnings call. For fiscal year 2024, we delivered $23.8 billion in revenues and $5.43 of diluted earnings per share. Looking back on fiscal year 2024, we began the year with great momentum from fiscal year 2023, which was a record year both for revenues and earnings per share. As 2024 progressed, we faced a softening demand environment, and I want to thank our team for their execution and perseverance in these challenging market conditions. Their continued efforts will allow us to emerge from the crisis stronger as the market recovers. Turning to the completed fourth quarter. I'm pleased we delivered another quarter of financial results that exceeded our top line and EPS guidance. In the quarter we achieved sales of $5.6 billion and adjusted operating margins of 3.5%, highlighted by a 4.1% operating margin in our Electronic Components business.
With the structural improvements we have made over the past few years, our EC business has now delivered 10 consecutive quarters of more than 4% operating margin. We also had another good quarter of cash flow generation, primarily the result of executing sound working capital management as we navigate through the market correction. Sequentially, demand declined across most of the end markets we serve. On a year-on-year basis, aerospace and defense was the only end market with increased demand globally. Semiconductor lead times have continued to decrease and remain relatively low for most technologies. As I mentioned last quarter, the growth in data center build-outs surrounding cloud and artificial intelligence is driving longer lead times for certain products, and we would expect this to continue. On the IP&E side, lead times are generally stable and have returned to what I would characterize as a normal range.
We are seeing increasing demand for some interconnect products and capacitors for certain applications. Our global book-to-bill ratio improved modestly over the last quarter, led by our Asia and Americas regions, both finishing the quarter approaching parity. Our EMEA business, which has a large portion of its operations driven by the industrial and transportation end markets, is seeing softer bookings and billings due to lower demand. Our backlog is lower as a result of shorter lead times and customers working through their inventories. Cancellations have remained at normal levels. I'm really pleased with the progress our team has made in improving our inventory position. This is a key focus area for our organization, and we still have some work to do. While we have more inventory than we need for near-term demand in some areas, there are other areas where we want to make strategic investments.
Having the right inventory is still a key growth enabler and an important part of our value proposition at the center of the technology supply chain. Now with that, let me turn to the fourth quarter results. At the top line, our Electronic Components business declined on a global basis. In EMEA, demand in the aerospace and defense end market increased sequentially and year-on-year as military budgets have increased across Europe. In the Americas, demand increased sequentially for aerospace and defense and industrial end markets, and aerospace and defense was strongest on a year-on-year basis. I mentioned in our last earnings call that we were seeing signs of a bottoming in our Asia region, giving us reasons to be optimistic that the market correction may be nearing its final phase in Asia. So it is notable that our Asia revenues increased sequentially, as demand in the industrial, transportation, and consumer end markets all increased, with transportation showing the best growth on a year-on-year basis.
We expect to return to overall year-on-year growth in Asia in either the September or December quarter. On the demand creation side, our engineering teams continued to engage with our customers and suppliers on design wins and registrations. This drove increases in revenues on a sequential basis and validates the value proposition we can deliver in any type of market. Before we get into Farnell's results, I would like to highlight that Rebeca Obregon has been recently named President of Farnell. In her time at Avnet, Rebeca has demonstrated the ability to develop and execute strategy and drive cultural alignment not only with our employees but with our customers and suppliers globally. I'm confident that her experience, relationships, and collaborative approach will drive important synergies to accelerate Farnell's profitable growth. Farnell is not immune to overall market softness, and the fourth quarter sales were down sequentially and year-on-year, similar to the sales trends in our EMEA EC business.
Sales were lower sequentially, mostly due to lower demand for semiconductors. Gross margins at Farnell have stabilized, and with the previously announced cost reductions, which are proceeding as planned, we expect margins to improve over the course of fiscal year 2025. We continue to expect Farnell's high service offerings to enhance the synergistic collaboration between Farnell and Avnet. The combination allows us to serve our customers from new product introduction to mass production as one Avnet. Avnet is positioned as one of the only broadline global distributors that also has a global high-service distribution business. As a key player in the global technology supply chain, we continue to leverage our value proposition in other areas such as demand creation, IP&E, and embedded computing. I've already mentioned our demand creation and engineering capabilities. IP&E continues to be a key focus for our team and in Q4 we saw a nice increase in this area, particularly in Asia, much of which is related to the build-out of data centers.
In addition to IP&E and demand creation, we're also focused on driving value through our embedded solutions offerings. OEMs are increasingly looking to move from chip-down manufacturing to using modular compute solutions in their products. Because of this trend, we recently announced the launch of the Tria brand for our business unit designed to manufacture embedded compute modules and systems. The new distinct brand will improve our ability to compete with other standalone brands in the embedded solutions business. The market opportunity we target through Tria is just another example of how we have adapted to the changing needs of our customers and the technology offerings from our suppliers over the past 103 years. So stay tuned for future updates on our progress in the embedded space. To conclude, I continue to feel optimistic about the long-term trends and the demand for technology and the pervasiveness of electronics in so many applications today and in the future.
This includes those driven by AI adoption as companies explore innovative ways to leverage its capabilities in both data center and ultimately edge computing applications. We are participating in the AI growth trends through sales of components into data centers, as well as providing supply chain services surrounding the data center. This participation is expected to grow over the next several quarters and should positively impact sales across several verticals. I'm excited that Avnet's position at the center of the technology supply chain will allow us to continue to deliver increasing value to our customers and supplier partners. As we enter fiscal year 2025, the prevailing belief is that the market correction seems to be in its last stages. Our Asia region appears to have bottomed, and we're awaiting signs for a similar bottoming or inflection point to manifest in the Americas and Europe.
Until then, we will continue to navigate through this market and control what we can control in anticipation of a brighter demand environment in the quarters to come. Now with that, I'll turn it over to Ken to dive deeper into our fourth quarter results.
Thank you, Phil, and good morning, everyone. We appreciate your interest in Avnet and for joining our fourth quarter earnings call. Our sales for the fourth quarter were approximately $5.6 billion, above guidance and down 15% year-over-year or down 14% in constant currency. On a sequential basis, sales were down 1% in constant currency due to sales declines in the Western regions and below seasonal sales growth in Asia. On a year-over-year basis, sales declined in constant currency 2% in Asia, 21% in EMEA, and 22% in the Americas. From an operating group perspective, Electronic Components sales declined 15% year-over-year and 14% in constant currency. EC sales declined less than 1% quarter-over-quarter in constant currency. Farnell sales declined 16% year-over-year and 15% in constant currency. Farnell sales declined 8% sequentially in constant currency. For the fourth quarter, gross margin of 11.6% was 92 basis points lower year-over-year and 28 basis points lower sequentially.
Our fourth quarter gross margin benefited from the impact of some of the strategic inventory opportunities we mentioned last quarter. EC gross margin was down sequentially and year-over-year. The sequential decline was primarily due to a lower mix of sales from the Western regions. Farnell gross margin was down sequentially and year-over-year, largely due to continued weak market demand for on-the-board components. Turning to operating expenses. SG&A expenses were $450 million in the quarter, down $56 million, or 11% year-over-year, and down $17 million, or 4% sequentially. As a percentage of gross profit dollars, SG&A expenses were flat sequentially at 70%. In the fourth quarter, we incurred additional restructuring integration and other costs for our previously communicated cost reduction actions at both Farnell and our EC business. These actions included a combination of permanent and temporary cost reductions across all regions.
We saw some impact from these actions during the fourth quarter, including at Farnell. Moving to fiscal 2025, we expect to realize further benefits from those cost reduction actions. However, some of the impact will be offset by operating expense headwinds driven by the start of the new fiscal year. For the fourth quarter, we reported adjusted operating income of $193 million and our adjusted operating margin was 3.5%. By operating group, Electronic Components operating income was $210 million and EC operating margin was 4.1%. Farnell operating income was $15 million and Farnell operating margin remained at 4%. Farnell's expenses were lower this quarter by approximately $10 million, but this benefit was offset by the sequential sales decline driven by the overall market correction as most of Farnell's business is in EMEA and the Americas. Turning to expenses below operating income, fourth quarter interest expense of $64 million decreased by $11 million year-over-year and was down $9 million sequentially, primarily due to lower debt levels throughout the quarter.
Our adjusted effective income tax rate of 15% was lower than expected in the quarter driven by various factors, including truing up the full year adjusted effective tax rate of 22% during the fourth quarter. Adjusted diluted earnings per share of $1.22 exceeded our expectations for the quarter due to a combination of higher sales, lower interest expense, and a lower tax rate. The adjusted EPS benefit from the lower-than-expected interest expense and tax rate was approximately $0.18. Turning to the balance sheet and liquidity. During the quarter, working capital decreased $228 million sequentially, including a decrease in reported inventories of $283 million, a $71 million increase in receivables, and a $16 million increase in payables. Working capital days decreased by six days quarter-over-quarter to 110 days. Our return on working capital was essentially flat quarter-over-quarter. Our inventories were down 5% during the quarter, reflecting decreases in the Americas and EMEA regions of EC and to a lesser extent across Farnell.
Declines in EC inventories were net of increases in inventories due to strategic opportunities we saw this quarter. Inventory days decreased by five days sequentially to 104 days. Our near-term goal is to get inventories below $5 billion. As Phil previously mentioned, although our inventories are elevated in certain areas, we will be looking to invest in other areas where it makes sense for our business. Our goal continues to be to ensure we are well positioned to take advantage of the market recovery. We expect to make continued progress heading into fiscal 2025, by adjusting our inventories lower in the areas where they remain elevated. Our decrease in working capital led to a decrease in debt of $56 million. We generated $274 million of cash from operations in the quarter, $773 million over the past two quarters, and $690 million for the full fiscal year. We ended the quarter with a gross leverage of 2.7 times, and we had approximately $759 million of available committed borrowing capacity.
With regards to our capital allocation, we continue to prioritize our existing business needs. During the quarter, cash used for CapEx was $26 million as expected. We expect CapEx to remain at historical levels in fiscal 2025 of approximately $25 million to $35 million per quarter. In the fourth quarter, we paid our quarterly dividend of $0.31 per share or $28 million. We also repurchased approximately $79 million worth of shares, which represented nearly 2% of shares outstanding. As we enter the new fiscal year, we have so far repurchased an additional $46 million of shares in July 2024, and our share price continues to trade below book value, which was $54 a share in the fourth quarter. Our capital allocation priorities have continued to include returning cash to shareholders. Since the start of fiscal year 2019, we have returned nearly $2 billion to shareholders, with nearly $600 million in dividends and nearly $1.4 billion of share repurchases.
We have repurchased 32 million shares over that time frame, which has reduced our diluted share count by an average of 5% per year. Share repurchases will continue to be an important part of our capital allocation priorities in fiscal 2025 and beyond. We are targeting a reduction of shares outstanding by at least 5%, as well as increasing our dividend during fiscal 2025, thereby continuing our commitment to providing consistent and dependable shareholder returns. Turning to guidance. For the first quarter of fiscal 2025, we are guiding sales in the range of $5.25 billion to $5.55 billion and diluted earnings per share in the range of $0.80 to $0.90. Our first quarter guidance assumes current market conditions persist and implies a sequential sales change of flat to down 5%, with greater-than-seasonal sales declines in the Western regions and lower-than-seasonal sales growth in Asia. On a year-over-year basis, this guidance implies flat sales in Asia as we are close to returning to year-over-year growth in that region.
Assumptions for the first quarter operating expenses include some headwinds specific to variable compensation resets and seasonal increases in stock-based compensation, which will offset some of the cost reduction initiatives we have implemented at Farnell on the EC level. This guidance also assumes similar interest expense compared to the fourth quarter, an effective tax rate of between 21% and 25%, and 90 million shares outstanding on a diluted basis. Despite our near-term outlook, we still have momentum entering our new fiscal year. We are well positioned and remain focused on capitalizing on growth opportunities once the market improves, which we expect to happen in the coming quarters. Our focus remains on execution over the things we can control as we continue to demonstrate the value that Avnet provides to our customer and supplier partners at the center of the technology supply chain. With that, I'll turn it over to the operator to open up for questions.
Questions and answers
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from William Stein with Truist Securities. Please go ahead with your question.
Great. Can you confirm you can hear me?
Yes, Will, we got you.
Great. Thanks for taking my question. Congrats on the good quarterly results. I wanted to ask about a couple of things. Perhaps first, inventory. I think in recent quarters, I'm not sure if you used this word, but I would call it spiky or not well dispersed by supplier and maybe also by region or end market. Can you provide an update as to whether that condition improved and your inventory became a bit more dispersed by supplier or we're still in that sort of spiky situation?
Yes, thanks for the comment. This is Phil. I'll start and then Ken can chime in. I believe what you're referring to is our inventory situation, which is still higher than we would like it to be, and we have goals to reduce it. It's not uniformly up across our entire product range. As we mentioned, it's mainly concentrated in a few lines where there's an imbalance that we're addressing. Additionally, we had a special buy two quarters ago that's starting to arrive, which is beneficial for us and our customers. So yes, it's still somewhat uneven. Ken, do you want to add anything? We're actively investing in inventory, and we want to communicate that to our suppliers, as maintaining inventory is essential for distribution. However, we are experiencing some imbalances with certain commodities or lines.
Well, I'd just say each region is making progress, but each region has its own kind of situation even though there are some similarities that cross through it. So again everyone's got some progress to make, but certain regions have had better progress than others. And we'll continue to drive it through the end of the calendar year.
I appreciate your response. Thank you. I have another question. Listening to some of your suppliers or large semiconductor companies, some of whom may not even be suppliers anymore, I noted two interesting points. One was that, aside from aerospace and defense, demand conditions for orders and bookings have not varied much by end market. That particular sector has been strong, but beyond it, the focus has been more geographic rather than based on end markets. The semiconductor companies reported a significant recovery and a notable rebound in China. Have you started to see a similar trend? It didn't seem that way from your prepared remarks, so I would appreciate some clarification. If you could explain the differences between what you're observing and what your suppliers are discussing, it would help us grasp the broader context. Thank you.
Yes, thank you, Will. Your overall statement is accurate. The demand for bookings is still slower than we would prefer. I believe most suppliers would agree that they also track this situation. They are seeking more visibility because lead times have decreased, and there is a misconception that everything will be readily available when needed. We know what happens when the market begins to shift. Overall, the situation remains slower. The defense and aerospace sectors are performing acceptably well. The most significant decline is currently affecting our industrial sector. If you are involved with data centers, hyperscalers, or AI, you are likely in a good position. Regarding Asia Pacific or specifically China, we have noticed a modest recovery—not robust, but an improvement. We may or may not be engaged with some of the end markets of the suppliers you mentioned, especially those with consumer-focused lines, which I'm uncertain about.
However, we are maintaining our presence in China. As for Asia, we observed some growth in transportation and a slight increase in the consumer sector as well as sequential growth in industrial. This reflects our overall Asia Pacific performance. Additionally, as stated in the script, including Japan, we anticipate sequential growth by either September or December. Depending on how strong September is, we expect to see year-on-year growth in Asia Pacific, which is a positive indicator since recoveries usually initiate in Asia Pacific before expanding westward. I hope this clarification is helpful.
Great. Yes. Thank you.
Our next question comes from Matt Sheerin with Stifel. Please proceed with your question.
Thank you. Hello, everyone. I'm following up on Will's question about demand. I understand that you just provided guidance for the September quarter, but it seems like you're not ready to confirm that we've hit the bottom in North America or Europe yet. Given this and what we're hearing from other suppliers, should we anticipate that these two markets will perform below seasonal expectations, resulting in a sequential decline, slightly offset by Asia? Does this accurately reflect the situation as we see it now?
Yeah, Matt, I think when you think about the guidance you see the sales decline from last quarter so obviously there's an impact there. But it would be a heavy mix shift primarily Asia from EMEA. So we're seeing definitely lower than seasonal in EMEA. Now typically September is the seasonally slow quarter for EMEA. You have the vacation periods here in August, so August is usually a pretty weak month. But this is definitely lower than we had hoped or expecting. But I don't think there's anything we necessarily see that says it's getting worse, but I don't think we're ready to call the bottom either. Again, EMEA has been our strongest region, so they're having a little bit of softness in industrial transportation. But generally speaking, that business is still very healthy.
I think if you call out thanks, Ken.
Yeah. Actually Phil, I was actually just talking about the December quarter, looking past September based on your backlog. And then my question was, should you expect that to be below seasonal in those two regions?
December quarter? Okay. Well we don't give guidance out that far, Matt. Can you hear me okay, Matt? You can, right?
Yeah, yeah.
We believe that Asia reached its lowest point last quarter, specifically in March, and we expect this to remain consistent throughout the upcoming calendar year. Currently, the Americas market appears to be stable on a sequential basis. However, the outlook for December remains unclear, similar to the situation in Europe. The conditions are quite complex, and I would like to think that September is close to the low point. It's important to note that in Europe, we are comparing to the record quarters of June and September from the previous year, which presents a significant challenge year-over-year. Nonetheless, it's fair to say that the industrial market in Europe is experiencing a decline, which is consistent and significant for many of our suppliers in that sector.
Got it. Okay. Thanks for that. And then regarding your margin or backing into your margin guidance, it looks like component margins would be below that 4% target that you have. And it also looks like gross margin will be down by at least 20 basis points sequentially. Is that really all mix-driven at this point or are you seeing incremental pricing pressure as well?
Yeah, Matt, it's mostly mix. I think that dip you're right it does dip below 4%. We're hoping that's the only quarter, but it may be a couple of quarters. But again it's a big mix shift primarily to Asia from Europe, and that's what's driving a lot of it. We did mention OpEx being up a little bit too from some change in the fiscal year and kind of timing difference kind of headwinds. But we feel overall really good about our expenses, but it will be up from last quarter.
Okay. And just on OpEx, Ken, looking past the September quarter. You talked about some incremental restructuring, so should we expect OpEx to come down from there or not?
Yes, I think modestly, but not significantly, you're right.
Okay. All right. Thanks a lot.
Our next question comes from Melissa Fairbanks with Raymond James. Please proceed with your question.
Hey guys. Thanks so much for taking my question. I've got one a little related to some of your commentary on the inventories. Just wondering what we can expect moving forward either in terms of investment in end-of-life products. I know you've had some unique kind of strategic opportunities there or maybe some expansion of your supply chain services business.
Melissa, this is Ken. Specifically to end-of-life? I mean I think there's several suppliers that are doing some we call it last time buyer end-of-life programs. I think we don't necessarily love to hold products for those engagements for multiple years, right? We can do something for 1-2 years. But when you start to talk about beyond that, we look for alternative methods. So we do see that as a historical and current opportunity within our supply chain. But a lot of stuff, it's cheaper for the customers just to take it right? So we see some of that being more temporary holds versus the longer term. But we are open to serving whatever the customer needs are, but again we got to get a fair return for that. And with the cost of capital, it becomes more expensive to do those kind of last-time buy holds than it was a couple of years ago. But we're seeing pockets of opportunity. I wouldn't say anything meaningful. A lot of the stuff we're seeing on end-of-life is back-to-back type of things where we'll hold it for a little bit to pipeline it, but it gets shipped.
Okay. On the supply chain services business, I think this may be going back to the December quarter or maybe even a conference in the December quarter. You had some opportunities. You onboarded some inventory. I believe it was for an industrial customer. And then you saw potentially some opportunities longer term in the auto space. Can you give us an update on that business?
Yes. I think just overall, supply chain as a service is there's puts and takes. What I would say is we still see lots of opportunity in particular in transportation, but even more broadly. And I guess the other commentary I'd give is some of the legacy supply chain engagements more for, let's say, technology type companies that have been buying components for years, that's down with the broader market being down. So we're optimistic that some of that will start to recover. And then that will be on top of some of the new wins. But again, these things take a little while to ramp, but progress is being made, but not ready necessarily to give more specific financial metrics there outside of the percentage of inventory, which was roughly 8% this quarter, consistent with last quarter.
Yes, okay. Love to see the good progress on the inventories, by the way. Maybe if I could squeeze in just one more quick one. We've talked a lot about Asia today, but we've heard about some increasing competitive or pricing pressures in Asia. I'm wondering what you're seeing there if that's impacting anything. Obviously, Asia has been one of the better-performing regions for you. But if you can comment on the competitive dynamics there.
Yes, Melissa, thank you for your questions. This is Phil. We're hearing from a few suppliers in specific markets, including China, about some local suppliers and related matters. However, overall, Asia remains a consistently competitive market. At this moment, we haven't noticed anything unusual that could impact our business. We do acknowledge some pricing pressures in certain commodities from specific suppliers, but the overall impact on us has been minimal.
Okay. Great. Thanks so much, guys.
Our next question comes from Joe Quatrochi with Wells Fargo. Please proceed with your question.
Thanks for taking the question. Just kind of curious on the target of being sub-$5 billion inventory, how long do you think that could take? And then just to clarify, is that including the supply chain service inventory that you're holding as an agent for your customers or suppliers side?
I believe achieving that goal will be a gradual process. There will be fluctuations throughout the fiscal year, but by the end of our new fiscal year, we should reach it. We'll keep reporting on the percentage of the supply chain, and I don't foresee any immediate changes that would significantly impact the numbers. However, expect some adjustments within that figure, and we'll provide updates as needed. As Phil mentioned, we're concentrating on the elevated areas, and we'll continue to update on our progress. It's clear that while we can invest in inventory, we aim to reduce the overall amount, which is how we are approaching the situation.
Okay. You mentioned the opportunity in the data center sector. I'm interested in understanding the current revenue size for you in this area and how we should view the margin profile compared to the corporate average.
Yes, Joe, this is Phil. We don’t specify an exact number. In relation to our total operations, it’s relatively small, but we do see growing opportunities there, especially from our Asia business linked to some of the hyperscalers. The margin profile has been about average compared to what we typically see from those suppliers or customers. Another opportunity we mentioned in the last call is more challenging to measure, which involves whether we are selling directly to the hyperscalers or if many of our OEM customers are selling to the hyperscalers and AI. In the industrial sector, we have numerous customers with whom we are doing business and supporting their end customers, who are essentially the hyperscalers. We’re also gaining benefits from that arrangement. We are working to quantify it, although it can be complex. Regardless, as the overall ecosystem expands over time, we will certainly benefit.
Helpful. Thank you.
Got you, Joe.
Our next question comes from Ruplu Bhattacharya with Bank of America. Please proceed with your question.
Hi. Thanks for taking my question. First one is on Farnell. So what do you or Rebeca plan to do differently to turn the Farnell business around? And Ken, you talked about margin improvement throughout the next fiscal year at Farnell. How should we think about the cadence of that? I mean, where do you think the margins in Farnell can get to by the end of the fiscal year?
Thanks, Ruplu. I'll start and let Ken discuss the margin. We have a plan in place, and we are optimistic despite our current disappointment with Farnell. The recovery in the market presents a significant opportunity for us. As you know, Rebeca has recently taken on this role. She brings 25 years of industry experience, and in her 18 months at Avnet, she has already begun collaborating with the team to revamp Farnell's strategy and structure. We previously mentioned the operational expense adjustments at Farnell, which we are beginning to see the benefits of, although those benefits did not reflect positively in operating income due to the ongoing market softness, especially in Europe, which is Farnell's primary region. We will keep examining the strategy and structure while leveraging Avnet’s strengths in conjunction with Farnell. As noted in the script, we see a unique opportunity here. We are continuing our investments in digital and e-commerce because we believe it's essential for the long-term value that Farnell can provide to Avnet and its shareholders. Stay tuned for further updates, and I'm sure we will discuss more in our one-on-one meetings. Ken, do you have anything to add?
Ruplu, I'd just say, I think on the operating margin improvement, when you're going to see it, I think, it's pushed out a little bit. The sales obviously were softer than we anticipated going into the quarter, and that's kind of the broader impact of the EMEA market. So at the current level of sales, we're not going to see a lot of improvement. The good news is gross margin, we feel pretty good about it being stable, and that's for on-the-board components as well as overall. And the OpEx actions are taking effect, right? We saw a pretty good sequential decline there. So, we feel good about those things that we can control, the top line is softer than anticipated, and we expect that to continue for at least the next quarter or two. But, everything else is in good shape for the recovery.
Okay. Thanks for details there. Maybe for my follow-up, if I can ask you on your capital allocation priorities. I mean, from the prepared remarks, Phil, it seems like we're nearing the end of the inventory correction in the channel. So I mean, how many more quarters do you expect of this correction? And in this environment, where would you focus your investments? And how should we think about the trade-off between buybacks or doing any M&A or any other type of investments that you may have? So if you can just kind of weave in like, how many more quarters of correction you expect? And where do you focus your efforts in terms of investments and capital allocation? Thank you.
Ruplu, I want to begin by saying that due to the current market turmoil, our stock price has fallen below $50 and has been trading below our book value of approximately $54. Consequently, we believe that repurchasing shares is the best way to utilize our capital at this moment. We have mentioned before that we are not actively pursuing mergers and acquisitions, although we are open to considering opportunities, particularly those that enhance our capabilities or are smaller in nature, without any major transformations. We also need to ensure we can support our dividend. While we notice improvements in inventory with our customers, we cannot say that every inventory level is fully optimized, so we expect it will take a few more quarters to resolve the inventory situation. We plan to keep investing in our company, which will include strengthening our team and capital projects. However, much of this investment will relate to our initiatives in Europe. Moving forward, our focus will primarily be on share buybacks and dividends, potentially some debt repayment, depending on our debt situation, while we aim to improve our overall business.
Okay. Thank you for all the details. Appreciate it.
Thank you, Ruplu.
Gentlemen, there are no further questions at this time. I'll now turn it back to Phil Gallagher for closing remarks.
Great. Thank you very much, and I want to thank everyone for attending today's earnings call. I look forward to speaking to you again at our first quarter fiscal year 2025 earnings report in October. Have a great rest of the day. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and we thank you for your participation.