ARW (Common Stock)
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Steven O'Brien
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7459 S. Lima Street
Englewood, CO 80112
Phone: 303-824-4544
Email: sobrien@arrow.com

News Release

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Arrow Electronics Reports First-Quarter Non-GAAP Earnings Per Share of $1.22

-- Margins Expand Over Prior Year --

-- Cash Flow from Operations of $124 Million --

ENGLEWOOD, Colo.--(BUSINESS WIRE)--May 6, 2014-- Arrow Electronics, Inc. (NYSE:ARW) today reported first-quarter 2014 net income of $107.1 million, or $1.06 per share on a diluted basis, compared with net income of $77.9 million, or $.72 per share on a diluted basis in the first quarter of 2013. Excluding certain items1 in both the first quarters of 2014 and 2013, net income of $124.0 million, or $1.22 per share on a diluted basis, in the first quarter of 2014 compared with net income of $103.1 million, or $.96 per share on a diluted basis, in the first quarter of 2013. First quarter sales of $5.08 billion increased 5 percent from sales of $4.85 billion in the prior year. Sales, as adjusted, decreased 1 percent year over year.

“We continued to execute on our strategic initiatives in the first quarter. Earnings per share of $1.22 were above the midpoint of our guidance, while sales of $5.1 billion were slightly below our expectations. Global components delivered good growth. Business conditions for enterprise computing solutions were mixed; however, demand improved in April. We were pleased with the profitability performance across our businesses that resulted in 28 percent earnings-per-share growth,” said Michael J. Long, chairman, president, and chief executive officer.

Global components first-quarter sales of $3.42 billion increased 7 percent year over year. Sales, as adjusted, grew 4 percent year over year. Americas sales increased 1 percent year over year. European sales grew 12 percent year over year. Sales in Europe, as adjusted, grew 7 percent, the fourth consecutive quarter of year-over-year growth for the region on an as-adjusted basis. Sales in the Asia-Pacific region increased 12 percent year over year, with strength in the core business.

Global enterprise computing solutions first-quarter sales of $1.66 billion were flat year over year. Sales, as adjusted, decreased 11 percent year over year, as storage and servers experienced lower demand globally. Trends in the Americas and Europe were consistent, characterized by growth in our software and security product lines.

“With $124 million in cash flow from operations in the first quarter, we again meaningfully exceeded our cash flow target,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. “The highly effective management of our balance sheet and related strong cash flow provided us with the opportunity to both deploy capital toward our strategic initiatives and return approximately $75 million to shareholders through our stock repurchase program.”

GUIDANCE

“As we look to the second quarter, we would expect market conditions for our global components business to remain consistent with the first quarter. We expect some recovery in the markets served by our enterprise computing solutions business. We believe that total sales will be between $5.45 billion and $5.85 billion, with global components sales between $3.45 billion and $3.65 billion and global enterprise computing solutions sales between $2 billion and $2.2 billion. As a result of this outlook, we expect earnings per share, on a diluted basis, excluding any charges to be in the range of $1.35 to $1.47 per share. Our guidance assumes an average tax rate in the range of 27 to 29 percent, average diluted shares outstanding are expected to be 101 million, and the average USD to Euro exchange rate for the second quarter is 1.38 to 1,” said Mr. Reilly.

1 A reconciliation of non-GAAP adjusted financial measures including sales, as adjusted, operating income, as adjusted, net income attributable to shareholders, as adjusted, and net income per share, as adjusted to GAAP financial measures is presented in the reconciliation tables included herein.

Please refer to the CFO commentary as a supplement to the company’s earnings release, which can be found at www.arrow.com/investor.

Arrow Electronics (www.arrow.com) is a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. Arrow serves as a supply channel partner for more than 100,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 460 locations in 58 countries.

Information Relating to Forward-Looking Statements

This press release includes forward-looking statements that are subject to numerous assumptions, risks, and uncertainties, which could cause actual results or facts to differ materially from such statements for a variety of reasons, including, but not limited to: industry conditions, the company’s implementation of its new enterprise resource planning system, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and global enterprise computing solutions markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, risks related to the integration of acquired businesses, changes in legal and regulatory matters, and the company’s ability to generate additional cash flow. Forward-looking statements are those statements, which are not statements of historical fact. These forward-looking statements can be identified by forward-looking words such as “expects,” “anticipates,” “intends,” “plans,” “may,” “will,” “believes,” “seeks,” “estimates,” and similar expressions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any of the forward-looking statements.

For a further discussion of factors to consider in connection with these forward-looking statements, investors should refer to Item 1A Risk Factors of the company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Certain Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States (“GAAP”), the company also provides certain non-GAAP financial information relating to sales, operating income, net income attributable to shareholders, and net income per basic and diluted share. The company provides sales on a non-GAAP basis adjusted for the impact of changes in foreign currencies and the impact of acquisitions by adjusting the company’s prior periods to include the sales of businesses acquired as if the acquisitions had occurred at the beginning of the period presented (referred to as “impact of acquisitions”). Operating income, net income attributable to shareholders, and net income per basic and diluted share are adjusted for certain charges, credits, gains, and losses that the company believes impact the comparability of its results of operations. These charges, credits, gains, and losses arise out of the company’s efficiency enhancement initiatives, acquisitions (including intangible assets amortization expense), and prepayment of debt. A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the tables below.

The company believes that such non-GAAP financial information is useful to investors to assist in assessing and understanding the company’s operating performance and underlying trends in the company’s business because management considers these items referred to above to be outside the company’s core operating results. This non-GAAP financial information is among the primary indicators management uses as a basis for evaluating the company’s financial and operating performance. In addition, the company’s Board of Directors may use this non-GAAP financial information in evaluating management performance and setting management compensation.

The presentation of this additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for, or alternative to, sales, operating income, net income and net income per basic and diluted share determined in accordance with GAAP. Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

 
ARROW ELECTRONICS, INC.
(In thousands except per share data)
(Unaudited)
 

NON-GAAP SALES RECONCILIATION

 
   

Quarter Ended

   
March 29,     March 30,
2014 2013 % Change
 
Consolidated sales, as reported $ 5,082,040 $ 4,849,629 4.8 %
Impact of changes in foreign currencies - 44,999
Impact of acquisitions   -   258,365
Consolidated sales, as adjusted $ 5,082,040 $ 5,152,993 (1.4 )%
 
Global components sales, as reported $ 3,421,181 $ 3,192,580 7.2 %
Impact of changes in foreign currencies - 28,808
Impact of acquisitions   -   56,575
Global components sales, as adjusted $ 3,421,181 $ 3,277,963 4.4 %
 
Europe components sales, as reported $ 988,933 $ 886,636 11.5 %
Impact of changes in foreign currencies - 32,396
Impact of acquisitions   -   8,596
Europe components sales, as adjusted $ 988,933 $ 927,628 6.6 %
 
Global ECS sales, as reported $ 1,660,859 $ 1,657,049 0.2 %
Impact of changes in foreign currencies - 16,191
Impact of acquisitions   -   201,790
Global ECS sales, as adjusted $ 1,660,859 $ 1,875,030 (11.4 )%
 
 

NON-GAAP EARNINGS RECONCILIATION

 
    Quarter Ended
March 29,     March 30,
2014 2013
 
Operating income, as reported $ 177,740 $ 137,552
Intangible assets amortization expense 10,947 8,957
Restructuring, integration, and other charges   11,614   21,610
Operating income, as adjusted $ 200,301 $ 168,119
 
Net income attributable to shareholders, as reported $ 107,120 $ 77,875
Intangible assets amortization expense 8,907 7,116
Restructuring, integration, and other charges 8,020 15,495
Loss on prepayment of debt   -   2,627
Net income attributable to shareholders, as adjusted $ 124,047 $ 103,113
 
Net income per basic share, as reported $ 1.07 $ .74
Intangible assets amortization expense .09 .07
Restructuring, integration, and other charges .08 .15
Loss on prepayment of debt   -   .02
Net income per basic share, as adjusted $ 1.24 $ .97
 
Net income per diluted share, as reported $ 1.06 $ .72
Intangible assets amortization expense .09 .07
Restructuring, integration, and other charges .08 .14
Loss on prepayment of debt   -   .02
Net income per diluted share, as adjusted $ 1.22 $ .96
 

 
ARROW ELECTRONICS, INC.
(In thousands except per share data)
(Unaudited)
 

SEGMENT INFORMATION

 
    Quarter Ended
March 29,     March 30,
2014 2013
 
Sales:
Global components $ 3,421,181 $ 3,192,580
Global ECS   1,660,859     1,657,049  
Consolidated $ 5,082,040   $ 4,849,629  
 
Operating income (loss):
Global components $ 161,146 $ 128,280
Global ECS 64,158 61,591
Corporate (a)   (47,564 )

 

  (52,319 )
Consolidated $ 177,740   $ 137,552  
 
(a)   Includes restructuring, integration, and other charges of $11.6 million and $21.6 million for the first quarters of 2014 and 2013, respectively.
 

NON-GAAP SEGMENT RECONCILIATION

 
    Quarter Ended
March 29,     March 30,
2014 2013
 
Global components operating income, as reported $ 161,146 $ 128,280
Intangible assets amortization expense   5,548   5,015
Global components operating income, as adjusted $ 166,694 $ 133,295
 
 
Global ECS operating income, as reported $ 64,158 $ 61,591
Intangible assets amortization expense   5,399   3,942
Global ECS operating income, as adjusted $ 69,557 $ 65,533
 

 
ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)
(Unaudited)

 

 
    Quarter Ended
March 29,     March 30,
2014 2013
 
Sales $ 5,082,040 $ 4,849,629
Costs and expenses:
Cost of sales 4,378,212 4,207,557
Selling, general, and administrative expenses 477,903 451,405
Depreciation and amortization 36,571 31,505
Restructuring, integration, and other charges   11,614   21,610
  4,904,300   4,712,077
Operating income 177,740 137,552
Equity in earnings of affiliated companies 1,417 1,983
Loss on prepayment of debt - 4,277
Interest and other financing expense, net   29,637   29,530
Income before income taxes 149,520 105,728
Provision for income taxes   42,328   27,770
Consolidated net income 107,192 77,958
Noncontrolling interests   72   83
Net income attributable to shareholders $ 107,120 $ 77,875
Net income per share:
Basic $ 1.07 $ .74
Diluted $ 1.06 $ .72
Weighted-average shares outstanding:
Basic 99,948 105,889
Diluted 101,399 107,824
 

 

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

 
    March 29,     December 31,
2014 2013
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 258,283 $ 390,602
Accounts receivable, net 4,846,349 5,769,759
Inventories 2,094,439 2,167,287
Other current assets   287,691     258,122  
Total current assets   7,486,762     8,585,770  
Property, plant, and equipment, at cost:
Land 24,042 24,051
Buildings and improvements 144,344 142,583
Machinery and equipment   1,137,995     1,113,987  
1,306,381 1,280,621
Less: Accumulated depreciation and amortization   (664,860 )   (648,232 )
Property, plant, and equipment, net   641,521     632,389  
Investments in affiliated companies 68,364 67,229

 

Intangible assets, net 430,475 426,069
Cost in excess of net assets of companies acquired 2,083,892 2,039,293
Other assets   321,902     310,133  
Total assets $ 11,032,916   $ 12,060,883  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 3,627,458 $ 4,503,200
Accrued expenses 653,049 774,868

Short-term borrowings, including current portion of long-term debt

  16,452     23,878  
Total current liabilities   4,296,959     5,301,946  
 
Long-term debt 2,142,987 2,226,132
Other liabilities 367,064 347,977
Equity:
Shareholders' equity:
Common stock, par value $1:
Authorized – 160,000 shares in both 2014 and 2013
Issued – 125,424 shares in both 2014 and 2013 125,424 125,424
Capital in excess of par value 1,056,326 1,071,075

Treasury stock (25,820 and 25,488 shares in 2014 and 2013, respectively), at cost

(962,635 ) (920,528 )
Retained earnings 3,785,829 3,678,709
Accumulated other comprehensive income   216,293     225,552  
Total shareholders' equity 4,221,237 4,180,232
Noncontrolling interests   4,669     4,596  
Total equity   4,225,906     4,184,828  
Total liabilities and equity $ 11,032,916   $ 12,060,883  
 

 

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
    Quarter Ended
March 29,     March 30,

 

2014 2013
Cash flows from operating activities:
Consolidated net income $ 107,192 $ 77,958

Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:

Depreciation and amortization 36,571 31,505
Amortization of stock-based compensation 9,796 5,983
Equity in earnings of affiliated companies (1,417 ) (1,983 )
Deferred income taxes 10,641 19,584
Restructuring, integration, and other charges 8,020 15,495
Excess tax benefits from stock-based compensation arrangements (5,862 ) (6,475 )
Other 1,492 1,596

Change in assets and liabilities, net of effects of acquired businesses:

Accounts receivable 904,719 388,980
Inventories 72,001 (25,377 )
Accounts payable (859,288 ) (467,797 )
Accrued expenses (127,226 ) (173,437 )
Other assets and liabilities   (32,602 )   (45,436 )
Net cash provided by (used for) operating activities   124,037     (179,404 )
Cash flows from investing activities:
Cash consideration paid for acquired businesses (60,224 ) (9,382 )
Acquisition of property, plant, and equipment (32,843 ) (26,751 )
Other   -     (3,000 )
Net cash used for investing activities   (93,067 )   (39,133 )
Cash flows from financing activities:
Change in short-term and other borrowings (7,338 ) (14,342 )
Proceeds from (repayment of) long-term bank borrowings, net (85,000 ) 44,300
Net proceeds from note offering - 591,156
Redemption of senior notes - (338,184 )
Proceeds from exercise of stock options 16,142 10,600
Excess tax benefits from stock-based compensation arrangements 5,862 6,475
Repurchases of common stock   (88,501 )   (113,504 )
Net cash provided by (used for) financing activities   (158,835 )   186,501  
Effect of exchange rate changes on cash   (4,454 )   (13,497 )
Net decrease in cash and cash equivalents (132,319 ) (45,533 )
Cash and cash equivalents at beginning of period   390,602     409,684  
Cash and cash equivalents at end of period $ 258,283   $ 364,151  
 

Source: Arrow Electronics, Inc.

Arrow Electronics, Inc.
Steven O’Brien, 303-824-4544
Director, Investor Relations
or
Paul J. Reilly, 631-847-1872
Executive Vice President, Finance and Operations, &
Chief Financial Officer
or
Media Contact:
John Hourigan, 303-824-4586
Vice President, Global Communications