Arrow Electronics, Inc.
-- Cash Provided by Operating Activities of $287 Million --
-- Repurchased $100 Million of Common Stock --
CENTENNIAL, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2019 sales of $7.08 billion, a decrease of 6 percent from sales of $7.49 billion in the third quarter of 2018. Third-quarter sales, as adjusted, decreased 3 percent year over year. Third-quarter net income of $92 million, or $1.10 per share on a diluted basis, compared with net income of $177 million, or $1.99 per share on a diluted basis, in the third quarter of 2018. Excluding certain items1, net income would have been $155 million, or $1.86 per share on a diluted basis, in the third quarter of 2019, compared with net income of $191 million, or $2.15 per share on a diluted basis, in the third quarter of 2018. In the third quarter of 2019, changes in foreign currencies negatively impacted growth by approximately $103 million or 1 percent on sales and $.04 or 2 percent on earnings per share on a diluted basis compared to the third quarter of 2018.
Global components third-quarter sales of $5.05 billion decreased 6 percent year over year. Sales, as adjusted, decreased 4 percent year over year. Asia-Pacific components sales increased 4 percent year over year. Sales in the region, as adjusted, increased 5 percent year over year. Europe components sales decreased 7 percent year over year. Sales in the region, as adjusted, decreased 2 percent year over year. Americas components sales decreased 16 percent year over year. Sales in the region, as adjusted, decreased 15 percent year over year. Global components third-quarter operating income was $172 million. Third-quarter operating income, excluding amortization of intangibles expense, as adjusted, was $217 million.
“Arrow’s focused execution contributed to our bottom-line performance in the third quarter, despite continued challenging demand conditions in the Americas and Europe,” said Michael J. Long, chairman, president, and chief executive officer. “By harnessing our internal efficiencies, we were able to realize significant savings to reinvest in our omnichannel engineering services, and strengthen our position as a consistent, reliable provider of design, engineering and supply chain solutions. I am confident that our diversified business model and forward-looking approach to investing will not only allow us to emerge from the current market correction in a position of strength, but also to generate enhanced profits and returns well into the future.”
Global enterprise computing solutions third-quarter sales of $2.03 billion decreased 4 percent year over year. Sales, as adjusted, decreased 2 percent year over year. Europe enterprise computing solutions sales decreased 6 percent year over year. Sales in the region, as adjusted, were flat year over year. Americas enterprise computing solutions sales decreased 3 percent year over year. Sales in the region, as adjusted, decreased 2 percent year over year. Global enterprise computing solutions third-quarter operating income was $92 million. Third-quarter operating income, excluding amortization of intangibles expense, as adjusted, was $95 million.
“We are pleased that enterprise computing solutions’ execution in the marketplace drove 12 percent operating income growth in the third quarter. Operating income growth demonstrates our success in selling advanced, higher-value solutions utilizing next-generation software and hardware architectures,” said Mr. Long.
“Third-quarter cash provided by operating activities was $287 million. Our robust cash flow was bolstered by our disciplined working capital management, continued healthy profits from our leading positions in the markets we serve, and efficiencies from our previously announced cost optimization program,” said Chris Stansbury, senior vice president and chief financial officer. “We remain committed to returning excess cash to shareholders. Accordingly, Arrow returned approximately $100 million to shareholders through our stock repurchase program during the third quarter. At the end of the quarter, we had approximately $439 million of remaining authorization under our share repurchase program.”
GUIDANCE
Arrow Electronics’ fourth-quarter outlook excludes the financial results from the PC and mobility asset disposition business.
“As we look to the fourth quarter, we expect total sales to range between $7.125 billion and $7.525 billion, with global components sales between $4.625 billion and $4.825 billion, and global enterprise computing solutions sales between $2.5 billion and $2.7 billion. We expect earnings per share on a diluted basis to range from $1.82 to $1.98, and earnings per share on a diluted basis, excluding certain items1, to range from $2.10 to $2.26 per share. Our guidance assumes interest and other expense will total approximately $52 million, an average tax rate at the low end of the updated long-term range of 23 percent to 25 percent, and average diluted shares outstanding of approximately 83 million. We are expecting the average USD-to-Euro exchange rate for the fourth quarter to be approximately $1.10 to €1. We estimate changes in foreign currencies will have negative impacts on growth of approximately $100 million, or 1 percent on sales, and $.05, or 2 percent, on earnings per share on a diluted basis compared to the fourth quarter of 2018,” 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 guides innovation forward for over 200,000 leading technology manufacturers and service providers. With 2018 sales of $30 billion, Arrow develops technology solutions that improve business and daily life. Learn more at fiveyearsout.com.
1 A reconciliation of non-GAAP adjusted financial measures, including sales, as adjusted, gross profit, 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.
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 Dec. 31, 2018.
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, gross profit, and operating expense on a non-GAAP basis adjusted for the impact of changes in foreign currencies (referred to as changes in foreign currencies) by re-translating prior period results at current period foreign exchange rates, the impact of dispositions by adjusting the company’s operating results for businesses disposed, as if the dispositions had occurred at the beginning of the earliest period presented (referred to as dispositions), the impact of the company’s personal computer and mobility asset disposition business (referred to as wind down), the impact of inventory write-downs related to the digital business (referred to as "digital inventory write-downs and recoveries"), and the impact of the notes receivable reserves and inventory write-downs related to the AFS business (referred to as “AFS notes receivable reserves and recoveries” and “AFS inventory write-downs and recoveries” respectively). Operating income is adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, and loss on disposition of businesses, net, AFS notes receivable reserves and recoveries and inventory write-downs and recoveries, digital inventory write-downs and recoveries, the impact of non-cash charges related to goodwill, trade names, and property, plant and equipment, and the impact of wind down. Net income attributable to shareholders, and net income per basic and diluted share are adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, and loss on disposition of businesses, net, AFS notes receivable reserves and recoveries and inventory write-downs and recoveries, digital inventory write-downs and recoveries, the impact of non-cash charges related to goodwill, trade names, and property, plant and equipment, the impact of wind down, and the impact of U.S. tax reform. 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
Nine Months Ended
September 28, 2019
September 29, 2018
Sales
$
7,078,118
7,490,445
21,578,657
21,758,586
Cost of sales
6,279,277
6,566,667
19,103,219
19,033,044
Gross profit
798,841
923,778
2,475,438
2,725,542
Operating expenses:
Selling, general, and administrative expenses
522,446
575,751
1,677,734
1,719,108
Depreciation and amortization
45,231
45,532
139,739
139,201
Loss on disposition of businesses, net
14,573
2,042
15,439
3,604
Impairments
253
—
698,246
Restructuring, integration, and other charges
43,120
10,143
74,692
50,497
625,623
633,468
2,605,850
1,912,410
Operating income (loss)
173,218
290,310
(130,412
)
813,132
Equity in losses of affiliated companies
(1,070
(652
(2,155
(808
Gain (loss) on investments, net
1,126
1,070
7,864
(3,945
Employee benefit plan expense
(1,071
(1,296
(3,349
(3,784
Interest and other financing expense, net
(49,882
(54,205
(153,426
(160,187
Income (loss) before income taxes
122,321
235,227
(281,478
644,408
Provision for income taxes
29,340
57,054
30,878
155,325
Consolidated net income (loss)
92,981
178,173
(312,356
489,083
Noncontrolling interests
850
1,640
3,744
3,541
Net income (loss) attributable to shareholders
92,131
176,533
(316,100
485,542
Net income (loss) per share:
Basic
1.11
2.02
(3.75
5.53
Diluted
1.10
1.99
5.47
Weighted-average shares outstanding:
82,711
87,602
84,246
87,785
83,397
88,608
88,759
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
262,254
509,327
Accounts receivable, net
7,841,851
8,945,463
Inventories
3,503,481
3,878,678
Other current assets
232,062
274,832
Total current assets
11,839,648
13,608,300
Property, plant, and equipment, at cost:
Land
7,746
7,882
Buildings and improvements
164,544
158,712
Machinery and equipment
1,438,600
1,425,933
1,610,890
1,592,527
Less: Accumulated depreciation and amortization
(805,626
(767,827
Property, plant, and equipment, net
805,264
824,700
Investments in affiliated companies
85,399
83,693
Intangible assets, net
277,720
372,644
Goodwill
2,041,073
2,624,690
Other assets
640,607
270,418
Total assets
15,689,711
17,784,445
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
6,181,408
7,631,879
Accrued expenses
833,390
912,292
Short-term borrowings, including current portion of long-term debt
356,843
246,257
Total current liabilities
7,371,641
8,790,428
Long-term debt
2,942,293
3,239,115
Other liabilities
631,530
378,536
Commitments and contingencies
Equity:
Shareholders’ equity:
Common stock, par value $1:
Authorized - 160,000 shares in both 2019 and 2018, respectively
Issued - 125,424 shares in both 2019 and 2018, respectively
125,424
Capital in excess of par value
1,143,830
1,135,934
Treasury stock (43,660 and 40,233 shares in 2019 and 2018, respectively), at cost
(2,237,884
(1,972,254
Retained earnings
6,019,235
6,335,335
Accumulated other comprehensive loss
(359,786
(299,449
Total shareholders’ equity
4,690,819
5,324,990
53,428
51,376
Total equity
4,744,247
5,376,366
Total liabilities and equity
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Adjustments to reconcile consolidated net income to net cash provided by operations:
Amortization of stock-based compensation
7,120
12,442
652
Deferred income taxes
6,362
5,063
(Gain) loss on investments, net
(884
Other
(276
2,011
Change in assets and liabilities, net of effects of acquired and disposed businesses:
Accounts receivable
21,355
(180,770
64,468
43,867
(3,013
412,422
270
15,693
Other assets and liabilities
37,264
(41,652
Net cash provided by operating activities
286,774
494,405
Cash flows from investing activities:
Cash paid on disposition of businesses
(10,785
(2,278
Acquisition of property, plant, and equipment
(31,444
(38,346
(8,495
(3,000
Net cash used for investing activities
(50,724
(43,624
Cash flows from financing activities:
Change in short-term and other borrowings
80,227
44,545
Repayments of long-term bank borrowings, net
(215,937
(338,579
Proceeds from exercise of stock options
2,088
1,934
Repurchases of common stock
(103,270
(20,622
(1,018
Net cash used for financing activities
(236,892
(313,740
Effect of exchange rate changes on cash
(6,893
6,631
Net increase (decrease) in cash and cash equivalents
(7,735
143,672
Cash and cash equivalents at beginning of period
269,989
330,519
Cash and cash equivalents at end of period
474,191
Adjustments to reconcile consolidated net income (loss) to net cash provided by operations:
34,749
38,104
2,155
808
(65,484
17,769
(7,622
3,945
10,814
6,056
916,908
(254,417
342,610
(456,050
(1,349,189
171,697
(71,124
15,177
8,308
(165,421
363,193
9,556
Cash consideration paid for acquired businesses, net of cash acquired
(331,563
Proceeds from (cash paid on) disposition of a businesses
(1,325
32,013
(113,080
(104,897
(5,555
(11,000
(119,960
(415,447
(93,129
104,158
Proceeds from (repayments of) long-term bank borrowings, net
(96,960
420,755
Redemption of notes
(300,000
11,710
7,919
(304,194
(93,173
(147
(1,174
Net cash provided by (used for) financing activities
(482,720
138,485
(7,586
11,514
Net decrease in cash and cash equivalents
(247,073
(255,892
730,083
NON-GAAP SALES RECONCILIATION
% Change
Consolidated sales, as reported
(5.5
)%
Impact of changes in foreign currencies
(103,498
Impact of dispositions and wind down
(60,130
(116,316
Consolidated sales, as adjusted
7,017,988
7,270,631
(3.5
Global components sales, as reported
5,048,880
5,381,078
(6.2
(67,659
(104,958
Global components sales, as adjusted
4,988,750
5,208,461
(4.2
Americas Components sales, as reported
1,738,710
2,060,920
(15.6
(145
(46,998
(79,598
Americas Components sales, as adjusted
1,691,712
1,981,177
(14.6
Europe components sales, as reported
1,304,109
1,399,435
(6.8
(60,123
(13,132
(25,360
Europe components sales, as adjusted
1,290,977
1,313,952
(1.7
Asia components sales, as reported
2,006,061
1,920,723
4.4
%
(7,391
Asia components sales, as adjusted
1,913,332
4.8
Global ECS sales, as reported
2,029,238
2,109,367
(3.8
(35,839
Impact of dispositions
(11,358
Global ECS sales, as adjusted
2,062,170
(1.6
Europe ECS sales, as reported
610,324
651,648
(6.3
(30,579
Europe ECS sales, as adjusted
609,711
0.1
Americas ECS sales, as reported
1,418,914
1,457,719
(2.7
(5,260
Americas ECS sales, as adjusted
1,452,459
(2.3
(0.8
(447,833
(232,239
(377,924
21,346,418
20,932,829
2.0
15,511,742
15,595,374
(0.5
(297,220
(221,098
(312,742
15,290,644
14,985,412
5,522,538
5,795,500
(4.7
(4,284
(170,724
(231,952
5,351,814
5,559,264
(3.7
4,223,363
4,325,793
(2.4
(256,237
(50,374
(80,790
4,172,989
3,988,766
4.6
5,765,841
5,474,081
5.3
(36,699
5,437,382
6.0
6,066,915
6,163,212
(150,613
(11,141
(65,182
6,055,774
5,947,417
1.8
2,074,638
2,123,048
(124,634
(37,689
2,063,497
1,960,725
5.2
3,992,277
4,040,164
(1.2
(25,979
(27,493
3,986,692
NON-GAAP EARNINGS RECONCILIATION
Three months ended September 28, 2019
Reported GAAP measure
Intangible amortization expense
Restructuring & Integration charges
AFS Write Downs
Digital Write Downs
Impact of Wind Down(6)
Other(1)
Non-GAAP measure
Gross Profit
1,101
(3,541
796,401
Operating income
10,265
31,087
(664
711
36,917
252,635
Income before income taxes
36,842
(1,126
200,537
2,860
8,922
(178
272
3,753
(249
44,720
Consolidated net income
7,405
22,165
(486
829
33,089
(877
155,817
138
988
Net income attributable to shareholders
7,267
154,829
Net income per diluted share
0.09
0.27
(0.01
0.01
0.40
1.86
Effective tax rate
24.0
22.3
Three months ended September 29, 2018
Other(2)
7,385,487
(17,397
906,381
8,845
9,611
611
311,419
633
972
255,288
2,539
2,454
304
240
62,591
6,306
7,157
329
732
192,697
145
1,785
6,161
190,912
0.07
0.08
2.15
24.3
24.5
Nine months ended September 28, 2019
Impairments(4)
Other(3)
21,357,559
1,868
21,215
(7,363
2,491,158
28,072
62,079
15,187
623,796
151,332
866
772,135
151,414
(6,998
613,287
7,863
16,498
3,732
5,234
64,246
31,011
(5,452
154,010
20,209
45,581
11,455
15,981
559,550
120,403
(1,546
459,277
420
4,164
19,789
455,113
Net income per diluted share(5)
0.23
0.54
0.14
0.19
6.64
1.43
(0.02
5.36
(11.0
25.1
Nine months ended September 29, 2018
21,445,844
(54,144
2,671,398
28,722
38,171
899,068
15,561
7,549
734,411
8,010
10,029
4,396
1,653
179,413
20,712
28,142
11,165
5,896
554,998
447
3,988
20,265
551,010
0.32
0.13
6.21
24.1
24.4
(1)
Other includes gain (loss) on investments, net
(2)
Other includes loss on disposition of businesses, net and gain (loss) on investments, net.
(3)
Other includes loss on disposition of businesses, net, gain (loss) on investments, net, and impact of tax act.
(4)
Impairments include goodwill impairments of $570,175, tradename impairments of $46,000, and $7,621 in impairment charges related to various other fixed assets.
(5)
For the nine months ended September 28, 2019, the non-GAAP net income per diluted share calculation includes 727 thousand shares that were excluded from the GAAP net income per diluted share calculation. Additionally, in all periods presented the sum of the components for diluted EPS, as adjusted may not agree to totals, as presented, due to rounding.
(6)
Amounts for restructuring, integration, and other charges, identifiable intangible asset amortization, loss on disposition of businesses, net, and impairments related to the personal computer and mobility asset disposition business are included in “impact of wind down” above.
SEGMENT INFORMATION
Sales:
Global components
Global ECS
Consolidated
Operating income (loss):
171,591
271,939
(159,993
755,325
92,375
82,187
277,481
275,410
Corporate (a)
(90,748
(63,816
(247,900
(217,603
(a)
Includes restructuring, integration, and other charges of $31,086 and $62,658 for the third quarter and first nine months of 2019 and $10,143 and $50,497 for the third quarter and first nine months of 2018, respectively. Also includes a loss on disposition of business of $866 for the first nine months of 2019.
NON-GAAP SEGMENT RECONCILIATION
Global components operating income, as reported
Intangible assets amortization expense (b)
7,398
5,931
19,458
17,626
Impairments (b)
Impact of wind-down (b)
79
150,752
3,113
AFS notes receivable reserve
Digital inventory reserve
Global components operating income, as adjusted
217,054
277,949
670,415
776,064
Global ECS operating income, as reported
Intangible assets amortization expense
2,866
2,914
8,613
11,096
Global ECS operating income, as adjusted
95,241
85,101
286,094
286,506
(b)
Restructuring, integration, and other charges, identifiable intangible asset amortization, loss on disposition of businesses, net, and impairments related to the personal computer and mobility asset disposition business are included in “impact of wind down” above.
View source version on businesswire.com: https://www.businesswire.com/news/home/20191031005280/en/
Steven O’Brien Vice President, Investor Relations 303-824-4544 Media Contact: John Hourigan Vice President, Global Communications 303-824-4586
Source: Arrow Electronics, Inc.