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Arrow Electronics Reports Second-Quarter 2016 Results

-- Margins Expand Over Prior Year --

-- Earnings Per Share of $1.45; Non-GAAP Earnings Per Share of $1.65 --

CENTENNIAL, Colo.--(BUSINESS WIRE)--Aug. 2, 2016-- Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2016 net income of $134.3 million, or $1.45 per share on a diluted basis, compared with net income of $123.9 million, or $1.28 per share on a diluted basis, in the second quarter of 2015. Excluding certain items1, net income would have been $152.7 million, or $1.65 per share on a diluted basis, in the second quarter of 2016, compared with net income of $148.9 million, or $1.54 per share on a diluted basis, in the second quarter of 2015. Second-quarter sales of $5.97 billion increased 2 percent from sales of $5.83 billion in the prior year. Second-quarter sales, adjusted for the impact of acquisitions, were flat year over year.

“By increasingly delivering more complex solutions, we capture a greater reward. That was evidenced by our margin performance,” said Michael J. Long, chairman, president, and chief executive officer. “Our core businesses remain healthy, and we made significant progress in the quarter with respect to our digital transformation, expanding our cloud solutions, and capturing the opportunities afforded by IoT to sell the capabilities of our entire enterprise.”

Global components second-quarter sales of $3.83 billion grew 4 percent year over year. Second-quarter sales, as adjusted, grew 1 percent year over year. Americas components sales were flat year over year. Europe components sales grew 7 percent year over year. Sales in the region, as adjusted, grew 3 percent year over year. Asia-Pacific components sales grew 5 percent year over year. Sales in the region, as adjusted, were flat year over year.

Global enterprise computing solutions second-quarter sales of $2.14 billion were flat year over year. Americas sales declined 2 percent year over year. Sales in the region, as adjusted, declined 6 percent year over year. Europe sales grew 6 percent year over year. Sales in the region, as adjusted, grew 4 percent year over year. “Our software-led solutions drove enterprise computing solutions operating income up 10 percent year over year, and we believe this is the best measure of the momentum in our business,” added Mr. Long.

“Cash flow from operations was $148 million in the second quarter as we continue to exceed our cash flow target,” said Chris Stansbury, senior vice president and chief financial officer. “During the quarter, we returned approximately $31 million to shareholders through our stock repurchase program. We had approximately $286 million of remaining authorization under our share repurchase programs at the end of the second quarter.”

SIX-MONTH RESULTS

Arrow’s net income for the first six months of 2016 was $240.5 million, or $2.59 per share on a diluted basis, compared with net income of $230 million, or $2.37 per share on a diluted basis in the first six months of 2015. Excluding certain items1, net income would have been $285 million, or $3.07 per share on a diluted basis, in the first six months of 2016 compared with net income of $276.7 million, or $2.86 per share on a diluted basis, in the first six months of 2015. In the first six months of 2016, sales of $11.45 billion increased 6 percent from sales of $10.83 billion in the first six months of 2015.

___________________________
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.

GUIDANCE

“As we look to the third quarter, we believe that total sales will be between $5.65 billion and $6.05 billion, with global components sales between $3.725 billion and $3.925 billion, and global enterprise computing solutions sales between $1.925 billion and $2.125 billion. As a result of this outlook, we expect earnings per share on a diluted basis, to be in the range of $1.23 to $1.35, and earnings per share on a diluted basis, excluding any charges, to be in the range of $1.45 to $1.57 per share. Our guidance assumes an average tax rate in the range of 27 to 29 percent and average diluted shares outstanding are expected to be 92.5 million. We are expecting the average USD-to-Euro exchange rate for the third quarter to be approximately $1.11 to €1,” said Mr. Stansbury.

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

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 serving over 85 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, 2015.

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 operating results for businesses acquired, including the amortization expense related to acquired intangible assets, as if the acquisitions had occurred at the beginning of the earliest 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), loss on prepayment of debt, and (gain)/loss on investments. 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.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)

 
Quarter Ended Six Months Ended
July 2,

2016

  June 27,

2015

July 2,

2016

  June 27,

2015

 
Sales $ 5,972,101 $ 5,829,989 $ 11,446,278 $ 10,832,374
Costs and expenses:
Cost of sales 5,173,310 5,061,394 9,898,589 9,378,457
Selling, general, and administrative expenses 518,704 504,754 1,024,517 959,284
Depreciation and amortization 40,389 39,751 81,322 76,913
Restructuring, integration, and other charges   16,106   17,147   36,894   33,343
  5,748,509   5,623,046   11,041,322   10,447,997
Operating income 223,592 206,943 404,956 384,377
Equity in earnings of affiliated companies 2,227 1,903 4,083 3,216
Interest and other financing expense, net 39,024 34,696 74,599 65,550
Other expense, net   -   1,500   -   2,435
Income before income taxes 186,795 172,650 334,440 319,608
Provision for income taxes   51,457   47,967   92,510   88,834
Consolidated net income 135,338 124,683 241,930 230,774
Noncontrolling interests   1,068   751   1,425   784
Net income attributable to shareholders $ 134,270 $ 123,932 $ 240,505 $ 229,990
 
Net income per share:

Basic

$ 1.46 $ 1.30 $ 2.62 $ 2.40
Diluted $ 1.45 $ 1.28 $ 2.59 $ 2.37
 
Weighted average shares outstanding:
Basic 91,782 95,638 91,647 95,776
Diluted 92,693 96,649 92,771 96,874
 

   

ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)

 
July 2,

2016

December 31,

2015

(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 495,771 $ 273,090
Accounts receivable, net 5,704,633 6,161,418
Inventories, net 2,504,121 2,466,490
Other current assets   331,159     285,473  
Total current assets   9,035,684     9,186,471  
Property, plant, and equipment, at cost:
Land 23,723 23,547
Buildings and improvements 171,125 162,011
Machinery and equipment   1,322,470     1,250,115  
1,517,318 1,435,673
Less: Accumulated depreciation and amortization   (779,767 )   (735,495 )
Property, plant, and equipment, net   737,551     700,178  
Investments in affiliated companies 75,985 73,376
Intangible assets, net 365,603 389,326
Cost in excess of net assets of companies acquired 2,418,958 2,368,832
Other assets   313,025     303,747  
Total assets $ 12,946,806   $ 13,021,930  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 4,644,655 $ 5,192,665
Accrued expenses 701,960 819,463
Short-term borrowings, including current portion of long-term debt   111,259     44,024  
Total current liabilities   5,457,874     6,056,152  
 
Long-term debt 2,619,003 2,380,575
Other liabilities 421,048 390,392
Equity:
Shareholders' equity:
Common stock, par value $1:
Authorized – 160,000 shares in both 2016 and 2015
Issued – 125,424 shares in both 2016 and 2015 125,424 125,424
Capital in excess of par value 1,092,323 1,107,314
Treasury stock (34,073 and 34,501 shares in 2016 and 2015, respectively), at cost (1,475,671 ) (1,480,069 )
Retained earnings 4,914,985 4,674,480
Accumulated other comprehensive loss   (262,560 )   (284,706 )
Total shareholders' equity 4,394,501 4,142,443
Noncontrolling interests   54,380     52,368  
Total equity   4,448,881     4,194,811  
Total liabilities and equity $ 12,946,806   $ 13,021,930  
 

 

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Quarter Ended
July 2,

2016

  June 27,

2015

Cash flows from operating activities:
Consolidated net income $ 135,338 $ 124,683
Adjustments to reconcile consolidated net income to net cash used for operations:
Depreciation and amortization 40,389 39,751
Amortization of stock-based compensation 10,398 12,086
Equity in earnings of affiliated companies (2,227 ) (1,903 )
Deferred income taxes 5,114 14,115
Excess tax benefits from stock-based compensation arrangements (807 ) (185 )
Other 1,492 2,844
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable (467,492 ) 143,882
Inventories (67,101 ) (131,399 )
Accounts payable 429,416 259,287
Accrued expenses 45,952 9,790
Other assets and liabilities   17,448     (11,917 )
Net cash provided by operating activities   147,920     461,034  
 
Cash flows from investing activities:
Cash consideration paid for acquired businesses 1,017 (337,585 )
Acquisition of property, plant, and equipment (39,075 ) (37,670 )
Other   (12,000 )   -  
Net cash used for investing activities   (50,058 )   (375,255 )
Cash flows from financing activities:
Change in short-term and other borrowings 67,141 (5,051 )
Proceeds from (repayment of)long-term bank borrowings, net (32,000 ) 82,800
Proceeds from exercise of stock options 9,139 1,898
Excess tax benefits from stock-based compensation arrangements 807 185
Repurchases of common stock   (28,149 )   (77,863 )
Net cash provided by financing activities   16,938     1,969  
Effect of exchange rate changes on cash   (13,684 )   6,680  
Net increase in cash and cash equivalents 101,116 94,428
Cash and cash equivalents at beginning of period   394,655     305,293  
Cash and cash equivalents at end of period $ 495,771   $ 399,721  
 

 

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Six Months Ended
  July 2,

2016

  June 27,

2015

Cash flows from operating activities:
Consolidated net income $ 241,930 $ 230,774
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization 81,322 76,913
Amortization of stock-based compensation 19,275 22,006
Equity in earnings of affiliated companies (4,083 ) (3,216 )
Deferred income taxes 27,669 26,506
Excess tax benefits from stock-based compensation arrangements (4,939 ) (5,842 )
Other 2,954 4,574
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable 529,246 1,079,153
Inventories (22,490 ) (82,825 )
Accounts payable (606,678 ) (1,020,150 )
Accrued expenses (114,741 ) (99,366 )
Other assets and liabilities   (38,137 )   (9,089 )
Net cash provided by operating activities   111,328     219,438  
 
Cash flows from investing activities:
Cash consideration paid for acquired businesses (45,473 ) (470,674 )
Acquisition of property, plant, and equipment (88,336 ) (68,820 )
Other   (12,000 )   2,008  
Net cash used for investing activities   (145,809 )   (537,486 )
Cash flows from financing activities:
Change in short-term and other borrowings 67,611 (3,817 )
Proceeds from long-term bank borrowings, net 233,000 34,400
Net proceeds from note offering - 688,162
Redemption of notes - (254,313 )
Proceeds from exercise of stock options 14,844 14,474
Excess tax benefits from stock-based compensation arrangements 4,939 5,842
Repurchases of common stock (46,833 ) (156,424 )
Other   (3,000 )   (3,000 )
Net cash provided by financing activities   270,561     325,324  
Effect of exchange rate changes on cash   (13,399 )   (7,910 )
Net increase (decrease) in cash and cash equivalents 222,681 (634 )
Cash and cash equivalents at beginning of year   273,090     400,355  
Cash and cash equivalents at end of year $ 495,771   $ 399,721  
 

 

ARROW ELECTRONICS, INC.
NON-GAAP SALES RECONCILIATION
(In thousands)
(Unaudited)

 
Quarter Ended
July 2,

2016

  June 27,

2015

% Change
 
Consolidated sales, as reported $ 5,972,101 $ 5,829,989 2.4 %
Impact of changes in foreign currencies - (1,309 )
Impact of acquisitions   -   163,354  
Consolidated sales, as adjusted $ 5,972,101 $ 5,992,034   (0.3 %)
 
Global components sales, as reported $ 3,832,972 $ 3,698,175 3.6 %
Impact of changes in foreign currencies - (6,292 )
Impact of acquisitions   -   96,352  
Global components sales, as adjusted $ 3,832,972 $ 3,788,235   1.2 %
 
Europe components sales, as reported $ 1,056,691 $ 986,735 7.1 %
Impact of changes in foreign currencies - 10,728
Impact of acquisitions   -   24,584  
Europe components sales, as adjusted $ 1,056,691 $ 1,022,047   3.4 %
 
Asia components sales, as reported $ 1,298,429 $ 1,237,865 4.9 %
Impact of changes in foreign currencies - (15,840 )
Impact of acquisitions   -   71,768  
Asia components sales, as adjusted $ 1,298,429 $ 1,293,793   0.4 %
 
Global ECS sales, as reported $ 2,139,129 $ 2,131,814 0.3 %
Impact of changes in foreign currencies - 4,983
Impact of acquisitions   -   67,002  
Global ECS sales, as adjusted $ 2,139,129 $ 2,203,799   (2.9 %)
 
Europe ECS sales, as reported $ 720,335 $ 678,278 6.2 %
Impact of changes in foreign currencies - 13,608
Impact of acquisitions   -   -  
Europe ECS sales, as adjusted $ 720,335 $ 691,886   4.1 %
 
Americas ECS sales, as reported $ 1,418,794 $ 1,453,536 (2.4 %)
Impact of changes in foreign currencies - (8,624 )
Impact of acquisitions   -   67,002  
Americas ECS sales, as adjusted $ 1,418,794 $ 1,511,914   (6.2 %)
 

 
ARROW ELECTRONICS, INC.
NON-GAAP SALES RECONCILIATION
(In thousands)
(Unaudited)
 

 

Six Months Ended
July 2,

2016

  June 27,

2015

% Change
 
Consolidated sales, as reported $ 11,446,278 $ 10,832,374 5.7 %
Impact of changes in foreign currencies - (61,267 )
Impact of acquisitions   38,437   531,508  
Consolidated sales, as adjusted $ 11,484,715 $ 11,302,615   1.6 %
 
Global components sales, as reported $ 7,508,901 $ 7,044,938 6.6 %
Impact of changes in foreign currencies - (46,059 )
Impact of acquisitions   -   313,757  
Global components sales, as adjusted $ 7,508,901 $ 7,312,636   2.7 %
 
Europe components sales, as reported $ 2,115,123 $ 1,909,996 10.7 %
Impact of changes in foreign currencies - (12,803 )
Impact of acquisitions   -   98,666  
Europe components sales, as adjusted $ 2,115,123 $ 1,995,859   6.0 %
 
Asia components sales, as reported $ 2,476,297 $ 2,263,779 9.4 %
Impact of changes in foreign currencies - (28,218 )
Impact of acquisitions   -   211,745  
Asia components sales, as adjusted $ 2,476,297 $ 2,447,306   1.2 %
 
Global ECS sales, as reported $ 3,937,377 $ 3,787,436 4.0 %
Impact of changes in foreign currencies - (15,208 )
Impact of acquisitions   38,437   217,751  
Global ECS sales, as adjusted $ 3,975,814 $ 3,989,979   (0.4 %)
 
Europe ECS sales, as reported $ 1,327,783 $ 1,259,941 5.4 %
Impact of changes in foreign currencies - 6,108
Impact of acquisitions   -   -  
Europe ECS sales, as adjusted $ 1,327,783 $ 1,266,049   4.9 %
 
Americas ECS sales, as reported $ 2,609,594 $ 2,527,495 3.2 %
Impact of changes in foreign currencies - (21,317 )
Impact of acquisitions   38,437   217,751  
Americas ECS sales, as adjusted $ 2,648,031 $ 2,723,929   (2.8 %)
 

 
ARROW ELECTRONICS, INC.
NON-GAAP EARNINGS RECONCILIATION
(In thousands except per share data)
(Unaudited)
 
  Quarter Ended   Six Months Ended
July 2,

2016

  June 27,

2015

July 2,

2016

  June 27,

2015

 
Operating income, as reported $ 223,592 $ 206,943 $ 404,956 $ 384,377
Intangible assets amortization expense 14,446 13,917 27,359 25,024
Restructuring, integration, and other charges   16,106     17,147     36,894     33,343  
Operating income, as adjusted $ 254,144   $ 238,007   $ 469,209   $ 442,744  
 
Net income attributable to shareholders, as reported $ 134,270 $ 123,932 $ 240,505 $ 229,990
Intangible assets amortization expense 13,562 13,917 26,475 25,024
Restructuring, integration, and other charges 16,106 17,147 36,894 33,343
Loss on prepayment of debt - - - 2,943
(Gain)/loss on investments - 1,500 - (508 )
Tax effect   (11,197 )   (7,579 )   (18,910 )   (14,079 )
Net income attributable to shareholders, as adjusted $ 152,741   $ 148,917   $ 284,964   $ 276,713  
 
Net income per basic share, as reported $ 1.46 $ 1.30 $ 2.62 $ 2.40
Intangible assets amortization expense .15 .15 .29 .26
Restructuring, integration, and other charges .18 .18 .40 .35
Loss on prepayment of debt - - - .03
(Gain)/loss on investments - .02 - -
Tax effect   (.12 )   (.08 )   (.21 )   (.15 )
Net income per basic share, as adjusted $ 1.66   $ 1.56   $ 3.11   $ 2.89  
 
Net income per diluted share, as reported $ 1.45 $ 1.28 $ 2.59 $ 2.37
Intangible assets amortization expense .15 .14 .29 .26
Restructuring, integration, and other charges .17 .18 .40 .34
Loss on prepayment of debt - - - .03
(Gain)/loss on investments - .02 - -
Tax effect   (.12 )   (.08 )   (.20 )   (.15 )
Net income per diluted share, as adjusted $ 1.65   $ 1.54   $ 3.07   $ 2.86  
 
 

The sum of the components for basic and diluted net income per share, as adjusted, may not agree

to totals, as presented, due to rounding.

 

   

ARROW ELECTRONICS, INC.
SEGMENT INFORMATION
(In thousands)
(Unaudited)

 
Quarter Ended Six Months Ended
July 2,

2016

  June 27,

2015

July 2,

2016

  June 27,

2015

Sales:
Global components $ 3,832,972 $ 3,698,175 $ 7,508,901 $ 7,044,938
Global ECS   2,139,129     2,131,814     3,937,377     3,787,436  
Consolidated $ 5,972,101   $ 5,829,989   $ 11,446,278   $ 10,832,374  
 
Operating income (loss):
Global components $ 178,385 $ 169,817 $ 349,155 $ 334,712
Global ECS 109,399 98,394 187,611 165,911
Corporate (a)   (64,192 )   (61,268 )   (131,810 )   (116,246 )
Consolidated $ 223,592   $ 206,943   $ 404,956   $ 384,377  
 
        (a)  

Includes restructuring, integration, and other charges of $16.1 million and $36.9
million for the second quarter and six months ended 2016 and $17.1 million and $33.3
million for the second quarter and six months ended 2015, respectively.

 
   

NON-GAAP SEGMENT RECONCILIATION

 
Quarter Ended Six Months Ended
July 2,

2016

  June 27,

2015

July 2,

2016

  June 27,

2015

Global components operating income, as reported $ 178,385 $ 169,817 $ 349,155 $ 334,712
Intangible assets amortization expense   8,545   7,146   16,445   12,928
Global components operating income, as adjusted $ 186,930 $ 176,963 $ 365,600 $ 374,640
 
Global ECS operating income, as reported $ 109,399 $ 98,394 $ 187,611 $ 165,911
Intangible assets amortization expense   5,901   6,771   10,914   12,096
Global ECS operating income, as adjusted $ 115,300 $ 105,165 $ 198,525 $ 178,007
 

Source: Arrow Electronics, Inc.

Arrow Electronics, Inc.
Steven O’Brien, 303-824-4544
Director, Investor Relations
or
Media Contact:
John Hourigan, 303-824-4586
Vice President, Global Communications

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Steven O'Brien
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9201 East Dry Creek Road
Centennial, CO 80112
Phone: 303-824-4544
Email: sobrien@arrow.com