Arrow Electronics, Inc.
-- Full-Year Cash Provided by Operating Activities of $858 Million --
-- Returned Approximately $390 Million to Shareholders in 2019 --
CENTENNIAL, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYSE:ARW) today reported fourth-quarter 2019 sales of $7.34 billion, a decrease of 7 percent from sales of $7.92 billion in the fourth quarter of 2018. Fourth-quarter sales as adjusted decreased 5%. The company reported fourth-quarter net income of $112 million, or $1.36 per share on a diluted basis, compared with net income of $231 million, or $2.63 per share on a diluted basis, in the fourth quarter of 2018. Excluding certain items1, net income would have been $181 million, or $2.20 per share on a diluted basis, in the fourth quarter of 2019, compared with net income of $227 million, or $2.59 per share on a diluted basis, in the fourth quarter of 2018. In the fourth quarter of 2019, changes in foreign currencies had negative impacts on growth of approximately $65 million or 1 percent on sales and $.04 or 1 percent on earnings per share on a diluted basis compared to the fourth quarter of 2018.
“Arrow’s commitment to delivering unmatched engineering and design services to customers on behalf of our suppliers is serving the company well during the ongoing industry correction,” said Michael J. Long, chairman, president, and chief executive officer. “Global components’ sales and margin performance continue to demonstrate greater resiliency compared to past economic and semiconductor industry corrections. As we prepare for economic recovery, we continue to increase the scale of our Asia components business, which we expect to lead to greater profit. Arrow is well positioned to accelerate profit growth and expansion as soon as demand from end-customers stabilizes and improves.”
Global components fourth-quarter sales of $4.74 billion decreased 10 percent year over year. Sales, as adjusted, decreased 8 percent year over year. Asia-Pacific components sales increased 4 percent year over year. Europe components sales decreased 16 percent year over year. Sales in the region, as adjusted, decreased 12 percent year over year. Americas components sales decreased 19 percent year over year. Sales in the region, as adjusted, decreased 16 percent year over year. Global components fourth-quarter operating income was $150 million. Fourth-quarter operating income, excluding amortization of intangibles expense, as adjusted, was $172 million.
“During the fourth quarter, and throughout 2019, Arrow’s enterprise computing solutions focused on accelerating the evolution toward selling advanced, next-generation software and hardware architectures,” added Mr. Long. “We believe our line card and capabilities are well positioned to assure mutual success for suppliers, VARs and MSPs, and their customers as we begin the new decade.”
Global enterprise computing solutions fourth-quarter sales of $2.60 billion decreased 2 percent year over year. Global enterprise computing solutions sales, as adjusted, decreased 1 percent year over year. Europe sales increased 1 percent year over year. Sales in the region, as adjusted, increased 4 percent year over year. Americas sales decreased 4 percent year over year. Sales in the region, as adjusted, decreased 3 percent year over year. Global enterprise computing solutions fourth-quarter operating income was $149 million. Fourth-quarter operating income, excluding amortization of intangibles expense, as adjusted, was $156 million. Fourth-quarter operating income as a percentage of sales increased 20 basis points year over year.
FULL-YEAR RESULTS
Full-year 2019 sales of $28.92 billion decreased 3 percent from sales of $29.68 billion in 2018. Net loss for 2019 was $204 million, or $(2.44) per share, compared with net income of $716 million, or $8.10 per share on a diluted basis, in 2018. Excluding certain items1, net income would have been $636 million, or $7.55 per share on a diluted basis, in 2019 compared with net income of $778 million, or $8.79 per share on a diluted basis, in 2018. In 2019, changes in foreign currencies had negative impacts on growth of approximately $513 million, or 2 percent on sales, and $.23, or 2 percent, on earnings per share on a diluted basis compared to 2018.
“With our flexibility, Arrow was able to adapt to changing market conditions in 2019,” said Chris Stansbury, senior vice president and chief financial officer. “Fourth-quarter and full-year 2019 cash flow provided by operating activities were $495 million and $858 million, respectively. Disciplined working capital management, continued profitability from our leading positions in the markets we serve, and efficiencies from our largely complete cost optimization activities, were all key drivers in generating our strong cash flow. We remain committed to returning excess cash to shareholders, and returned approximately $100 million to shareholders through our stock repurchase program during the fourth quarter, and approximately $390 million in 2019. At the end of the year, we had approximately $339 million of remaining authorization under our share repurchase program.”
FIRST-QUARTER 2020 OUTLOOK
“As we look to the first quarter, we are seeing some delays and extended lead times of products manufactured in China due to business and transportation shutdowns, as well as the extension of the New Year Holiday week mandated by the Chinese government. The situation in that region remains uncertain, and we are monitoring conditions closely. Currently, we are not able to quantify the potential impacts to our first-quarter outlook," said Mr. Stansbury.
“Separately, our first quarter of 2020 will close on March 28, 2020, two days earlier than the first quarter of 2019, and three days before the end of the calendar month. We expect this will negatively impact sales by approximately $225 million, and earnings per share on a diluted basis by approximately $.11 compared to the first quarter of 2019. The earlier closing date will only impact global enterprise computing solutions. Additionally, while the second and third quarters of 2020 will close two days earlier than the second and third quarters of 2019, we expect impacts to year-over-year comparisons should be negligible. We anticipate the fourth quarter of 2020 will benefit by the corresponding amounts lost from the first quarter.”
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 175,000 leading technology manufacturers and service providers. With 2019 sales of $29 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, 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, changes in legal and regulatory matters, non-compliance with certain regulations, such as export, anti-trust, and anti-corruption laws, the company's ability to generate cash flow, and disruptions in the company’s business due to epidemics (such as the coronavirus). 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, 2019.
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 expenses as 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 credits” and “AFS inventory write-downs and recoveries,” respectively). Operating income is adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, loss on disposition of businesses, net, AFS notes receivable reserves and credits and inventory write-downs and recoveries, digital inventory write-downs and recoveries, the impact of non-cash charges related to goodwill, trade names, and long-lived assets, and the impact of wind down. Net income attributable to shareholders as adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, and loss on disposition of businesses, net, AFS notes receivable reserves and credits and inventory write-downs and recoveries, digital inventory write-downs and recoveries, the impact of non-cash charges related to goodwill, trade names, and long-lived assets, the impact of wind down, pension settlements, net gains and losses on investments, and certain tax adjustments including related interest expense. 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)
Quarter Ended
Year Ended
December 31, 2019
December 31, 2018
(Unaudited)
Sales
$
7,338,190
7,918,182
28,916,847
29,676,768
Cost of sales
6,515,247
6,942,812
25,618,466
25,975,856
Gross profit
822,943
975,370
3,298,381
3,700,912
Operating expenses:
Selling, general, and administrative expenses
513,878
583,943
2,191,612
2,303,051
Depreciation and amortization
50,051
47,183
189,790
186,384
Loss on disposition of businesses, net
5,813
—
21,252
3,604
Impairments
698,246
Restructuring, integration, and other charges
15,093
9,864
89,785
60,361
584,835
640,990
3,190,685
2,553,400
Operating income
238,108
334,380
107,696
1,147,512
Equity in earnings (losses) of affiliated companies
(610
)
(1,524
(2,765
(2,332
Gain (loss) on investments, net
3,967
(10,221
11,831
(14,166
Employee benefit plan expense
(21,500
(3,086
(24,849
(6,870
Interest and other financing expense, net
(50,317
(54,584
(203,743
(214,771
Income (loss) before income taxes
169,648
264,965
(111,830
909,373
Provision for income taxes
57,460
32,474
88,338
187,799
Consolidated net income (loss)
112,188
232,491
(200,168
721,574
Noncontrolling interests
175
1,838
3,919
5,379
Net income (loss) attributable to shareholders
112,013
230,653
(204,087
716,195
Net income (loss) per share:
Basic
1.37
2.66
(2.44
8.19
Diluted
1.36
2.63
8.10
Weighted average shares outstanding:
81,613
86,559
83,568
87,476
82,493
87,561
88,444
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
ASSETS
Current assets:
Cash and cash equivalents
300,103
509,327
Accounts receivable, net
8,482,687
8,945,463
Inventories
3,477,120
3,878,678
Other current assets
266,249
274,832
Total current assets
12,526,159
13,608,300
Property, plant, and equipment, at cost:
Land
7,793
7,882
Buildings and improvements
173,370
158,712
Machinery and equipment
1,481,525
1,425,933
1,662,688
1,592,527
Less: Accumulated depreciation and amortization
(859,578
(767,827
Property, plant, and equipment, net
803,110
824,700
Investments in affiliated companies
86,942
83,693
Intangible assets, net
271,903
372,644
Goodwill
2,061,322
2,624,690
Other assets
651,360
270,418
Total assets
16,400,796
17,784,445
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
7,046,221
7,631,879
Accrued expenses
880,507
912,292
Short-term borrowings, including current portion of long-term debt
331,431
246,257
Total current liabilities
8,258,159
8,790,428
Long-term debt
2,640,129
3,239,115
Other liabilities
636,115
378,536
Equity:
Shareholders' equity:
Common stock, par value $1:
Authorized – 160,000 shares in both 2019 and 2018
Issued – 125,424 shares in both 2019 and 2018
125,424
Capital in excess of par value
1,150,006
1,135,934
Treasury stock (44,804 and 40,233 shares in 2019 and 2018, respectively), at cost
(2,332,548
(1,972,254
Retained earnings
6,131,248
6,335,335
Accumulated other comprehensive loss
(262,211
(299,449
Total shareholders' equity
4,811,919
5,324,990
54,474
51,376
Total equity
4,866,393
5,376,366
Total liabilities and equity
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Consolidated net income
Adjustments to reconcile consolidated net income to net cash provided by operations:
Amortization of stock-based compensation
6,321
8,134
Equity in (earnings) losses of affiliated companies
610
1,524
Deferred income taxes
15,196
(16,533
(Gain) loss on investment, net
(3,840
10,221
Pension settlement expense
20,111
Other
(155
3,142
Change in assets and liabilities, net of effects of acquired and disposed businesses:
Accounts receivable
(578,059
(752,891
40,448
(162,825
827,614
764,726
43,649
96,946
Other assets and liabilities
(45,145
31,016
Net cash provided by operating activities
494,802
263,134
Cash flows from investing activities:
Proceeds from (cash paid on) disposition of businesses
(11,769
Acquisition of property, plant, and equipment
(30,111
(30,439
Proceeds from sale of property, plant, and equipment
5,421
Cash paid for customer relationship intangible asset
(7,616
(20,000
(4,127
(2,500
Net cash used for investing activities
(53,623
(47,518
Cash flows from financing activities:
Change in short-term and other borrowings
(20,794
88,034
Proceeds from (repayment of) long-term bank borrowings, net
(308,047
(114,120
Proceeds from exercise of stock options
5,201
900
Repurchases of common stock
(100,009
(150,132
Net cash used for financing activities
(423,649
(175,318
Effect of exchange rate changes on cash
20,319
(5,162
Net increase in cash and cash equivalents
37,849
35,136
Cash and cash equivalents at beginning of period
262,254
474,191
Cash and cash equivalents at end of period
41,070
46,238
2,765
2,332
(50,288
1,236
(11,462
14,166
1,665
10,659
9,198
338,849
(1,007,308
383,058
(618,875
(521,575
936,423
(27,475
112,123
(36,837
(136,070
857,995
272,690
Cash consideration paid for acquired businesses, net of cash acquired
(331,563
(13,094
32,013
(143,191
(135,336
Proceeds from sale of property, plant and equipment
(9,682
(13,500
(173,583
(462,965
(113,923
192,192
Proceeds from (repayments of) long-term bank borrowings, net
(405,007
306,635
Redemption of notes
(300,000
16,911
8,819
(404,203
(243,305
(147
(1,174
Net cash provided by (used for) financing activities
(906,369
(36,833
12,733
6,352
Net decrease in cash and cash equivalents
(209,224
(220,756
730,083
NON-GAAP SALES RECONCILIATION
% Change
Consolidated sales, as reported
(7.3
)%
Impact of changes in foreign currencies
(65,384
Impact of dispositions and wind down
(19,375
(118,184
Consolidated sales, as adjusted
7,318,815
7,734,614
(5.4
Global components sales, as reported
4,738,993
5,261,477
(9.9
(40,608
(102,965
Global components sales, as adjusted
4,719,618
5,117,904
(7.8
Americas components sales, as reported
1,644,757
2,021,033
(18.6
(214
(19,239
(78,246
Americas components sales, as adjusted
1,625,518
1,942,573
(16.3
Europe components sales, as reported
1,189,016
1,407,429
(15.5
(36,312
(136
(24,719
Europe components sales, as adjusted
1,188,880
1,346,398
(11.7
Asia components sales, as reported
1,905,220
1,833,015
3.9
%
(4,082
Asia components sales, as adjusted
1,828,933
4.2
Global ECS sales, as reported
2,599,197
2,656,705
(2.2
(24,776
Impact of dispositions
(15,219
Global ECS sales, as adjusted
2,616,710
(0.7
Europe ECS sales, as reported
959,449
954,343
0.5
(20,834
Europe ECS sales, as adjusted
918,290
4.5
Americas ECS sales, as reported
1,639,748
1,702,362
(3.7
(3,942
Americas ECS sales, as adjusted
1,698,420
(3.5
(2.6
(513,217
(251,614
(496,108
28,665,233
28,667,443
flat
20,250,735
20,856,851
(2.9
(337,828
(240,473
(415,707
20,010,262
20,103,316
(0.5
7,167,295
7,816,533
(8.3
(4,496
(189,963
(310,198
6,977,332
7,501,839
(7.0
5,412,379
5,733,222
(5.6
(292,551
(50,510
(105,509
5,361,869
5,335,162
7,671,061
7,307,096
5.0
(40,781
7,266,315
5.6
8,666,112
8,819,917
(1.7
(175,389
(11,141
(80,401
8,654,971
8,564,127
1.1
3,034,087
3,077,391
(1.4
(145,468
(52,908
3,022,946
2,879,015
5,632,025
5,742,526
(1.9
(29,921
(27,493
5,685,112
(0.9
NON-GAAP EARNINGS RECONCILIATION
Three months ended December 31, 2019
Reported GAAP measure
Intangible amortization expense
Restructuring & Integration charges
AFS Write Downs
Digital Write Downs
Impact of Wind Down(6)
Tax adjustments(7)
Other(1)
Non-GAAP measure
Gross Profit
1,117
5,388
829,448
14,311
16,350
2,850
10,912
1,002
284,650
Income before income taxes
10,942
17,919
233,137
4,050
3,042
607
156
(18,380
1,806
2,700
51,441
10,261
13,308
2,243
961
29,322
(1,806
15,219
181,696
138
313
Net income attributable to shareholders
10,123
181,383
Net income per diluted share(5)
0.12
0.16
0.03
0.01
0.36
(0.02
0.18
2.20
Effective tax rate
33.9
22.1
Three months ended December 31, 2018
Other(2)
7,815,217
(16,947
958,423
9,493
11,126
4,471
359,470
4,114
11,886
301,584
2,772
4,786
1,635
28,323
3,025
73,015
6,721
6,340
2,479
(28,323
8,861
228,569
142
1,980
6,579
226,589
0.08
0.07
(0.32
0.10
2.59
12.3
24.2
Year ended December 31, 2019
Impairments(4)
28,676,374
1,868
22,332
(1,975
3,320,606
42,383
78,429
18,037
623,796
162,244
1,056,785
162,356
10,921
846,424
11,913
19,540
4,339
5,390
64,246
12,631
(1,696
750
205,451
30,470
58,889
13,698
16,942
559,550
149,725
1,696
10,171
640,973
558
4,477
29,912
636,496
0.70
0.20
6.70
1.79
0.02
7.55
(79.0
24.3
Year ended December 31, 2018
Other(3)
29,261,061
(71,091
3,629,821
38,215
49,297
19,910
1,258,538
19,675
19,435
1,035,995
10,782
14,815
6,031
4,678
252,428
27,433
34,482
13,644
14,757
783,567
589
5,968
26,844
777,599
0.30
0.39
0.15
0.17
8.79
20.7
24.4
(1)
Other includes loss on disposition of businesses, net, gain (loss) on investments, net, interest related to uncertain tax position related to the Tax Act and pension settlement.
(2)
Other includes gain (loss) on investments, net, and pension settlement.
(3)
Other includes loss on disposition of businesses, net, gain (loss) on investments, net, and pension settlement.
(4)
Impairments include goodwill impairments of $570,175, tradename impairments of $46,000, and $7,621 in impairment charges related to various other long-lived assets.
(5)
For the year ended December 31, 2019, the non-GAAP net income per diluted share calculation includes 752 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, certain tax adjustments, and impairments related to the personal computer and mobility asset disposition business are included in “impact of wind down” above.
(7)
Includes income tax expense related to repatriation of foreign earnings and the Tax Act.
SEGMENT INFORMATION
Sales:
Global components
Global ECS
Consolidated
Operating income (loss):
149,794
252,313
(10,199
1,007,638
148,711
152,195
426,192
427,605
Corporate (a)
(60,397
(70,128
(308,297
(287,731
Includes restructuring, integration, and other charges of $16.4 million and $79.0 million for the fourth quarter and year ended December 31, 2019 and $11.1 million and $49.3 million for the fourth quarter and year ended December 31, 2018, respectively. Also included is a net loss on disposition of $1.0 million and $1.9 million for the fourth quarter and year ended December 31, 2019 and $3.6 million for the year ended December 31, 2018, respectively.
NON-GAAP SEGMENT RECONCILIATION
Global components operating income, as reported
Intangible assets amortization expense (b)
7,135
6,600
26,594
24,226
Impairments (b)
Impact of wind-down (b)
5,733
161,664
8,846
AFS notes receivable reserve
Digital inventory reserve
Global components operating income, as adjusted
171,808
264,646
842,224
1,040,710
Global ECS operating income, as reported
Intangible assets amortization expense
7,176
2,893
15,789
13,989
Global ECS operating income, as adjusted
155,887
155,088
441,981
441,594
(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/20200206005263/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.