Arrow (ARW) Q3 Earnings In Line, Revenues Top Estimates
Arrow Electronics Inc. ARW reported modest third-quarter 2017 results. The company’s quarterly revenues and earnings marked a year-over-year improvement, and also came above the mid-point of the company’s guidance ranges.
Arrow’s non-GAAP earnings of $1.82 per share matched the Zacks Consensus Estimate. However, it came above the mid-point of its guidance range of $1.74-$1.86 (mid-point $1.8 per share). Moreover, earnings increased from $1.56 per share reported in the year-ago quarter.
Quarter Detail
Arrow’s revenues, on a reported basis, were $6.954 billion, up 17% from the year-ago quarter. Quarterly revenues also surpassed the Zacks Consensus Estimate of $6.560 billion as well as came above the mid-point of the company’s guidance range of $6.325 billion and $6.725 billion (mid-point $6.525 billion).
On a reported basis, revenues from Global components increased 24.6% to $4.864 billion. On an adjusted basis (excluding the impact of changes in foreign currencies and acquisitions), the figure grew 22.8%. Geographically, revenues from America and the Asia Pacific climbed 24% each, respectively. Sales from Europe rose approximately 25% on a year-over-year basis.
Revenues at Global Enterprise Computing Solutions (ECS) came in at $2.089 billion, up 2.8% on a year-over-year basis. On an adjusted basis (excluding the impact of changes in foreign currencies), revenues increased 1.5%. Revenues from the Americas were down 1.8% year over year, while revenues from Europe surged 15.6%.
Gross margin contracted 90 basis points (bps) year over year and came in at 12.1%, primarily due to unfavorable Global components business mix. Non-GAAP operating expenses as a percentage of revenues were 8.3%, down 70 bps year over year. The decrease in expenses was primarily due to operational efficiencies and cost control measures.
Arrow reported non-GAAP operating margin of 3.8%, down 20 bps. However, operating income in dollar terms, increased 12% year over year to $264.5 million.
The company’s non-GAAP net income was $162.9 million or $1.82 per share compared with $143.1 million or $1.56 per share last year.
Arrow exited the quarter with cash and cash equivalents of $584.3 million compared with $521.6 million reported in the previous quarter. Long-term debt (including current portion) was $3.18 billion compared with $3.07 billion at the end of the previous quarter. During the quarter, the company had operating cash flow of $134.9 million. Further, the company repurchased approximately $0.3 million shares worth $25 million during the quarter.
Guidance
For the fourth quarter, sales are expected between $7.2 billion and $7.6 billion (mid-point $7.4 billion). The Zacks Consensus Estimate is pegged at $7.134 billion. Global components sales are projected in a range of $4.75-$4.95 billion. Global enterprise computing solutions sales are estimated to be in the range of $2.45-$2.65 billion.
The company projects non-GAAP earnings per share in a range of $2.21-$2.37 (mid-point $2.29 per share). The Zacks Consensus Estimate is pegged at $2.29 per share.
Our Take
The company reported modest third-quarter performance, wherein the top line surpassed the Zacks Consensus Estimate and the bottom line matched the same. However, year-over-year comparisons on both counts were encouraging. Also, the company provided an optimistic guidance for the fourth quarter.
Notably, Arrow’s share price movement has been very impressive since the beginning of this year. Year to date, the company’s shares have gained 9.6%, while the industry incurred a loss of 5.7%.
The company’s continuous efforts to maximize consumer satisfaction have resulted in original equipment manufacturers, contract manufacturers and commercial customers selecting Arrow’s distribution channels for marketing products. Further, Arrow’s core strength in providing best-in-class services and easy-to-acquire technologies are anticipated to prove conducive to growth in the quarters ahead.
Additionally, Arrow’s persistent acquisitions enable it to enter markets, diversify and broaden product portfolio along with maintaining its leading position, thereby significantly contributing to the revenue stream. Incremental sales from strategic acquisitions such as Computerlinks are anticipated to boost the top line.
However, uncertain economic conditions, a high debt burden and competition from the likes of Avnet AVT remain concerns.
Currently, Arrow carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology sector are NVIDIA Corporation NVDA and Micron Technology, Inc. MU, both sporting a Zacks Rank #1 (Strong Buy). You can seethe complete list of today’s Zacks #1 Rank stocks here.
The long-term expected EPS growth rate for NVIDIA and Micron are 11.2% and 10%, respectively.
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