Arrow Electronics, Inc.
-- Third-Quarter Earnings Per Share of $3.53; Non-GAAP Earnings Per Share of $4.14 – -- Revenue of $8.01 billion in line with guidance --
CENTENNIAL, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2023 sales of $8.01 billion, a decrease of 14 percent year over year. Third-quarter net income was $199 million, or $3.53 per share on a diluted basis, compared with net income of $342 million, or $5.27 per share on a diluted basis, in the third quarter of 2022. Non-GAAP net income1 was $233 million, or $4.14 per share on a diluted basis, in the third quarter of 2023, compared with non-GAAP net income of $354 million, or $5.45 per share on a diluted basis, in the third quarter of 2022. Both GAAP and non-GAAP earnings per share in the third quarter of 2023 included a $0.87 benefit related to cash received from a legal settlement in the global components business, and a $0.31 impact for a charge taken to increase accounts receivable reserves associated with a customer in the global enterprise computing solutions (ECS) business.
“The company executed well amidst an inventory correction in the semiconductor market and a softer information technology market, delivering non-GAAP earnings per share at the high end of our guidance range,” said Sean Kerins, Arrow’s president, and chief executive officer.
Global components third-quarter sales of $6.25 billion reflected a decrease of 14 percent year over year. Europe components third-quarter sales increased 3 percent year over year, which was a 4 percent decline in constant currency. Asia-Pacific components third-quarter sales decreased 18 percent year over year. Americas components third-quarter sales decreased 24 percent year over year. Global components third-quarter operating income was $379 million, and third-quarter non-GAAP operating income was $386 million. These results include a $62 million benefit resulting from a legal settlement recorded as a decrease to operating expenses.
“With lead times normalizing, customer inventory remained elevated, impacting order velocity and top-line results across most vertical markets. Despite the market conditions, operating margins are meaningfully higher than in prior market corrections,” said Mr. Kerins. “We were encouraged by the level of demand creation activity in the quarter and the continued traction of our supply chain services offering.”
Global ECS third-quarter sales of $1.76 billion reflected a decrease of 10 percent year over year. Europe ECS third-quarter sales increased 2 percent year over year, which was a 5 percent decline in constant currency. Americas ECS third-quarter sales decreased 18 percent year over year. Global ECS third-quarter operating income was $55 million, and third-quarter non-GAAP operating income was $56 million. These results include a $22 million charge taken to increase accounts receivable reserves associated with a customer.
“The mix in our ECS business continued to shift toward software related to infrastructure and cybersecurity, as well as cloud solutions. As a result, the business produced year-on-year billings growth albeit with a decline in sales,” said Mr. Kerins.
“Non-GAAP earnings per share after adjusting for the legal settlement and accounts receivable item, was at the high end of our guidance range,” said Raj Agrawal, senior vice president and chief financial officer. “We were pleased to generate $322 million in cash flow from operations in the third quarter. Additionally, we repurchased approximately $200 million of shares during the third quarter and now have remaining purchase authorization of approximately $622 million.”
1 A reconciliation of non-GAAP financial measures to GAAP financial measures is presented in the reconciliation tables included herein.
FOURTH-QUARTER 2023 OUTLOOK
Fourth-Quarter 2023 GAAP to non-GAAP Outlook Reconciliation
NON-GAAP SALES RECONCILIATION
Quarter Ended
December 31,
September 30,
(in billions)
2023
2022
% Change
Global components sales, GAAP
$
5.40 - 5.80
6.83
(21%) - (15%)
6.25
(14%) - (7%)
Impact of changes in foreign currencies
—
0.03
(0.06
)
Global components sales, constant currency
6.86
6.19
(13%) - (6%)
Global ECS sales, GAAP
2.10 - 2.30
2.50
(16%) - (8%)
1.76
19% - 31%
0.02
(0.02
Global ECS sales, constant currency
2.52
(17%) - (9%)
1.74
21% - 32%
NON-GAAP EARNINGS RECONCILIATION
Intangible amortization
Restructuring &
Reported GAAP measure
expense
integration charges
Non-GAAP measure
Net income per diluted share
$3.30 to $3.50
$0.10
$0.21
$3.61 to $3.81
CFO Commentary and Earnings Presentation
Please refer to the CFO commentary and the earnings presentation, 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 and Webcast Information
Arrow Electronics will host a conference call to discuss third-quarter 2023 financial results on Nov. 2, 2023, at 1:00 PM ET. Register online at https://conferencingportals.com/event/fEoxDDHd to obtain dial-in information for 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 help improve business and daily life. Learn more at arrow.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 2023 such as sales, net income per diluted share, non-GAAP net income per diluted share, average tax rate, average diluted shares outstanding, interest and other expense, impact to sales due to changes in foreign currencies, intangible amortization expense per diluted share, restructuring & integration charges per diluted share, and expectations regarding market demand and shareholder returns. These and other 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; political instability; impacts of military conflict and sanctions; 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; outbreaks, epidemics, pandemics, or public health crises; and the company's ability to generate positive 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, net gains and losses on investments, and impact of tax legislation changes. 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)
Nine Months Ended
September 30, 2023
October 1, 2022
Sales
8,007,019
9,266,432
25,257,963
27,801,399
Cost of sales
7,027,422
8,079,520
22,098,495
24,170,769
Gross profit
979,597
1,186,912
3,159,468
3,630,630
Operating expenses:
Selling, general, and administrative expenses
563,150
634,353
1,822,783
1,931,918
Depreciation and amortization
45,005
46,230
137,948
141,787
Restructuring, integration, and other charges
31,359
3,635
44,252
11,027
639,514
684,218
2,004,983
2,084,732
Operating income
340,083
502,694
1,154,485
1,545,898
Equity in earnings of affiliated companies
1,392
1,718
4,373
4,726
(Loss) gain on investments, net
(6,159
(3,480
4,649
(11,213
Employee benefit plan expense, net
(854
(890
(2,510
(2,614
Interest and other financing expense, net
(82,180
(50,936
(246,672
(123,427
Income before income taxes
252,282
449,106
914,325
1,413,370
Provision for income taxes
52,241
105,500
201,168
332,273
Consolidated net income
200,041
343,606
713,157
1,081,097
Noncontrolling interests
1,382
1,207
4,189
3,615
Net income attributable to shareholders
198,659
342,399
708,968
1,077,482
Net income per share:
Basic
3.57
5.33
12.43
16.31
Diluted
3.53
5.27
12.28
16.12
Weighted-average shares outstanding:
55,597
64,228
57,021
66,055
56,298
64,979
57,715
66,845
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
333,294
176,915
Accounts receivable, net
10,663,164
12,322,717
Inventories
5,805,520
5,319,369
Other current assets
503,982
521,339
Total current assets
17,305,960
18,340,340
Property, plant, and equipment, at cost:
Land
5,691
Buildings and improvements
185,790
184,211
Machinery and equipment
1,616,937
1,583,661
1,808,418
1,773,563
Less: Accumulated depreciation and amortization
(1,272,214
(1,177,107
Property, plant, and equipment, net
536,204
596,456
Investments in affiliated companies
63,049
65,112
Intangible assets, net
134,811
159,137
Goodwill
2,021,987
2,027,626
Other assets
576,349
574,511
Total assets
20,638,360
21,763,182
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
9,090,554
10,460,419
Accrued expenses
1,256,815
1,339,302
Short-term borrowings, including current portion of long-term debt
1,588,662
589,883
Total current liabilities
11,936,031
12,389,604
Long-term debt
2,615,001
3,182,964
Other liabilities
533,853
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
1,205,788
1,208,708
Treasury stock (71,269 and 66,175 shares in 2023 and 2022, respectively), at cost
(5,307,441
(4,637,345
Retained earnings
9,923,800
9,214,832
Accumulated other comprehensive loss
(462,310
(365,262
Total shareholders’ equity
5,485,261
5,546,357
68,214
64,996
Total equity
5,553,475
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 operations:
Amortization of stock-based compensation
6,519
3,773
(1,392
(1,718
Deferred income taxes
(19,639
8,152
Loss on investments, net
6,159
3,480
Other
1,092
307
Change in assets and liabilities:
260,749
(594,767
(383,647
(255,871
157,482
482,061
127,235
132,636
Other assets and liabilities
(77,897
(26,823
Net cash provided by operating activities
321,707
141,066
Cash flows from investing activities:
Acquisition of property, plant, and equipment
(20,670
(18,536
Proceeds from collections of notes receivable
263
Net cash used for investing activities
(18,273
Cash flows from financing activities:
Change in short-term and other borrowings
603,693
(19,506
(Repayments of) proceeds from long-term bank borrowings, net
(557,308
328,268
Proceeds from exercise of stock options
443
762
Repurchases of common stock
(203,491
(241,291
Net cash (used for) provided by financing activities
(156,663
68,233
Effect of exchange rate changes on cash
(51,462
(82,637
Net increase in cash and cash equivalents
92,912
108,389
Cash and cash equivalents at beginning of period
240,382
225,596
Cash and cash equivalents at end of period
333,985
Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:
34,868
35,009
(4,373
(4,726
(53,038
1,468
(Gain) loss on investments, net
(4,649
11,213
4,078
2,673
1,585,521
(628,974
(525,020
(1,011,763
(1,355,777
166,602
(88,348
192,759
(25,660
(128,909
Net cash provided by (used for) operating activities
418,707
(141,764
(57,775
(54,780
237
20,805
Proceeds from settlement of net investment hedge
10,725
(46,813
(33,975
802,032
276,516
(566,734
1,238,268
Net proceeds from note offering
496,268
Redemption of notes
(300,000
(350,000
16,824
16,434
(719,708
(725,254
Settlement of forward-starting interest rate swap
56,711
(142
(137
(214,749
455,827
(766
(168,297
156,379
111,791
222,194
Consolidated sales, as reported
(13.6
)%
145,732
Consolidated sales, constant currency
9,412,164
(14.9
Global components sales, as reported
6,245,192
7,300,347
(14.5
96,433
7,396,780
(15.6
Americas components sales, as reported
1,869,934
2,445,647
(23.5
32
Americas components sales, constant currency
2,445,679
Asia components sales, as reported
2,387,835
2,918,873
(18.2
(27,584
Asia components sales, constant currency
2,891,289
(17.4
Europe components sales, as reported
1,987,423
1,935,827
2.7
%
123,985
Europe components sales, constant currency
2,059,812
(3.5
Global ECS sales, as reported
1,761,827
1,966,085
(10.4
49,299
2,015,384
(12.6
Americas ECS sales, as reported
1,015,924
1,234,158
(17.7
(3,105
Americas ECS sales, constant currency
1,231,053
(17.5
Europe ECS sales, as reported
745,903
731,927
1.9
52,404
Europe ECS sales, constant currency
784,331
(4.9
(9.1
(74,613
27,726,786
(8.9
19,783,867
21,960,974
(9.9
(68,284
21,892,690
(9.6
6,169,949
7,265,552
(15.1
(2,265
7,263,287
7,226,871
9,024,188
(19.9
(115,290
8,908,898
(18.9
6,387,047
5,671,234
12.6
49,271
5,720,505
11.7
5,474,096
5,840,425
(6.3
(6,329
5,834,096
(6.2
3,014,544
3,442,803
(12.4
(19,051
3,423,752
(12.0
2,459,552
2,397,622
2.6
12,722
2,410,344
2.0
Three months ended September 30, 2023
Reported
Intangible
Restructuring
GAAP
amortization
& Integration
Non-GAAP
measure
charges(1)
Other(2)
7,863
379,305
297,663
1,959
7,321
1,476
62,997
5,904
24,038
4,683
234,666
138
1,520
5,766
233,146
Net income per diluted share (3)
0.10
0.43
0.08
4.14
Effective tax rate (4)
20.7
21.2
Three months ended October 1, 2022
8,674
515,003
464,895
2,219
892
841
109,452
6,455
2,743
2,639
355,443
125
1,332
6,330
354,111
0.04
5.45
23.5
Nine months ended September 30, 2023
Non-recurring
tax items
23,751
1,222,488
977,679
5,961
10,638
(942
(1,114
215,711
17,790
33,614
942
(3,535
761,968
408
4,597
17,382
757,371
0.30
0.58
13.12
22.0
22.1
Nine months ended October 1, 2022
26,522
1,583,447
1,462,132
6,792
2,459
2,711
344,235
19,730
8,568
8,502
1,117,897
398
4,013
19,332
1,113,884
0.29
0.13
16.66
(1) Includes charges to increase the environmental remediation reserves in the amount of $20.9 million and $23.3 million for third quarter and first nine months of 2023, respectively and $1.9 million and $2.2 million for the third quarter and first nine months of 2022, respectively.
(2) Other includes (gain) loss on investments, net.
(3) The sum of the components for non-GAAP 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 and as a non-GAAP measure.
SEGMENT INFORMATION
Sales:
Global components
Global ECS
Consolidated
Operating income (loss):
Global components (a)
379,053
494,587
1,177,906
1,518,423
Global ECS (b)
54,624
83,976
221,951
253,744
Corporate (c)
(93,594
(75,869
(245,372
(226,269
(a)
Global components operating income includes $62.2 million in settlement charges recorded as a reduction to operating expense for the third quarter and first nine months of 2023. Charges to increase the allowance for credit losses increased $16.8 million and $11.0 million for the third quarter and first nine months of 2023, respectively, relative to the year-earlier periods.
(b)
Global ECS operating income includes charges to increase the allowance for credit losses, which increased by $20.0 million and $26.8 million for the third quarter and first nine months of 2023, respectively, relative to the year-earlier periods.
(c)
Corporate operating loss includes restructuring, integration, and other charges of $31.4 million and $44.3 million for the third quarter and first nine months of 2023, respectively, and $3.6 million and $11.0 million for the third quarter and first nine months of 2022, respectively.
NON-GAAP SEGMENT RECONCILIATION
Global components operating income, as reported
Intangible assets amortization expense
6,640
6,691
20,064
20,303
Global components non-GAAP operating income
385,693
501,278
1,197,970
1,538,726
Global ECS operating income, as reported
1,223
1,983
3,687
6,219
Global ECS non-GAAP operating income
55,847
85,959
225,638
259,963
Investors: Anthony Bencivenga, Vice President, Investor Relations 303-566-7456
Media: John Hourigan, Vice President, Public Affairs and Corporate Marketing 303-824-4586