Arrow Electronics, Inc.
-- Cash Provided by Operating Activities of $418 Million --
-- Announces Additional $600 Million Share Repurchase Program --
CENTENNIAL, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2020 sales of $6.61 billion, a decrease of 10 percent from sales of $7.34 billion in the second quarter of 2019. Second-quarter sales, as adjusted, decreased 8 percent year over year. Second-quarter net income of $133 million, or $1.68 per share on a diluted basis, compared with a net loss of $(549) million, or $(6.48) per share on a diluted basis, in the second quarter of 2019. Excluding certain items1, net income, as adjusted, was $126 million, or $1.59 per share on a diluted basis, in the second quarter of 2020, compared with net income, as adjusted, of $137 million, or $1.60 per share on a diluted basis, in the second quarter of 2019.
“Arrow has again proven to be a source of reliability and stability for suppliers and customers amidst supply chain disruptions and an uncertain economic backdrop. Our efforts to expand our engineering and design expertise both prior to and during the COVID-19 pandemic are helping customers quickly get back to business,” said Michael J. Long, chairman, president, and chief executive officer. “In turn, our vital position in the technology ecosystem, and our ever-expanding capabilities drove results above our expectations.”
Global components second-quarter sales of $4.72 billion decreased 10 percent year over year. Sales, as adjusted, decreased 8 percent year over year. Asia-Pacific components sales increased 7 percent year over year. Europe components sales decreased 21 percent year over year. Sales in the region, as adjusted, decreased 18 percent year over year. Americas components sales decreased 21 percent year over year. Sales in the region, as adjusted, decreased 18 percent year over year. Global components second-quarter operating income was $182 million. Second-quarter operating income, as adjusted, was $177 million.
“Arrow is harnessing data from billions of transactions with thousands of customers to sell and deliver the products and solutions that our customers want when they need them,” continued Mr. Long. “Sales were above the high end of our expectation driven by Asia that has seen a remarkable rebound in manufacturing activity due to earlier pandemic onset and recovery.”
Global enterprise computing solutions second-quarter sales of $1.89 billion decreased 9 percent year over year. Sales, as adjusted, decreased 8 percent year over year. Europe enterprise computing solutions sales decreased 6 percent year over year. Sales in the region, as adjusted, decreased 4 percent year over year. Americas enterprise computing solutions sales decreased 11 percent year over year. Global enterprise computing solutions second-quarter operating income was $73 million. Second-quarter operating income, as adjusted, was $80 million.
“In terms of product segments, demand remains strong for the software, cloud, and security solutions needed to enable business continuity and remote working,” said Mr. Long. “We continue to evolve our portfolio to areas with greater long-term growth potential.”
“With financial returns improving and the effective management of our balance sheet and cash flow, we enhanced our commitment to returning excess cash to shareholders through a new $600 million repurchase authorization,” said Chris Stansbury, senior vice president and chief financial officer. “Our liquidity position remains the best in our company’s history and improved further, with more than $3.2 billion of undrawn committed borrowing capacity in addition to cash on hand.”
1 A reconciliation of non-GAAP adjusted financial measures, including sales, gross profit, operating income, net income attributable to shareholders, and net income per share, as adjusted, to GAAP financial measures is presented in the reconciliation tables included herein.
THIRD-QUARTER 2020 OUTLOOK
Third-Quarter 2020 Outlook
Reported GAAP measure
Intangible amortization expense
Restructuring & integration charges
Non-GAAP measure
Net income per diluted share
$1.34 - $1.50
$0.10
$1.54 - $1.70
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.
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: potential adverse effects of the ongoing global coronavirus pandemic, including actions taken to contain or treat the coronavirus, industry conditions, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and global ECS 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, foreign tax and other loss contingencies, and the company's ability to generate cash flow. For a further discussion of these and other factors that could cause the company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the company's Annual Report on Form 10-K for the year ended December 31, 2019 and the risk factor update in Form 10-Q for the quarter ended June 27, 2020. 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.
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 recoveries” 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, and net income per basic and diluted share are 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, net gains and losses on investments, the impact of non-cash charges related to goodwill, trade names, and long-lived assets, certain tax adjustments, and the impact of wind down. 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
June 27, 2020
June 29, 2019
Sales
$
6,606,494
7,344,548
12,987,911
14,500,539
Cost of sales
5,856,031
6,529,639
11,509,057
12,823,942
Gross profit
750,463
814,909
1,478,854
1,676,597
Operating expenses:
Selling, general, and administrative expenses
501,470
599,212
1,035,309
1,155,288
Depreciation and amortization
46,812
46,982
93,922
94,508
Loss on disposition of businesses, net
—
866
Impairments
4,918
697,993
Restructuring, integration, and other charges
650
19,912
9,788
31,572
553,850
1,364,099
1,143,937
1,980,227
Operating income (loss)
196,613
(549,190
)
334,917
(303,630
Equity in earnings (losses) of affiliated companies
(283
382
247
(1,085
Gain (loss) on investments, net
10,901
1,390
(5,909
6,738
Employee benefit plan expense
(1,173
(1,139
(2,282
(2,278
Interest and other financing expense, net
(31,867
(51,563
(75,135
(103,544
Income (loss) before income taxes
174,191
(600,120
251,838
(403,799
Provision (benefit) for income taxes
40,854
(52,369
68,746
1,538
Consolidated net income (loss)
133,337
(547,751
183,092
(405,337
Noncontrolling interests
533
1,215
785
2,894
Net income (loss) attributable to shareholders
132,804
(548,966
182,307
(408,231
Net income (loss) per share:
Basic
1.69
(6.48
2.29
(4.80
Diluted
1.68
2.28
Weighted-average shares outstanding:
78,677
84,652
79,527
85,022
79,226
80,113
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
205,828
300,103
Accounts receivable, net
7,954,038
8,482,687
Inventories
3,420,912
3,477,120
Other current assets
213,190
266,249
Total current assets
11,793,968
12,526,159
Property, plant, and equipment, at cost:
Land
7,743
7,793
Buildings and improvements
188,563
173,370
Machinery and equipment
1,501,919
1,481,525
1,698,225
1,662,688
Less: Accumulated depreciation and amortization
(900,035)
(859,578)
Property, plant, and equipment, net
798,190
803,110
Investments in affiliated companies
80,756
86,942
Intangible assets, net
249,528
271,903
Goodwill
2,052,128
2,061,322
Other assets
629,891
651,360
Total assets
15,604,461
16,400,796
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
6,967,180
7,046,221
Accrued expenses
920,929
880,507
Short-term borrowings, including current portion of long-term debt
244,323
331,431
Total current liabilities
8,132,432
8,258,159
Long-term debt
2,098,369
2,640,129
Other liabilities
623,712
636,115
Commitments and contingencies
Equity:
Shareholders’ equity:
Common stock, par value $1:
Authorized - 160,000 shares in both 2020 and 2019, respectively
Issued - 125,424 shares in both 2020 and 2019, respectively
125,424
Capital in excess of par value
1,151,895
1,150,006
Treasury stock (47,806 and 44,804 shares in 2020 and 2019, respectively), at cost
(2,542,629)
(2,332,548)
Retained earnings
6,277,620
6,131,248
Accumulated other comprehensive loss
(317,489)
(262,211)
Total shareholders’ equity
4,694,821
4,811,919
55,127
54,474
Total equity
4,749,948
4,866,393
Total liabilities and equity
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Adjustments to reconcile consolidated net income (loss) to net cash provided by operations:
Amortization of stock-based compensation
8,397
8,539
Equity in (earnings) losses of affiliated companies
283
(382
Deferred income taxes
13,732
(78,814
Gain on investments, net
(10,885
(1,390
Other
253
6,381
Change in assets and liabilities, net of effects of acquired and disposed businesses:
(112,437
(54,436
(80,465
143,740
292,024
193,832
102,369
(21,102
Other assets and liabilities
19,907
11,826
Net cash provided by operating activities
418,245
405,418
Cash flows from investing activities:
Proceeds from disposition of businesses
9,460
Acquisition of property, plant, and equipment
(31,571
(47,821
Net cash used for investing activities
(38,361
Cash flows from financing activities:
Change in short-term and other borrowings
77,165
(66,112
Repayments of long-term bank borrowings, net
(123,113
(216,046
Redemption of notes
(209,366
Proceeds from exercise of stock options
1,750
2,691
Repurchases of common stock
(72,750
(146,999
Settlement of forward-starting interest rate swap
(48,378
(141
(147
Net cash used for financing activities
(374,833
(426,613
Effect of exchange rate changes on cash
(7,011
(22,354
Net increase (decrease) in cash and cash equivalents
4,830
(81,910
Cash and cash equivalents at beginning of period
200,998
351,899
Cash and cash equivalents at end of period
269,989
(405,337)
22,317
27,629
(247)
1,085
46,345
(71,846)
(Gain) loss on investments, net
5,925
(6,738)
48
11,956
446,168
895,553
52,927
278,142
(51,027)
(1,346,176)
71,043
(71,394)
9,679
(28,956)
885,110
76,419
(59,542)
(81,636)
(5,466)
2,940
(65,008)
(69,236)
(7,189)
(173,356)
Proceeds from (repayments of) long-term bank borrowings, net
(411,690)
118,977
(209,366)
3,730
9,622
(231,739)
(200,924)
(48,378)
(141)
(147)
(904,773)
(245,828)
(9,604)
(693)
Net decrease in cash and cash equivalents
(94,275)
(239,338)
509,327
NON-GAAP SALES RECONCILIATION
% Change
Consolidated sales, as reported
(10.0
%
Impact of changes in foreign currencies
(65,177
Impact of wind down
(77,914
Consolidated sales, as adjusted
7,201,457
(8.3
Global components sales, as reported
4,721,255
5,270,935
(10.4
(40,092
Global components sales, as adjusted
5,152,929
(8.4
Americas Components sales, as reported
1,488,901
1,876,799
(20.7
(2,372
(60,860
Americas Components sales, as adjusted
1,813,567
(17.9
Europe components sales, as reported
1,118,417
1,415,888
(21.0
(29,548
(17,054
Europe components sales, as adjusted
1,369,286
(18.3
Asia components sales, as reported
2,113,937
1,978,248
6.9
(8,172
Asia components sales, as adjusted
1,970,076
7.3
Global ECS sales, as reported
1,885,239
2,073,613
(9.1
(25,085
Global ECS sales, as adjusted
2,048,528
(8.0
Europe ECS sales, as reported
661,983
701,157
(5.6
(14,983
Europe ECS sales, as adjusted
686,174
(3.5
Americas ECS sales, as reported
1,223,256
1,372,456
(10.9
(10,102
Americas ECS sales, as adjusted
1,362,354
(10.2
(138,687
Impact of wind down and dispositions
(172,109
14,189,743
(8.5
9,271,856
10,462,862
(11.4
(88,771
(160,968
10,213,123
(9.2
3,041,699
3,783,828
(19.6
(3,760
(123,726
3,656,342
(16.8
2,428,407
2,919,254
(69,049
(37,242
2,812,963
(13.7
3,801,750
3,759,780
1.1
(15,962
3,743,818
1.5
3,716,055
4,037,677
(49,916
Impact of dispositions
(11,141
3,976,620
(6.6
1,364,111
1,464,314
(6.8
(33,663
1,419,510
(3.9
2,351,944
2,573,363
(8.6
(16,253
2,557,110
NON-GAAP EARNINGS RECONCILIATION
Three months ended June 27, 2020
Restructuring & Integration charges
AFS Write Downs
Digital Write Downs
Impairments(1)
Impact of Wind Down
Other(2)
Gross Profit
(10,696
739,767
Operating income
9,734
197
(11,824
200,288
Income before income taxes
(11,814
(10,901
166,975
Provision for income taxes
2,501
313
47
1,800
(2,662
(2,631
40,222
Consolidated net income
7,233
337
150
3,118
(9,152
(8,270
126,753
137
670
Net income attributable to shareholders
7,096
126,083
Net income per diluted share(6)
0.09
0.04
(0.12
(0.10
1.59
Effective tax rate
23.5
24.1
Three months ended June 29, 2019
Intangible
amortization expense(3)
Restructuring & Integration charges(3)
Impairments(4)
Impact of Wind Down(3)
7,266,634
1,868
20,114
4,305
841,196
8,665
19,906
15,851
623,085
104,219
242,650
104,229
190,340
2,463
4,865
3,910
4,962
64,246
24,730
52,425
6,202
15,041
11,941
15,152
558,839
79,499
(1,008
137,915
140
1,355
6,062
136,560
Net income (loss) per diluted share(6)
0.07
0.18
0.14
6.60
0.94
(0.01
1.60
8.7
27.5
Six months ended June 27, 2020
Non- recurring tax items
1,468,158
19,689
(723
356,765
5,909
279,605
5,065
2,884
(175
(3,615
1,426
73,469
14,624
6,904
(548
3,615
4,483
206,136
274
1,059
14,350
205,077
(0.11
0.05
0.06
2.56
27.3
26.3
Six months ended June 29, 2019
Intangible amortization expense(3)
Other(5)
14,339,571
(3,822
1,694,757
17,807
30,992
114,415
519,500
114,572
(5,872
412,750
5,003
7,576
27,258
(3,502
(1,701
109,290
12,804
23,416
87,314
3,502
(4,171
303,460
282
3,176
12,522
300,284
0.15
0.28
6.57
1.03
(0.05
3.50
(0.4
26.5
(1) Impairments includes $4,918 in impairment charges related to various other long-lived assets unrelated to the personal computer and mobility asset disposition business.
(2) Other includes (gain) loss on investments, net
(3) Amounts for restructuring, integration, and other charges, and identifiable intangible asset amortization related to the personal computer and mobility asset disposition business are included in “impact of wind down” above.
(4) Impairments include goodwill impairments of $570,175, tradename impairments of $46,000, and $6,910 in impairment charges related to various other long-lived assets.
(5) Other includes loss on disposition of businesses, net and gain on investments, net.
(6) For the three months and six months ended June 29, 2019, the non-GAAP net income per diluted share calculation includes 649 thousand shares and 758 thousand shares, respectively, 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.
SEGMENT INFORMATION
Sales:
Global components
Global ECS
Consolidated
Operating income (loss):
181,836
(566,116
346,603
(331,584
Global ECS (a)
72,921
98,388
115,354
185,106
Corporate (b)
(58,144
(81,462
(127,040
(157,152
(a)
Includes reserves and other adjustments of approximately $29.9 million primarily related to foreign tax and other loss contingencies for the first six months of 2020. These reserves are principally associated with transactional taxes on activity from several prior years, not significant to any one year.
(b)
Includes restructuring, integration, and other charges of $0.7 million and $9.8 million for the second quarter and first six months of 2020, and $19.9 million and $31.6 million for the second quarter and first six months of 2019, respectively.
NON-GAAP SEGMENT RECONCILIATION
Global components operating income (loss), as reported
(566,116)
(331,584)
Intangible assets amortization expense (c)
7,259
5,807
14,639
12,060
Impact of wind-down (c)
(11,824)
104,213
113,835
AFS notes receivable reserve
(723)
Digital inventory reserve
Global components operating income, as adjusted
177,468
202,954
348,695
453,361
Global ECS operating income, as reported
Intangible assets amortization expense
2,475
2,858
5,050
5,747
Global ECS operating income, as adjusted
80,314
101,246
125,322
190,853
(c)
Impact of wind down includes intangible asset amortization expense related to the personal computer and mobility asset disposition business. Impact of wind down excludes restructuring, integration, and other charges as they are reported on the corporate entity.
View source version on businesswire.com: https://www.businesswire.com/news/home/20200730005322/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.