Arrow Electronics, Inc.
-- Record First-Quarter Sales, Operating Income, Net Income and Earnings per Share -- -- First-Quarter Earnings Per Share of $2.72; Non-GAAP Earnings Per Share of $2.84 --
CENTENNIAL, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYSE:ARW) today reported first-quarter 2021 sales of $8.39 billion, an increase of 31 percent from sales of $6.38 billion in the first quarter of 2020. First-quarter net income was $206 million, or $2.72 per share on a diluted basis, compared with a net income of $50 million, or $0.61 per share on a diluted basis, in the first quarter of 2020. Non-GAAP net income1 was $216 million, or $2.84 per share on a diluted basis, in the first quarter of 2021, compared with non-GAAP net income of $79 million, or $0.97 per share on a diluted basis, in the first quarter of 2020.
“Arrow’s commitment to guiding innovation forward on behalf of our customers and suppliers enabled us to deliver record results in the quarter. I am incredibly impressed with our team’s execution as we continued to help customers across key industries thrive and benefit by delivering the products, services and solutions they need,” said Michael J. Long, chairman, president, and chief executive officer. “Our continually evolving business model has adapted well to significant swings in demand and shifts in business priorities over the last year, and we look forward to further building on this strong momentum in the months ahead.”
Global components first-quarter sales of $6.44 billion reflected an increase of 42 percent year over year. Asia-Pacific components sales increased 88 percent year over year. Americas components first-quarter sales increased 10 percent year over year. Europe components first-quarter sales increased 20 percent year over year and non-GAAP sales in the region increased 10 percent year over year. Global components first-quarter operating income was $289 million and first-quarter non-GAAP operating income was $296 million.
“Strength and stability are the hallmarks of our global components business. Sales were above the high-end of our expectations for the fourth consecutive quarter, and, importantly, we are realizing robust operating leverage on our sales growth,” said Mr. Long. “We see current supply challenges as transitory and expect more balance with demand in the coming quarters.”
Global enterprise computing solutions first-quarter sales of $1.94 billion reflected an increase of 6 percent year over year and non-GAAP sales increased 2 percent year over year. Europe enterprise computing solutions first-quarter sales increased 13 percent year over year and non-GAAP sales in the region increased 4 percent year over year. Americas enterprise computing solutions first-quarter sales increased 2 percent year over year. Global enterprise computing solutions first-quarter operating income was $77 million and first-quarter non-GAAP operating income was $80 million.
Mr. Long said, “First-quarter global enterprise computing solutions sales were in-line with our prior outlook. We are seeing early indications that spending priorities are shifting to more complex projects with transformational business outcomes that are well-suited for our enterprise capabilities.”
“Our financial returns continue to improve meaningfully,” said Chris Stansbury, senior vice president and chief financial officer. “Through our disciplined working capital management, we are well-positioned to continue realizing operational leverage and converting growing profits to free cash flow in future quarters. As always, we remain committed to improving value to shareholders. During the first quarter, we repurchased approximately $150 million of shares through our stock repurchase program, ending the quarter with approximately $313 million of remaining authorization. Our balance sheet and liquidity position remain strong, and we are pleased to report return on invested capital increased year over year for the fourth 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.
SECOND-QUARTER 2021 OUTLOOK
Second-Quarter 2021 Outlook
Reported GAAP measure
Intangible amortization expense
Restructuring & integration charges
Non-GAAP measure
Net income per diluted share
$2.67 - $2.83
$.10
$.05
$2.82 - $2.98
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 180,000 leading technology manufacturers and service providers. With 2020 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 second quarter of fiscal 2021, 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 and 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 COVID-19 pandemic, including actions taken to contain or treat COVID-19, 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, foreign currency fluctuation, 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 and 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 and the impact of notes receivable reserves and recoveries related to the AFS business (referred to as “AFS notes receivable reserves and recoveries”). Non-GAAP operating income excludes identifiable intangible asset amortization, restructuring, integration, and other charges, AFS notes receivable reserves and recoveries. Non-GAAP effective tax rate excludes identifiable intangible asset amortization, restructuring, integration, and other charges, gain (loss) on investments, net, the impact of tax legislation charges, and AFS notes receivable recoveries. 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, AFS notes receivable reserves and recoveries, net gains and losses on investments, and certain tax adjustments.
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 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.
A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the tables below.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
Quarter Ended
April 3, 2021
March 28, 2020
Sales
$
8,385,919
6,381,417
Cost of sales
7,455,809
5,653,026
Gross profit
930,110
728,391
Operating expenses:
Selling, general, and administrative expenses
574,567
533,839
Depreciation and amortization
50,331
47,110
Restructuring, integration, and other charges
5,709
9,138
630,607
590,087
Operating income
299,503
138,304
Equity in earnings of affiliated companies
844
530
Gain (loss) on investments, net
2,793
(16,810
)
Employee benefit plan (expense) credit
(1,230
(1,109
Interest and other financing expense, net
(33,656
(43,268
Income before income taxes
268,254
77,647
Provision for income taxes
61,026
27,892
Consolidated net income
207,228
49,755
Noncontrolling interests
907
252
Net income attributable to shareholders
206,321
49,503
Net income (loss) per share:
Basic
2.76
0.62
Diluted
2.72
0.61
Weighted-average shares outstanding:
74,882
80,407
75,794
81,108
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
227,701
373,615
Accounts receivable, net
8,503,010
9,205,343
Inventories
3,275,389
3,287,308
Other current assets
360,968
286,633
Total current assets
12,367,068
13,152,899
Property, plant, and equipment, at cost:
Land
5,691
7,940
Buildings and improvements
177,615
207,614
Machinery and equipment
1,521,489
1,553,371
1,704,795
1,768,925
Less: Accumulated depreciation and amortization
(957,257
(969,320
Property, plant, and equipment, net
747,538
799,605
Investments in affiliated companies
77,330
76,358
Intangible assets, net
223,848
233,819
Goodwill
2,101,938
2,115,469
Other assets
655,838
675,761
Total assets
16,173,560
17,053,911
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
7,045,759
7,937,889
Accrued expenses
985,928
1,034,361
Short-term borrowings, including current portion of long-term debt
361,327
158,633
Total current liabilities
8,393,014
9,130,883
Long-term debt
1,903,848
2,097,940
Other liabilities
662,252
676,136
Commitments and contingencies
Equity:
Shareholders’ equity:
Common stock, par value $1:
Authorized - 160,000 shares in both 2021 and 2020
Issued - 125,424 shares in both 2021 and 2020
125,424
Capital in excess of par value
1,166,554
1,165,850
Treasury stock (51,426 and 50,581 shares in 2021 and 2020, respectively), at cost
(2,898,830
(2,776,821
Retained earnings
6,886,072
6,679,751
Accumulated other comprehensive loss
(123,461
(104,885
Total shareholders’ equity
5,155,759
5,089,319
58,687
59,633
Total equity
5,214,446
5,148,952
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
13,223
13,920
Equity in (earnings) losses of affiliated companies
(844
(530
Deferred income taxes
13,663
32,613
Gain on investments, net
(2,793
16,810
Other
1,374
(205
Change in assets and liabilities, net of effects of acquired and disposed businesses:
596,777
558,605
(13,147
133,392
(840,124
(343,051
3,643
(31,326
Other assets and liabilities
(33,867
(10,228
Net cash provided by operating activities
(4,536
466,865
Cash flows from investing activities:
Acquisition of property, plant, and equipment
(20,180
(27,971
Proceeds from sale of property, plant, and equipment
22,171
—
(5,466
Net cash used for investing activities
1,991
(33,437
Cash flows from financing activities:
Change in short-term and other borrowings
(12,452
(84,354
Proceeds from (repayments of) long-term bank borrowings, net
154,674
(288,577
Redemption of notes
(130,860
Proceeds from exercise of stock options
26,091
1,980
Repurchases of common stock
(160,619
(158,989
Net cash used for financing activities
(123,166
(529,940
Effect of exchange rate changes on cash
(20,203
(2,593
Net increase (decrease) in cash and cash equivalents
(145,914
(99,105
Cash and cash equivalents at beginning of period
300,103
Cash and cash equivalents at end of period
200,998
NON-GAAP SALES RECONCILIATION
% Change
Consolidated sales, as reported
31.4
%
Impact of changes in foreign currencies
202,672
Non-GAAP consolidated sales
6,584,089
27.4
Global components sales, as reported
6,443,253
4,550,601
41.6
130,299
Non-GAAP global components sales
4,680,900
37.6
Americas Components sales, as reported
1,701,173
1,552,798
9.6
(290
Non-GAAP Americas Components sales
1,552,508
Europe components sales, as reported
1,568,602
1,309,990
19.7
115,285
Non-GAAP Europe components sales
1,425,275
10.1
Asia components sales, as reported
3,173,478
1,687,813
88.0
15,304
Non-GAAP Asia components sales
1,703,117
86.3
Global ECS sales, as reported
1,942,666
1,830,816
6.1
72,373
Non-GAAP global ECS sales
1,903,189
2.1
Europe ECS sales, as reported
791,328
702,128
12.7
59,801
Non-GAAP Europe ECS sales
761,929
3.9
Americas ECS sales, as reported
1,151,338
1,128,688
2.0
12,572
Non-GAAP Americas ECS sales
1,141,260
0.9
NON-GAAP EARNINGS RECONCILIATION
Three months ended April 3, 2021
Reported
GAAP
measure
Intangible
amortization
expense
Restructuring
& Integration
charges
AFS Reserves & Recoveries
Non-recurring tax items
Other(1)
Non-GAAP
Gross Profit
9,326
314,538
280,496
2,385
1,166
(672
63,905
6,941
4,543
(2,121
216,591
150
1,057
6,791
215,534
0.09
0.06
(0.03
2.84
Effective tax rate (2)
22.7
22.8
Three months ended March 28, 2020
9,955
(920
156,477
112,630
2,564
2,571
(222
(3,615
4,057
33,247
7,391
6,567
(698
3,615
12,753
79,383
137
389
7,254
78,994
0.08
(0.01
0.04
0.16
0.97
35.9
29.5
(1) Other includes (gain) loss on investments, net.
(2) The items as shown in this table, represent the reconciling items for the tax rate as reported by GAAP measure and as a non-GAAP measure.
SEGMENT INFORMATION
Sales:
Global components
Global ECS
Consolidated
Operating income (loss):
289,383
164,767
Global ECS (a)
77,359
42,433
Corporate (b)
(67,239
(68,896
(a)
Includes reserves and other adjustments of approximately $29.9 million primarily related to foreign tax and other loss contingencies for the first quarter 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 $5.7 million for the first quarter of 2021, and $9.1 million for the first quarter of 2020, respectively.
NON-GAAP SEGMENT RECONCILIATION
Global components operating income (loss), as reported
Intangible assets amortization expense
7,004
7,380
AFS notes receivable reserve (recoveries)
Global components non-GAAP operating income
296,387
171,227
Global ECS operating income, as reported
2,322
2,575
Global ECS non-GAAP operating income
79,681
45,008
View source version on businesswire.com: https://www.businesswire.com/news/home/20210506005317/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.