Arrow Electronics, Inc.
-- Third-Quarter Earnings Per Share of $2.13; Non-GAAP Earnings Per Share of $2.08 --
-- Cash Provided by Operating Activities of $275 Million --
CENTENNIAL, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2020 sales of $7.23 billion, an increase of 2 percent from sales of $7.08 billion in the third quarter of 2019. Third-quarter net income was $166 million, or $2.13 per share on a diluted basis, compared with a net income of $92 million, or $1.10 per share on a diluted basis, in the third quarter of 2019. Non-GAAP net income1 was $162 million, or $2.08 per share on a diluted basis, in the third quarter of 2020, compared with non-GAAP net income of $155 million, or $1.86 per share on a diluted basis, in the third quarter of 2019.
“Our strong financial performance this quarter is a testament to the strength of our business model,” said Michael J. Long, chairman, president, and chief executive officer. “Arrow is a trusted provider of critical technology solutions, and we believe strong demand for the products and solutions we provide will endure and increase beyond the COVID-19 pandemic. Customers and suppliers are choosing to do more business with Arrow because of our growing engineering, design, supply chain management and hybrid cloud solution capabilities. The hard work of our talented team and their unwavering focus on providing customers with the products and solutions they need, when they need them, has allowed us to capitalize on opportunities leading to financial performance that was above our expectations.”
Global components third-quarter sales of $5.31 billion increased 5 percent year over year. Asia-Pacific components sales increased 29 percent year over year. Americas components sales decreased 13 percent year over year. Non-GAAP sales in the region decreased 10 percent year over year. Europe components sales decreased 8 percent year over year. Non-GAAP sales in the region decreased 12 percent year over year. Global components third-quarter operating income was $204 million. Third-quarter non-GAAP operating income was $208 million.
“Robust third-quarter global components sales demonstrate the vital role we play in the supply chains of manufacturing customers around the world,” continued Mr. Long. “Sales were above the high-end of our expectations driven by tremendous growth in Asia, where our business has doubled in size over the last five years due to our consistent investments in the region to support innovation and invention.”
Global enterprise computing solutions third-quarter sales of $1.92 billion decreased 5 percent year over year. Non-GAAP sales decreased 7 percent year over year. Europe enterprise computing solutions sales increased 6 percent year over year. Non-GAAP sales in the region increased 1 percent year over year. Americas enterprise computing solutions sales decreased 10 percent year over year. Global enterprise computing solutions third-quarter operating income was $83 million. Third-quarter non-GAAP operating income was $85 million.
“Third-quarter global enterprise computing solutions sales were near the high-end of our prior outlook, led by the cloud and security solutions that enable business continuity and remote working,” said Mr. Long. “We continue to be a source of stability for our customers and suppliers facing challenging market conditions.”
“Our financial results demonstrated the resilience of Arrow’s business model,” said Chris Stansbury, senior vice president and chief financial officer. “Third-quarter cash flow from operations was $275 million, driven by disciplined working capital management and healthy profitability from our leading positions in the markets we serve. As always, we remain committed to returning excess cash to shareholders. During the third quarter, we returned approximately $150 million to shareholders through our stock repurchase program, ending the quarter with approximately $563 million of remaining authorization under our share repurchase program. Our balance sheet and liquidity position remain strong, and we are pleased to report that return on invested capital increased year over year for the second straight quarter.”
1 A reconciliation of non-GAAP financial measures, including sales, gross profit, operating income, net income attributable to shareholders, and net income per share, to GAAP financial measures is presented in the reconciliation tables included herein.
FOURTH-QUARTER 2020 OUTLOOK
Fourth-Quarter 2020 Outlook
Reported GAAP measure
Intangible amortization expense
Restructuring & integration charges
Non-GAAP measure
Net income per diluted share
$2.42 - $2.58
$.10
$.05
$2.57 - $2.73
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, as the term is defined under the federal securities laws, including but not limited to statements regarding: Arrow’s future financial performance, including its outlook on financial results for the fourth quarter of fiscal 2020, such as sales, net income per diluted share, non-GAAP net income per diluted share, average tax rate, average diluted shares outstanding, interest expense, average USD-to-Euro exchange rate, impact to sales due to changes in foreign currencies, intangible amortization expense per diluted share, restructuring & integration charges per diluted share, and expectation regarding market demand. These forward-looking statements 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 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, 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 periodic reports on Form 10-K, the Form 10-Q and subsequent filings made with the Securities and Exchange Commission. 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 non-GAAP sales, gross profit, operating income, income before income taxes, provision for income taxes, net income, and net income per share on a diluted basis which are adjusted GAAP measures 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 and recoveries related to the digital business (referred to as “digital inventory write-downs and recoveries”), and the impact of notes receivable reserves and recoveries and inventory write-downs and recoveries related to the AFS business (referred to as “AFS notes receivable reserves and recoveries” and “AFS inventory write-downs and recoveries,” respectively). Non-GAAP operating income excludes identifiable intangible asset amortization, restructuring, integration, and other charges, 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 long-lived assets, and the impact of wind down. Net income attributable to shareholders, and net income per basic and diluted share as adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, loss on disposition of businesses, net, AFS notes receivable reserves and recoveries 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, pension settlement gain, 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
Nine Months Ended
September 26, 2020
September 28, 2019
Sales
$
7,231,260
7,078,118
20,219,171
21,578,657
Cost of sales
6,442,670
6,279,277
17,951,727
19,103,219
Gross profit
788,590
798,841
2,267,444
2,475,438
Operating expenses:
Selling, general, and administrative expenses
504,211
522,446
1,539,520
1,677,734
Depreciation and amortization
46,732
45,231
140,654
139,739
Loss on disposition of businesses, net
—
14,573
15,439
Impairments
2,305
253
7,223
698,246
Restructuring, integration, and other charges (credits)
(2,840)
43,120
6,948
74,692
550,408
625,623
1,694,345
2,605,850
Operating income (loss)
238,182
173,218
573,099
(130,412)
Equity in earnings (losses) of affiliated companies
61
(1,070)
308
(2,155)
Gain (loss) on investments, net
2,726
1,126
(3,183)
7,864
Employee benefit plan (expense) credit
595
(1,071)
(1,687)
(3,349)
Interest and other financing expense, net
(30,461)
(49,882)
(105,596)
(153,426)
Income (loss) before income taxes
211,103
122,321
462,941
(281,478)
Provision for income taxes
44,707
29,340
113,453
30,878
Consolidated net income (loss)
166,396
92,981
349,488
(312,356)
Noncontrolling interests
336
850
1,121
3,744
Net income (loss) attributable to shareholders
166,060
92,131
348,367
(316,100)
Net income (loss) per share:
Basic
2.15
1.11
4.42
(3.75)
Diluted
2.13
1.10
4.39
Weighted-average shares outstanding:
77,390
82,711
78,807
84,246
78,086
83,397
79,404
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
227,019
300,103
Accounts receivable, net
7,958,675
8,482,687
Inventories
3,235,802
3,477,120
Other current assets
238,403
266,249
Total current assets
11,659,899
12,526,159
Property, plant, and equipment, at cost:
Land
7,818
7,793
Buildings and improvements
196,258
173,370
Machinery and equipment
1,528,735
1,481,525
1,732,811
1,662,688
Less: Accumulated depreciation and amortization
(938,956)
(859,578)
Property, plant, and equipment, net
793,855
803,110
Investments in affiliated companies
76,355
86,942
Intangible assets, net
241,293
271,903
Goodwill
2,074,282
2,061,322
Other assets
650,949
651,360
Total assets
15,496,633
16,400,796
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
6,849,252
7,046,221
Accrued expenses
899,326
880,507
Short-term borrowings, including current portion of long-term debt
166,128
331,431
Total current liabilities
7,914,706
8,258,159
Long-term debt
2,097,741
2,640,129
Other liabilities
646,414
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
1,157,149
1,150,006
Treasury stock (49,696 and 44,804 shares in 2020 and 2019, respectively), at cost
(2,689,876)
(2,332,548)
Retained earnings
6,443,680
6,131,248
Accumulated other comprehensive loss
(255,313)
(262,211)
Total shareholders’ equity
4,781,064
4,811,919
56,708
54,474
Total equity
4,837,772
4,866,393
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
6,285
7,120
Equity in (earnings) losses of affiliated companies
(61)
1,070
Deferred income taxes
(7,369)
6,362
Gain on investments, net
(2,727)
(884)
Other
3,995
(276)
Change in assets and liabilities, net of effects of acquired and disposed businesses:
87,402
21,355
207,646
64,468
(176,973)
(3,013)
(41,889)
270
Other assets and liabilities
(17,015)
37,264
Net cash provided by operating activities
274,727
286,774
Cash flows from investing activities:
Cash paid on disposition of businesses
(10,785)
Acquisition of property, plant, and equipment
(30,013)
(31,444)
(9,116)
(8,495)
Net cash used for investing activities
(39,129)
(50,724)
Cash flows from financing activities:
Change in short-term and other borrowings
(78,966)
80,227
Proceeds from (repayments of) long-term bank borrowings, net
328
(215,937)
Proceeds from exercise of stock options
2,233
2,088
Repurchases of common stock
(153,011)
(103,270)
Net cash used for financing activities
(229,416)
(236,892)
Effect of exchange rate changes on cash
15,009
(6,893)
Net increase (decrease) in cash and cash equivalents
21,191
(7,735)
Cash and cash equivalents at beginning of period
205,828
269,989
Cash and cash equivalents at end of period
262,254
Adjustments to reconcile consolidated net income (loss) to net cash provided by operations:
28,602
34,749
(308)
2,155
38,976
(65,484)
Loss (gain) on investments, net
3,198
(7,622)
4,043
10,814
533,570
916,908
260,573
342,610
(228,000)
(1,349,189)
29,154
(71,124)
(7,336)
8,308
1,159,837
363,193
(1,325)
(89,555)
(113,080)
(14,582)
(5,555)
(104,137)
(119,960)
(86,155)
(93,129)
Repayments of long-term bank borrowings, net
(411,362)
(96,960)
Redemption of notes
(209,366)
5,963
11,710
(384,750)
(304,194)
Settlement of forward-starting interest rate swap
(48,378)
(141)
(147)
(1,134,189)
(482,720)
5,405
(7,586)
Net decrease in cash and cash equivalents
(73,084)
(247,073)
509,327
NON-GAAP SALES RECONCILIATION
% Change
Consolidated sales, as reported
2.2
%
Impact of changes in foreign currencies
96,749
Impact of wind down
(60,130)
Non-GAAP consolidated sales
7,114,737
1.6
Global components sales, as reported
5,307,737
5,048,880
5.1
67,317
Non-GAAP global components sales
5,056,067
5.0
Americas Components sales, as reported
1,515,962
1,738,710
(12.8)
(409)
(46,998)
Non-GAAP Americas Components sales
1,691,303
(10.4)
Europe components sales, as reported
1,196,672
1,304,109
(8.2)
64,000
(13,132)
Non-GAAP Europe components sales
1,354,977
(11.7)
Asia components sales, as reported
2,595,103
2,006,061
29.4
3,726
Non-GAAP Asia components sales
2,009,787
29.1
Global ECS sales, as reported
1,923,523
2,029,238
(5.2)
29,432
Non-GAAP global ECS sales
2,058,670
(6.6)
Europe ECS sales, as reported
649,732
610,324
6.5
30,545
Non-GAAP Europe ECS sales
640,869
1.4
Americas ECS sales, as reported
1,273,791
1,418,914
(10.2)
(1,113)
Non-GAAP Americas ECS sales
1,417,801
(6.3)
(41,938)
Impact of wind down and dispositions
(232,239)
21,304,480
(5.1)
14,579,593
15,511,742
(6.0)
(21,453)
(221,098)
15,269,191
(4.5)
4,557,661
5,522,538
(17.5)
(4,169)
(170,724)
5,347,645
(14.8)
3,625,079
4,223,363
(14.2)
(5,049)
(50,374)
4,167,940
(13.0)
6,396,853
5,765,841
10.9
(12,235)
5,753,606
11.2
5,639,578
6,066,915
(7.0)
(20,485)
Impact of dispositions
(11,141)
6,035,289
2,013,843
2,074,638
(2.9)
(3,117)
2,060,380
(2.3)
3,625,735
3,992,277
(9.2)
(17,368)
3,974,909
(8.8)
NON-GAAP EARNINGS RECONCILIATION
Three months ended September 26, 2020
Reported
GAAP
measure
Intangible
amortization
expense
Restructuring
& Integration
charges
AFS Reserves & Recoveries
Digital Write Downs & Recoveries
Impairments(1)
Impact of Wind Down
Non-recurring tax items
Other(2)
Non-GAAP
Gross Profit
(475)
788,115
Operating income
9,352
(233)
(2,487)
244,279
Income before income taxes
(2,478)
(4,495)
212,714
2,396
(665)
(56)
556
(583)
4,887
(1,090)
50,152
6,956
(2,175)
(177)
1,749
(1,895)
(4,887)
(3,405)
162,562
146
482
Net income attributable to shareholders
6,810
162,080
Net income per diluted share(7)
0.09
(0.03)
0.02
(0.02)
(0.06)
(0.04)
2.08
Effective tax rate
21.2
23.6
Three months ended September 28, 2019
expense(3)
charges(3)
Impact of Wind Down(3)
Other(4)
7,017,988
1,101
(3,541)
796,401
10,265
31,087
(664)
711
36,917
252,635
36,842
(1,126)
200,537
2,860
8,922
(178)
272
3,753
(249)
44,720
7,405
22,165
(486)
829
33,089
(877)
155,817
138
988
7,267
154,829
0.27
(0.01)
0.01
0.40
1.86
24.0
22.3
Nine months ended September 26, 2020
Restructuring & Integration charges
(11,171)
2,256,273
29,041
(956)
(14,311)
601,044
(14,292)
1,414
492,319
7,461
2,219
(231)
2,356
(3,245)
1,272
123,621
21,580
4,729
(725)
4,867
(11,047)
(1,272)
1,078
368,698
420
1,541
21,160
367,157
0.06
(0.14)
4.62
24.5
25.1
Nine months ended September 28, 2019
Intangible amortization expense(3)
Restructuring & Integration charges(3)
Impairments(5)
Other(6)
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
(3,502)
(1,950)
154,010
20,209
45,581
11,455
15,981
559,550
120,403
3,502
(5,048)
459,277
4,164
19,789
455,113
Net income (loss) per diluted share(7)
0.23
0.54
0.14
0.19
6.64
1.43
0.04
5.36
(11.0)
(1) Impairments includes $2,305 and $7,223 in impairment charges related to various other long-lived assets unrelated to the personal computer and mobility asset disposition business for the third quarter and first nine months of 2020, respectively.
(2) Other includes (gain) loss on investments, net and pension settlement gain.
(3) 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.
(4) Other includes gain on investments, net.
(5) 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.
(6) Other includes loss on disposition of businesses, net and gain on investments, net.
(7) 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 non-GAAP diluted EPS may not agree to totals, as presented, due to rounding.
SEGMENT INFORMATION
Sales:
Global components
Global ECS
Consolidated
Operating income (loss):
203,603
171,591
550,206
(159,993)
Global ECS (a)
82,529
92,375
197,883
277,481
Corporate (b)
(47,950)
(90,748)
(174,990)
(247,900)
(a)
Includes reserves and other adjustments of approximately $29.9 million primarily related to foreign tax and other loss contingencies for the first nine 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 (credits) of $(2.8) million and $6.9 million for the third quarter and first nine months of 2020, and $31.1 million and $62.7 million for the third quarter and first nine months of 2019, respectively. Also includes $2.3 million of impairment charges related to various long-lived assets for the third quarter and first nine months of 2020.
NON-GAAP SEGMENT RECONCILIATION
Global components operating income (loss), as reported
Intangible assets amortization expense (c)
7,014
7,398
21,653
19,458
Impairments (c)
Impact of wind down (c)
150,752
AFS notes receivable reserve (recoveries)
Digital inventory reserve
Global components non-GAAP operating income
207,897
217,054
556,592
670,415
Global ECS operating income, as reported
Intangible assets amortization expense
2,338
2,866
7,388
8,613
4,918
Global ECS non-GAAP operating income
84,867
95,241
210,189
286,094
(c)
For the third quarter and first nine months of 2019, impact of wind down includes restructuring, integration, and other charges, identifiable intangible asset amortization, loss on dispositions of businesses, net, and impairments related to the personal computer and mobility asset disposition business.
View source version on businesswire.com: https://www.businesswire.com/news/home/20201029005359/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.