Arrow Electronics, Inc.
-- First-Quarter Earnings Per Share of $4.60; Non-GAAP Earnings Per Share of $4.60 --
-- Revenue and EPS Exceeding Midpoint of Guidance --
CENTENNIAL, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYSE:ARW) today reported first-quarter 2023 sales of $8.74 billion, a decrease of 4 percent year over year, and a decrease of 2 percent year over year on a constant currency basis1. First-quarter net income was $274 million, or $4.60 per share on a diluted basis, compared with net income of $365 million, or $5.31 per share on a diluted basis, in the first quarter of 2022. Non-GAAP net income1 was $274 million, or $4.60 per share on a diluted basis, in the first quarter of 2023, compared with non-GAAP net income of $373 million, or $5.43 per share on a diluted basis, in the first quarter of 2022. In the first quarter of 2023, changes in foreign currencies reduced sales by $203 million, and reduced earnings per share on a diluted basis by $0.13, compared to the first quarter of 2022.
“The company delivered solid first-quarter results with revenue and earnings per share beating the midpoint of our guidance,” said Sean Kerins, Arrow's president and chief executive officer. “Our dedicated team performed well in a challenging environment for both our suppliers and customers.”
Global components first-quarter sales of $6.86 billion reflected a decrease of 5 percent year over year, and a decrease of 3 percent year over year on a constant currency basis. Asia-Pacific components first-quarter sales decreased 19 percent year over year. Americas components first-quarter sales decreased 5 percent year over year. Europe components first-quarter sales increased 17 percent year over year, and increased 23 percent year over year on a constant currency basis. Global components first-quarter operating income was $418 million, and first-quarter non-GAAP operating income was $424 million.
“We are pleased with the overall performance of the global components business given the current market conditions, led by strength in the EMEA region. We were encouraged by the momentum of our design engagement in several of our markets,” said Mr. Kerins.
Global enterprise computing solutions (ECS) first-quarter sales of $1.88 billion were flat year over year and reflected an increase of 3 percent year over year on a constant currency basis. Europe enterprise computing solutions first-quarter sales increased 7 percent year over year and increased 13 percent year over year on a constant currency basis. Americas enterprise computing solutions first-quarter sales decreased 5 percent year over year. Global enterprise computing solutions first-quarter operating income was $81 million, and first-quarter non-GAAP operating income was $82 million.
“Our ECS business continues to perform in line with the overall market for enterprise IT, with better momentum in Europe, and a softer backdrop in the Americas. Additionally, we’re pleased to see signs of an improving supply environment,” said Mr. Kerins.
“Enhancing shareholder value remains a top priority,” said Raj Agrawal, senior vice president and chief financial officer. “Our strong financial returns and the effective management of our balance sheet have enabled us to return cash to shareholders by repurchasing $300 million of shares during the first quarter. Returning cash to shareholders through our stock repurchase plan remains one of our priorities. As of the end of the first quarter, our remaining repurchase authorization stands at approximately $1 billion.”
1 A reconciliation of non-GAAP financial measures to GAAP financial measures is presented in the reconciliation tables included herein.
SECOND-QUARTER 2023 OUTLOOK
Second-Quarter 2023 GAAP to non-GAAP Outlook Reconciliation
NON-GAAP SALES RECONCILIATION
Quarter Ended
(in billions)
July 1, 2023
July 2, 2022
% Change
April 1, 2023
Global components sales, GAAP
$6.64 - 7.04
$
7.46
(11%) - (6%)
6.86
(3%) - 3%
Impact of changes in foreign currencies
—
0.01
0.04
Global components sales, constant currency
7.47
6.90
(4%) - 2%
Global ECS sales, GAAP
$1.78 - 1.98
2.00
(11%) - (1%)
1.88
(5%) - 5%
0.02
Global ECS sales, constant currency
2.01
1.90
(6%) - 4%
NON-GAAP EARNINGS RECONCILIATION
Reported GAAP measure
Intangible amortization expense
Restructuring & integration charges
Non-GAAP measure
Net income per diluted share
$4.10 to $4.30
$0.10
$0.05
$4.25 to $4.45
CFO Commentary
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 to comply with its disclosure obligations under Regulation Fair Disclosure.
Conference Call Information
Arrow Electronics will host a conference call to discuss first-quarter 2023 financial results on May 4, 2023, at 1:00 PM ET. Register online at https://conferencingportals.com/event/gniMxNyn to obtain dial-in information to access the live conference call. The conference call will also be available via live webcast at investor.arrow.com. Shortly after the conclusion of the conference call, a webcast replay will be available at investor.arrow.com.
About Arrow Electronics
Arrow Electronics guides innovation forward for over 210,000 leading technology manufacturers and service providers. With 2022 sales of $37 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 2023 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: unfavorable economic conditions; disruptions or inefficiencies in the supply chain, including any potential adverse effects of the ongoing global COVID-19 pandemic; political instability; impacts of military conflict, including the conflict in Ukraine; industry conditions; changes in product supply, pricing and customer demand; competition; other vagaries in the global components and the global ECS markets; deteriorating economic conditions, including economic recession, inflation, tax rates, foreign currency exchange rates, or the availability of capital; the effects of natural or man-made catastrophic events; 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, operating income, income before income taxes, provision for income taxes, consolidated 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" or "on a constant currency basis") by re-translating prior-period results at current period foreign exchange rates, identifiable intangible asset amortization, restructuring, integration, and other charges, 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 and future prospects in the same manner as management, especially when comparing results with previous periods. Management typically monitors the business as adjusted for these items, in addition to GAAP results, to understand and compare operating results across accounting periods, for internal budgeting purposes, for short- and long-term operating plans, and to evaluate the company's financial performance. However, analysis of results on a non-GAAP basis should be used as a complement to, in conjunction with, and not as a substitute for, data presented in accordance with GAAP.
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
April 2, 2022
Sales
8,736,428
9,074,125
Cost of sales
7,622,606
7,866,621
Gross profit
1,113,822
1,207,504
Operating expenses:
Selling, general, and administrative expenses
642,431
643,925
Depreciation and amortization
46,679
48,305
Restructuring, integration, and other charges
2,560
4,898
691,670
697,128
Operating income
422,152
510,376
Equity in earnings (losses) of affiliated companies
(80
)
843
Gain on investments, net
10,311
2,011
Employee benefit plan expense, net
(853
(889
Interest and other financing expense, net
(79,658
(33,985
Income before income taxes
351,872
478,356
Provision for income taxes
76,547
112,360
Consolidated net income
275,325
365,996
Noncontrolling interests
1,575
1,247
Net income attributable to shareholders
273,750
364,749
Net income per share:
Basic
4.66
5.38
Diluted
4.60
5.31
Weighted-average shares outstanding:
58,731
67,840
59,479
68,749
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
205,554
176,915
Accounts receivable, net
10,655,863
12,322,717
Inventories
5,525,782
5,319,369
Other current assets
479,650
521,339
Total current assets
16,866,849
18,340,340
Property, plant, and equipment, at cost:
Land
5,691
Buildings and improvements
185,790
184,211
Machinery and equipment
1,602,073
1,583,661
1,793,554
1,773,563
Less: Accumulated depreciation and amortization
(1,214,103
(1,177,107
Property, plant, and equipment, net
579,451
596,456
Investments in affiliated companies
59,682
65,112
Intangible assets, net
151,221
159,137
Goodwill
2,036,077
2,027,626
Other assets
583,252
574,511
Total assets
20,276,532
21,763,182
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
8,976,296
10,460,419
Accrued expenses
1,269,536
1,339,302
Short-term borrowings, including current portion of long-term debt
144,264
589,883
Total current liabilities
10,390,096
12,389,604
Long-term debt
3,719,056
3,182,964
Other liabilities
567,200
579,261
Equity:
Shareholders’ equity:
Common stock, par value $1:
Authorized - 160,000 shares in both 2023 and 2022
Issued - 125,424 shares in both 2023 and 2022
125,424
Capital in excess of par value
1,203,134
1,208,708
Treasury stock (68,426 and 66,175 shares in 2023 and 2022, respectively), at cost
(4,925,140
(4,637,345
Retained earnings
9,488,582
9,214,832
Accumulated other comprehensive loss
(361,468
(365,262
Total shareholders’ equity
5,530,532
5,546,357
69,648
64,996
Total equity
5,600,180
5,611,353
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
19,497
17,351
Equity in (earnings) losses of affiliated companies
80
(843
Deferred income taxes
(7,530
1,352
(10,311
(2,011
Other
1,321
686
Change in assets and liabilities:
1,701,889
430,710
(199,521
(460,902
(1,504,701
(477,825
(132,316
(43,641
Other assets and liabilities
33,392
(79,426
Net cash provided by (used for) operating activities
223,804
(200,248
Cash flows from investing activities:
Acquisition of property, plant, and equipment
(20,114
(19,270
Proceeds from collections of notes receivable
142
20,169
Proceeds from settlement of net investment hedge
10,725
Net cash provided by (used for) investing activities
(9,247
899
Cash flows from financing activities:
Change in short-term and other borrowings
(146,050
(14,293
Proceeds from long-term bank borrowings, net
34,360
845,000
Net proceeds from note offering
498,600
Redemption of notes
(300,000
(350,000
Proceeds from exercise of stock options
5,934
11,302
Repurchases of common stock
(303,801
(264,431
Net cash provided by (used for) financing activities
(210,957
227,578
Effect of exchange rate changes on cash
25,039
(7,632
Net increase in cash and cash equivalents
28,639
20,597
Cash and cash equivalents at beginning of period
222,194
Cash and cash equivalents at end of period
242,791
Consolidated sales, as reported
(3.7
)%
(202,778
Consolidated sales, constant currency
8,871,347
(1.5
Global components sales, as reported
6,855,793
7,199,075
(4.8
(145,993
7,053,082
(2.8
Americas components sales, as reported
2,233,453
2,340,543
(4.6
(1,694
Americas components sales, constant currency
2,338,849
(4.5
Asia components sales, as reported
2,376,195
2,931,529
(18.9
(46,502
Asia components sales, constant currency
2,885,027
(17.6
Europe components sales, as reported
2,246,145
1,927,003
16.6
%
(97,797
Europe components sales, constant currency
1,829,206
22.8
Global ECS sales, as reported
1,880,635
1,875,050
0.3
(56,785
1,818,265
3.4
Americas ECS sales, as reported
998,114
1,047,849
(4.7
(8,569
Americas ECS sales, constant currency
1,039,280
(4.0
Europe ECS sales, as reported
882,521
827,201
6.7
(48,216
Europe ECS sales, constant currency
778,985
13.3
Three months ended April 1, 2023
Restructuring & Integration charges
Other(1)
7,980
432,692
352,101
2,010
720
(2,471
76,806
5,970
1,840
(7,840
275,295
134
1,709
5,836
273,586
Net income per diluted share (2)
0.10
0.03
(0.13
Effective tax rate (3)
21.8
Three months ended April 2, 2022
9,018
524,292
490,261
2,310
1,205
(486
115,389
6,708
3,693
(1,525
374,872
140
1,387
6,568
373,485
0.05
(0.02
5.43
23.5
(1) Other includes gain on investments, net.
(2) The sum of the components for diluted EPS, as adjusted may not agree to totals, as presented, due to rounding.
(3) 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
417,539
499,342
81,099
85,798
(76,486
(74,764
(a)
Corporate operating income (loss) includes restructuring, integration, and other charges of $2.6 million for the first quarter of 2023 and $4.9 million for the first quarter of 2022.
NON-GAAP SEGMENT RECONCILIATION
Global components operating income, as reported
Intangible assets amortization expense
6,745
6,873
Global components non-GAAP operating income
424,284
506,215
Global ECS operating income, as reported
1,235
2,145
Global ECS non-GAAP operating income
82,334
87,943
Investors: Anthony Bencivenga, Vice President, Investor Relations 303-566-7456
Media: John Hourigan, Vice President, Public Affairs and Corporate Marketing 303-824-4586