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Arrow Electronics (ARW) Beats on Q1 Earnings & Revenues

Arrow Electronics Inc. ARW started 2016 on a strong note, with better-than-expected results for the first quarter which also registered a year-over-year improvement.

Arrow’s adjusted earnings of $1.43 per share came ahead of the Zacks Consensus Estimate of $1.40 and climbed 8.3% from the year-ago tally of $1.32. On a GAAP basis, earnings were $1.14, compared with $1.09 reported a year ago. The bottom line was mainly driven by solid top-line growth and a lower share count.

Quarter Detail

Arrow’s revenues, on a reported basis, were $5.474 billion, up 9.4% from the year-ago quarter. Quarterly revenues also surpassed the Zacks Consensus Estimate of $5.449 billion.

On a reported basis, revenues from Global components increased 9.8% to $3.676 billion. On an adjusted basis (excluding the impact of changes in foreign currencies and acquisitions), the figure grew 4.4%. Geographically, revenues from Europe, the Asia-Pacific and the Americas increased 14.6%, 14.8% and 3%, respectively.

Revenues at Global enterprise computing solutions (ECS) came in at $1.798 billion, up 8.6% from the year-ago quarter. On an adjusted basis, revenues increased 2.9% primarily on the back of higher demand for security software, storage, network and industry standard servers. Revenues in the Americas and Europe jumped 10.9% and 4.4%, respectively.

Gross margin remained flat at 13.7%. However, Arrow reported adjusted operating margin of 3.9%, down 20 bps, and operating income of $215.1 million in dollar terms, up 5%.

The company’s adjusted net income (excluding the effect of restructuring, gain on sale of investment and amortization) was $132.2 million or $1.43 per share, compared with $127.8 million or $1.32 per share last year.

Arrow exited the quarter with cash and cash equivalents of $394.7 million, compared with $273.1 million at the end of previous quarter. Long-term debt (including current portion) was $2.42 billion, compared with $2.70 billion at the end of the prior quarter. During the quarter, the company used $36.6 million of cash for operational activities and $18.7 million for share repurchases.

Guidance

Arrow has provided an outlook for the second quarter of 2016. Sales are expected between $5.825 billion and $6.225 billion (mid-point: $6.025 billion), with the Zacks Consensus Estimate pegged at $5.987 billion. Global components sales are projected in the range of $3.75 billion to $3.95 billion. Global enterprise computing solutions sales are estimated to be $2.075–$2.275 billion.

The company expects non-GAAP earnings per share of $1.59 to $1.71 (mid-point: $1.65). The Zacks Consensus Estimate is pegged at $1.62.

Our Take

The electronic component distributor’s first-quarter 2016 results beat estimates on both fronts and also improved year over year. Buoyed by the strong performance, the company issued an encouraging second-quarter 2016 outlook, which was higher than the Zacks Consensus Estimate for both earnings and revenues.

Moreover, the company had a good book-to-bill ratio. Notably, original equipment manufacturers, contract manufacturers and commercial customers are selecting Arrow’s distribution channels for marketing their products. The company’s core strength in providing best-in-class services and easy-to-acquire technologies should drive growth further.

Meanwhile, incremental sales from strategic acquisitions, such as Computerlinks, are expected to boost the top line, going forward. However, uncertain economic conditions, high debt burden and competition from the likes of Avnet AVT and Ingram Micro IM remain concerns.

Currently, Arrow has a Zacks Rank #3 (Hold). A better-ranked stock in the broader technology sector is Silicon Motion Technology Corp. SIMO, sporting a Zacks Rank #1 (Strong Buy).

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