Arrow Electronics, Inc.
-- Record Sales, Gross Profit, Operating Income, and Earnings Per Share --
-- Second-Quarter Earnings Per Share of $5.54; Non-GAAP Earnings Per Share of $5.78 --
CENTENNIAL, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2022 sales of $9.46 billion, an increase of 10 percent from sales of $8.56 billion in the second quarter of 2021. Second-quarter net income was $370 million, or $5.54 per share on a diluted basis, compared with net income of $241 million, or $3.23 per share on a diluted basis, in the second quarter of 2021. Non-GAAP net income1 was $386 million, or $5.78 per share on a diluted basis, in the second quarter of 2022, compared with non-GAAP net income of $249 million, or $3.34 per share on a diluted basis, in the second quarter of 2021. In the second quarter of 2022, changes in foreign currencies had negative impacts on growth of approximately $291 million on sales and $0.17 on earnings per share on a diluted basis compared to the second quarter of 2021.
“We’ve continued to build and deliver on our record performance for the past several quarters. While market conditions are challenging, they also provide ample opportunities to demonstrate Arrow's commitment to the success of our customers and suppliers,” said Sean Kerins, president, and chief executive officer. “Thanks to the dedication and focused execution of our team, we delivered all-time record quarterly sales, gross profit, operating income, and earnings per share while in the face of ongoing supply and demand imbalance.”
Global components second-quarter sales of $7.46 billion reflected an increase of 13 percent year over year and non-GAAP sales increased 16 percent year over year. Asia-Pacific components second-quarter sales increased 1 percent year over year. Americas components second-quarter sales increased 26 percent year over year. Europe components second-quarter sales increased 21 percent year over year and non-GAAP sales in the region increased 37 percent year over year. Global components second-quarter operating income was $524 million, and second-quarter non-GAAP operating income was $531 million.
“Demand for electronic components and associated design, engineering and supply chain services remained strong. Past investments to enhance our capabilities, especially in the areas of engineering and supply chain capabilities, have led to advancements in profit performance. This is proof positive that we are uniquely positioned to help our customers navigate today’s challenges,” said Mr. Kerins.
Global enterprise computing solutions second-quarter sales of $2.00 billion reflected an increase of 2 percent year over year and non-GAAP sales increased 8 percent year over year. Europe enterprise computing solutions second-quarter sales increased 7 percent year over year and non-GAAP sales in the region increased 21 percent year over year. Americas enterprise computing solutions second-quarter sales decreased 1 percent year over year. Global enterprise computing solutions second-quarter operating income was $84 million, and second-quarter non-GAAP operating income was $86 million.
“Global demand for more complex, enterprise IT content was healthy, and while supply constraints represented a headwind to hardware sales, we saw strength in our software and cloud portfolios. We continue to see strength in cloud, software and enterprise solutions and are well positioned for the transition to IT-as-a-Service,” said Mr. Kerins.
“Our return on invested capital remains favorable, and our leverage ratios are near their lowest levels in ten years,” said Rick Seidlitz, vice president and interim principal financial officer. “Our strong profitability and the effective management of our balance sheet enabled us to deliver on our commitment to return cash to shareholders through the repurchase of approximately $225 million of shares in the second quarter of 2022. Our current repurchase authorization stands at approximately $288 million.”
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.
THIRD-QUARTER 2022 OUTLOOK
Third-Quarter 2022 Outlook
Reported GAAP measure
Intangible amortization expense
Restructuring & integration charges
Non-GAAP measure
Net income per diluted share
$5.11 to $5.27
$.10
$.06
$5.27 to $5.43
Please refer to the CFO commentary, which can be found at investor.arrow.com, as a supplement to the company’s earnings release. The company uses its website as a tool to disclose important information about the company and comply with its disclosure obligations under Regulation Fair Disclosure.
Arrow Electronics guides innovation forward for over 220,000 leading technology manufacturers and service providers. With 2021 sales of $34 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 third quarter of fiscal 2022 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: disruptions or inefficiencies in the supply chain, including any potential adverse effects of the ongoing global COVID-19 pandemic, impacts of the conflict in Ukraine, industry conditions, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and the global enterprise computing solutions (“ECS”) markets, economic conditions, including changes in inflation rates, tax rates, or the availability of capital, changes in relationships with key suppliers, increased profit margin pressure, changes in legal and regulatory matters, non-compliance with certain regulations, such as export, antitrust, 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 most recent Quarterly Report on Form 10-Q and the company's most recent Annual Report on Form 10-K, as well as in other filings the company makes 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. The company provides non-GAAP sales, gross profit, operating income, income before income taxes, provision for income taxes, net income, noncontrolling interests, net income attributable to shareholders, effective tax rate and net income per share on a diluted basis, which are non-GAAP measures 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, identifiable intangible asset amortization, restructuring, integration, and other charges, pension settlement loss and net gains and losses on investments. Management believes that providing this additional information is useful to the reader to better assess and understand the company’s operating performance, especially when comparing results with previous periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. However, analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, and not as a substitute for 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
Six Months Ended
July 2, 2022
July 3, 2021
Sales
$
9,460,842
8,562,631
18,534,967
16,948,550
Cost of sales
8,224,628
7,562,526
16,091,249
15,018,335
Gross profit
1,236,214
1,000,105
2,443,718
1,930,215
Operating expenses:
Selling, general, and administrative expenses
653,640
602,084
1,297,565
1,176,651
Depreciation and amortization
47,252
48,539
95,557
98,870
Restructuring, integration, and other charges
2,494
8,960
7,392
14,669
703,386
659,583
1,400,514
1,290,190
Operating income
532,828
340,522
1,043,204
640,025
Equity in earnings of affiliated companies
2,165
190
3,008
1,034
Gain (loss) on investments, net
(9,744
)
6,726
(7,733
9,519
Employee benefit plan expense, net
(835
(1,438
(1,724
(2,668
Interest and other financing expense, net
(38,506
(30,685
(72,491
(64,341
Income before income taxes
485,908
315,315
964,264
583,569
Provision for income taxes
114,413
74,113
226,773
135,139
Consolidated net income
371,495
241,202
737,491
448,430
Noncontrolling interests
1,161
561
2,408
1,468
Net income attributable to shareholders
370,334
240,641
735,083
446,962
Net income per share:
Basic
5.60
3.27
10.98
6.02
Diluted
5.54
3.23
10.84
5.94
Weighted-average shares outstanding:
66,078
73,693
66,964
74,294
66,851
74,611
67,797
75,197
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
225,596
222,194
Accounts receivable, net
10,851,466
11,123,946
Inventories
4,886,562
4,201,965
Other current assets
460,808
345,218
Total current assets
16,424,432
15,893,323
Property, plant, and equipment, at cost:
Land
5,691
5,736
Buildings and improvements
184,677
186,097
Machinery and equipment
1,528,875
1,523,919
1,719,243
1,715,752
Less: Accumulated depreciation and amortization
(1,093,656
(1,032,941
Property, plant, and equipment, net
625,587
682,811
Investments in affiliated companies
65,732
63,695
Intangible assets, net
175,854
195,029
Goodwill
2,020,574
2,080,371
Other assets
582,271
620,311
Total assets
19,894,450
19,535,540
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
9,162,534
9,617,084
Accrued expenses
1,244,505
1,326,386
Short-term borrowings, including current portion of long-term debt
626,048
382,619
Total current liabilities
11,033,087
11,326,089
Long-term debt
2,856,490
2,244,443
Other liabilities
606,590
624,162
Equity:
Shareholders’ equity:
Common stock, par value $1:
Authorized - 160,000 shares in both 2022 and 2021
Issued - 125,424 shares in both 2022 and 2021
125,424
Capital in excess of par value
1,198,530
1,189,845
Treasury stock (60,821 and 57,358 shares in 2022 and 2021, respectively), at cost
(4,080,505
(3,629,265
Retained earnings
8,523,031
7,787,948
Accumulated other comprehensive loss
(426,014
(191,657
Total shareholders’ equity
5,340,466
5,282,295
57,817
58,551
Total equity
5,398,283
5,340,846
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 (used for) operations:
Amortization of stock-based compensation
13,885
8,744
(2,165
(190
Deferred income taxes
(8,036
(1,594
Loss (gain) on investments, net
9,744
(6,726
Other
1,680
4,759
Change in assets and liabilities:
(464,917
(313,735
(294,990
(357,065
162,366
562,461
103,764
79,459
Other assets and liabilities
(22,660
15,526
Net cash provided by (used for) operating activities
(82,582
281,380
Cash flows from investing activities:
Acquisition of property, plant, and equipment
(16,974
(20,929
373
—
Net cash used for investing activities
(16,601
Cash flows from financing activities:
Change in short-term and other borrowings
310,315
(2,379
Proceeds (payments) from long-term bank borrowings, net
65,000
(20,433
Proceeds from exercise of stock options
4,370
15,226
Repurchases of common stock
(219,532
(250,708
(137
(159
Net cash provided by (used for) financing activities
160,016
(258,453
Effect of exchange rate changes on cash
(78,028
14,371
Net increase (decrease) in cash and cash equivalents
(17,195
16,369
Cash and cash equivalents at beginning of period
242,791
227,701
Cash and cash equivalents at end of period
244,070
31,236
21,967
(3,008
(1,034
(6,684
12,069
7,733
(9,519
2,366
6,133
(34,207
283,042
(755,892
(370,212
(315,459
(277,663
60,123
83,102
(102,086
(18,341
(282,830
276,844
(36,244
(41,109
Proceeds from sale of property, plant, and equipment
22,171
Proceeds from collections of notes receivable
20,542
(15,702
(18,938
296,022
(14,831
Proceeds from long-term bank borrowings, net
910,000
134,241
Redemption of notes
(350,000
(130,860
15,672
41,317
(483,963
(411,327
387,594
(381,619
(85,660
(5,832
3,402
(129,545
373,615
NON-GAAP SALES RECONCILIATION
% Change
Consolidated sales, as reported
10.5
%
Impact of changes in foreign currencies
(290,517
Non-GAAP consolidated sales
8,272,114
14.4
Global components sales, as reported
7,461,552
6,610,761
12.9
(191,715
Non-GAAP global components sales
6,419,046
16.2
Americas components sales, as reported
2,479,362
1,970,756
25.8
(1,950
Non-GAAP Americas components sales
1,968,806
25.9
Asia components sales, as reported
3,173,786
3,149,343
0.8
(23,348
Non-GAAP Asia components sales
3,125,995
1.5
Europe components sales, as reported
1,808,404
1,490,662
21.3
(166,417
Non-GAAP Europe components sales
1,324,245
36.6
Global ECS sales, as reported
1,999,290
1,951,870
2.4
(98,802
Non-GAAP global ECS sales
1,853,068
7.9
Americas ECS sales, as reported
1,160,796
1,167,355
(0.6
) %
(7,312
Non-GAAP Americas ECS sales
1,160,043
0.1
Europe ECS sales, as reported
838,494
784,515
6.9
(91,490
Non-GAAP Europe ECS sales
693,025
21.0
9.4
(442,068
Non-GAAP Consolidated sales
16,506,482
12.3
14,660,627
13,054,014
(292,016
Non-GAAP Global components sales
12,761,998
14.9
4,819,905
3,671,929
31.3
(2,722
3,669,207
31.4
6,105,315
6,322,821
(3.4
(23,978
6,298,843
(3.1
3,735,407
3,059,264
22.1
(265,316
2,793,948
33.7
3,874,340
3,894,536
(0.5
(150,052
Non-GAAP Global ECS sales
3,744,484
3.5
2,208,645
2,318,693
(4.7
(9,765
2,308,928
(4.3
1,665,695
1,575,843
5.7
(140,287
1,435,556
16.0
NON-GAAP EARNINGS RECONCILIATION
Three months ended July 2, 2022
Restructuring & Integration charges
Other(1)
Gross Profit
8,830
544,152
506,976
2,263
362
2,356
119,394
6,567
2,132
7,388
387,582
133
1,294
6,434
386,288
Net income per diluted share (3)
0.10
0.03
0.11
5.78
Effective tax rate (4)
23.5
23.6
Three months ended July 3, 2021
Restructuring & Integration charges(5)
Other(2)
9,316
358,798
(6,545
327,046
2,382
2,088
(1,575
77,008
6,934
6,872
(4,970
250,038
150
711
6,784
249,327
0.09
(0.07
3.34
Six months ended July 2, 2022
17,848
1,068,444
997,237
4,573
1,567
1,870
234,783
13,275
5,825
5,863
762,454
273
2,681
13,002
759,773
0.19
11.21
Six months ended July 3, 2021
18,642
673,336
(9,338
607,542
4,767
3,254
(2,247
140,913
13,875
11,415
(7,091
466,629
300
1,768
13,575
464,861
0.18
0.15
(0.09
6.18
23.2
(1)
Other includes loss on investments, net.
(2)
Other includes gain on investments, net and pension settlement loss.
(3)
The sum of the components for diluted EPS, as adjusted may not agree to totals, as presented, due to rounding.
(4)
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.
(5)
Restructuring & Integration charges include impairment related to various long-lived assets
SEGMENT INFORMATION
Sales:
Global components
Global ECS
Consolidated
Operating income (loss):
Global components (a)
524,494
327,036
1,023,836
616,419
83,970
81,099
169,768
158,458
Corporate (b)
(75,636
(67,613
(150,400
(134,852
(a)
Global components operating income includes $8.2 million and $12.5 million related to proceeds from legal settlements for the second quarter and first six months of 2021, respectively.
(b)
Corporate operating income includes restructuring, integration, and other charges of $2.5 million and $7.4 million for the second quarter and first six months of 2022, respectively, and $4.5 million and $10.2 million for the second quarter and first six months of 2021, respectively.
NON-GAAP SEGMENT RECONCILIATION
Global components operating income, as reported
Intangible assets amortization expense
6,739
6,995
13,612
13,999
4,482
Global components non-GAAP operating income
531,233
338,513
1,037,448
634,900
Global ECS operating income, as reported
2,091
2,321
4,236
4,643
Global ECS non-GAAP operating income
86,061
83,420
174,004
163,101
Contact: Richard Seidlitz, Vice President, Principal Accounting Officer, Interim Principal Financial Officer 303-305-4936
Media Contact: John Hourigan, Vice President, Global Communications 303-824-4586