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Arrow Electronics Down Despite Q2 Earnings & Revenues Beat

Zacks Equity Research

Arrow Electronics Inc. (ARW) reported second-quarter 2014 adjusted earnings (excluding the effect of restructuring and amortization) per share of $1.43, which beat the Zacks Consensus Estimate by a penny. On a year-over-year basis, earnings increased 20.4%, primarily due to growth across its business segments.

Arrow Electronics, Inc - Earnings Surprise | FindTheBest


However, shares of Arrow went down 3.3% on Jul 29, primarily due to modest third quarter guidance.

Quarter Details

Arrow’s revenues on a reported basis came in at $5.68 billion, which increased 6.9% from the year-ago quarter. On an adjusted basis, revenues increased by a marginal 0.8% from the year-ago quarter and also came in at $5.68 billion, beating the Zacks Consensus Estimate of $5.65 billion. The company’s book-to-bill ratio was 1.04.

On a segmental basis, revenues from Global components increased 5 % on a year-over-year basis to $3.57 billion. Adjusted revenues increased 2.1% from the year-ago quarter and also came in at $3.57 billion. Revenues from America increased 2% while Asia-Pacific revenues increased 5%. Adjusted European revenues increased 4% on a year-over-year basis (particularly in Southern Europe), which boosted segment revenues.

Revenues from Global enterprise computing solutions (:ECS) came in at $2.11 billion, up 10.5% on a year-over-year basis, primarily due to increased demand for software and security related solutions and hardware business. Adjusted revenues decreased 1.4% from the year-ago-quarter. Revenues from America increased 1%. Revenues from Europe grew 26.0%, primarily due to the Computerlinks acquisition.  

Gross margin in the quarter came in at 13.2% compared to 13.0% in the year-ago quarter, primarily due to growth in the European components business and favorable mix of ECS business.

Arrow reported adjusted operating margin of 4%, which was up 36 basis points (bps) from the year-ago quarter primarily due to growth across its businesses.  Adjusted operating expenses increased 4.5% from the year-ago quarter to $518.8 million. As a percentage of revenues operating expenses were down 18 bps, which also positively impacted margin.  

Arrow’s adjusted net income (excluding the effect of restructuring and amortization) came in at $144.3 million compared with $123.9 million in the year-ago quarter.

Arrow exited the quarter with cash and cash equivalents of $308.9 million, up from $258.3 million at the end of the previous quarter. Long-term debt was $2.10 billion, down from $2.14 billion at the end of the previous quarter. During the quarter, the company generated $159.4 million in cash from operations. During the quarter, Arrow repurchased shares worth $50.0 million.


For the third quarter of 2014, Arrow expects sales to range between $5.25 billion and $5.65 billion (mid pint $5.45 billion), reflecting a sequential decrease in revenues. The Zacks Consensus Estimate is pegged at $5.41 billion.

Global components sales are projected between $3.55 billion and $3.75 billion. Global enterprise computing solutions sales are estimated between $1.7 billion and $1.9 billion. The company expects non-GAAP earnings to range between $1.26 and $1.38 per share (mid-point $1.32 per share), down sequentially. The Zacks Consensus Estimate of $1.31 per share is less than the mid-point of the guided range.

Management expects its global components and enterprise computing solutions remain at par on a sequential basis in the third quarter.

Our Take

Electronic component distributor Arrow posted better-than-expected second-quarter results. Year-over-year comparisons were also up and Arrow had a favorable book to bill ratio. Moreover, positive commentary about enhanced productivity and continued higher contributions from Europe are encouraging. However, the company provided modest third quarter guidance.

Moreover, incremental sales from strategic acquisitions such as that of Computerlinks are expected to boost Arrow’s top line going forward. We believe that Arrow’s core strength of providing best-in-class services and easy-to-acquire technologies are expected to bolster its growth in the future.

However, uncertain economic conditions, high debt burden and competition from Avnet (AVT) and Ingram Micro (IM) are concerns, going forward.

Currently, Arrow has a Zacks Rank #2 (Buy). Investors can also consider NVIDIA Corporation (NVDA) which has a Zacks Rank #1 (Strong Buy) and is worth buying.

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