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Why Is Arrow Electronics (ARW) Up 11.8% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Arrow Electronics (ARW). Shares have added about 11.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Arrow Electronics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Arrow’s Second-Quarter Results

Arrow Electronics reported second-quarter 2020 adjusted earnings per share of $1.59, which beat the Zacks Consensus Estimate $1.45. However, quarterly earnings were down a penny on a year-over-year basis.

Revenues came in at $6.61 billion, down 11% from the year-ago quarter. Adjusted revenues dropped 8% year over year. The revenue figure, however, beat the consensus mark of $6.37 billion.

The company witnessed impressive demand for software, cloud and security solutions during the second quarter as firms needed to enable business continuity and remote working amid social-distancing measures.

Segmental Details

Adjusted revenues from Global Components decreased 8% year over year to $4.72 billion. On a reported basis, revenues declined 10%. Region wise, the segment’s adjusted revenues from the Americas decreased 18% year over year. Adjusted sales from the Asia Pacific declined 7% year over year. Global Components’ contribution from Europe fell 18% on an adjusted basis.

Adjusted revenues from Global Enterprise Computing Solutions (ECS) came in at $1.89 billion, down 8% year over year. Region wise, the segment’s adjusted revenues from the Americas slid 11% year on year. Global ECS’s contribution from Europe fell 4% on an adjusted basis.

Margins

Arrow’s non-GAAP gross profit slipped 12.1% from the prior-year quarter to $739.8 million.

Operating income dropped 17.5% to $200.3 million.

Balance Sheet and Cash Flow

Arrow exited the June-end quarter with cash and cash equivalents of $203 million compared with the previous quarter’s $201 million.

Long-term debt was $2.1 billion compared with the $2.22 billion witnessed at the end of the prior quarter.

The company’s cash flow from operations was $418.2 million.

In the second quarter, Arrow returned $72.8 million to shareholders through the stock-repurchase program. The company, on Jul 30, announced a new share-repurchase program worth $600 million.

Guidance

For the third quarter of 2020, sales are estimated between $6.325 billion and $6.925 billion.

Global Components sales are projected at $4.675-$4.975 billion. Global ECS sales are estimated to be $1.65-$1.95 billion.

Interest expenses will presumably be about $33 million. As a result, the company projects non-GAAP earnings per share at $1.54-$1.70.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 5.94% due to these changes.

VGM Scores

Currently, Arrow Electronics has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Arrow Electronics has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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