— Cash Provided by Operating Activities of $287 Million —
— Repurchased $100 Million of Common Stock —
CENTENNIAL, Colo.–(BUSINESS WIRE)–Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2019 sales of $7.08 billion, a decrease of 6 percent from sales of $7.49 billion in the third quarter of 2018. Third-quarter sales, as adjusted, decreased 3 percent year over year. Third-quarter net income of $92 million, or $1.10 per share on a diluted basis, compared with net income of $177 million, or $1.99 per share on a diluted basis, in the third quarter of 2018. Excluding certain items1, net income would have been $155 million, or $1.86 per share on a diluted basis, in the third quarter of 2019, compared with net income of $191 million, or $2.15 per share on a diluted basis, in the third quarter of 2018. In the third quarter of 2019, changes in foreign currencies negatively impacted growth by approximately $103 million or 1 percent on sales and $.04 or 2 percent on earnings per share on a diluted basis compared to the third quarter of 2018.
Global components third-quarter sales of $5.05 billion decreased 6 percent year over year. Sales, as adjusted, decreased 4 percent year over year. Asia-Pacific components sales increased 4 percent year over year. Sales in the region, as adjusted, increased 5 percent year over year. Europe components sales decreased 7 percent year over year. Sales in the region, as adjusted, decreased 2 percent year over year. Americas components sales decreased 16 percent year over year. Sales in the region, as adjusted, decreased 15 percent year over year. Global components third-quarter operating income was $172 million. Third-quarter operating income, excluding amortization of intangibles expense, as adjusted, was $217 million.
“Arrow’s focused execution contributed to our bottom-line performance in the third quarter, despite continued challenging demand conditions in the Americas and Europe,” said Michael J. Long, chairman, president, and chief executive officer. “By harnessing our internal efficiencies, we were able to realize significant savings to reinvest in our omnichannel engineering services, and strengthen our position as a consistent, reliable provider of design, engineering and supply chain solutions. I am confident that our diversified business model and forward-looking approach to investing will not only allow us to emerge from the current market correction in a position of strength, but also to generate enhanced profits and returns well into the future.”
Global enterprise computing solutions third-quarter sales of $2.03 billion decreased 4 percent year over year. Sales, as adjusted, decreased 2 percent year over year. Europe enterprise computing solutions sales decreased 6 percent year over year. Sales in the region, as adjusted, were flat year over year. Americas enterprise computing solutions sales decreased 3 percent year over year. Sales in the region, as adjusted, decreased 2 percent year over year. Global enterprise computing solutions third-quarter operating income was $92 million. Third-quarter operating income, excluding amortization of intangibles expense, as adjusted, was $95 million.
“We are pleased that enterprise computing solutions’ execution in the marketplace drove 12 percent operating income growth in the third quarter. Operating income growth demonstrates our success in selling advanced, higher-value solutions utilizing next-generation software and hardware architectures,” said Mr. Long.
“Third-quarter cash provided by operating activities was $287 million. Our robust cash flow was bolstered by our disciplined working capital management, continued healthy profits from our leading positions in the markets we serve, and efficiencies from our previously announced cost optimization program,” said Chris Stansbury, senior vice president and chief financial officer. “We remain committed to returning excess cash to shareholders. Accordingly, Arrow returned approximately $100 million to shareholders through our stock repurchase program during the third quarter. At the end of the quarter, we had approximately $439 million of remaining authorization under our share repurchase program.”
GUIDANCE
Arrow Electronics’ fourth-quarter outlook excludes the financial results from the PC and mobility asset disposition business.
“As we look to the fourth quarter, we expect total sales to range between $7.125 billion and $7.525 billion, with global components sales between $4.625 billion and $4.825 billion, and global enterprise computing solutions sales between $2.5 billion and $2.7 billion. We expect earnings per share on a diluted basis to range from $1.82 to $1.98, and earnings per share on a diluted basis, excluding certain items1, to range from $2.10 to $2.26 per share. Our guidance assumes interest and other expense will total approximately $52 million, an average tax rate at the low end of the updated long-term range of 23 percent to 25 percent, and average diluted shares outstanding of approximately 83 million. We are expecting the average USD-to-Euro exchange rate for the fourth quarter to be approximately $1.10 to €1. We estimate changes in foreign currencies will have negative impacts on growth of approximately $100 million, or 1 percent on sales, and $.05, or 2 percent, on earnings per share on a diluted basis compared to the fourth quarter of 2018,” said Mr. Stansbury.
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 200,000 leading technology manufacturers and service providers. With 2018 sales of $30 billion, Arrow develops technology solutions that improve business and daily life. Learn more at fiveyearsout.com.
1 A reconciliation of non-GAAP adjusted financial measures, including sales, as adjusted, gross profit, operating income, as adjusted, net income attributable to shareholders, as adjusted, and net income per share, as adjusted, to GAAP financial measures is presented in the reconciliation tables included herein.
Information Relating to Forward-Looking Statements
This press release includes forward-looking statements that 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: industry conditions, the company’s implementation of its new enterprise resource planning system, 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, the effects of additional actions taken to become more efficient or lower costs, risks related to the integration of acquired businesses, changes in legal and regulatory matters, and the company’s ability to generate additional cash flow. Forward-looking statements are those statements which are not statements of historical fact. These forward-looking statements can be identified by forward-looking words such as “expects,” “anticipates,” “intends,” “plans,” “may,” “will,” “believes,” “seeks,” “estimates,” and similar expressions. 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.
For a further discussion of factors to consider in connection with these forward-looking statements, investors should refer to Item 1A Risk Factors of the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2018.
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 sales, gross profit, and operating expense on a non-GAAP basis 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, 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 related to the digital business (referred to as “digital inventory write-downs and recoveries”), and the impact of the notes receivable reserves and inventory write-downs related to the AFS business (referred to as “AFS notes receivable reserves and recoveries” and “AFS inventory write-downs and recoveries” respectively). Operating income is adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, and 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 property, plant and equipment, and the impact of wind down. Net income attributable to shareholders, and net income per basic and diluted share are adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, and 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 property, plant and equipment, the impact of wind down, and the impact of U.S. tax reform. 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.
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ARROW ELECTRONICS, INC.
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(In thousands except per share data)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
September 28,
2019
|
|
September 29,
2018
|
|
September 28,
2019
|
|
September 29,
2018
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
7,078,118
|
|
|
$
|
7,490,445
|
|
|
$
|
21,578,657
|
|
|
$
|
21,758,586
|
|
|
Cost of sales
|
|
6,279,277
|
|
|
6,566,667
|
|
|
19,103,219
|
|
|
19,033,044
|
|
|
Gross profit
|
|
798,841
|
|
|
923,778
|
|
|
2,475,438
|
|
|
2,725,542
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
522,446
|
|
|
575,751
|
|
|
1,677,734
|
|
|
1,719,108
|
|
|
Depreciation and amortization
|
|
45,231
|
|
|
45,532
|
|
|
139,739
|
|
|
139,201
|
|
|
Loss on disposition of businesses, net
|
|
14,573
|
|
|
2,042
|
|
|
15,439
|
|
|
3,604
|
|
|
Impairments
|
|
253
|
|
|
—
|
|
|
698,246
|
|
|
—
|
|
|
Restructuring, integration, and other charges
|
|
43,120
|
|
|
10,143
|
|
|
74,692
|
|
|
50,497
|
|
|
|
|
625,623
|
|
|
633,468
|
|
|
2,605,850
|
|
|
1,912,410
|
|
|
Operating income (loss)
|
|
173,218
|
|
|
290,310
|
|
|
(130,412
|
)
|
|
813,132
|
|
|
Equity in losses of affiliated companies
|
|
(1,070
|
)
|
|
(652
|
)
|
|
(2,155
|
)
|
|
(808
|
)
|
|
Gain (loss) on investments, net
|
|
1,126
|
|
|
1,070
|
|
|
7,864
|
|
|
(3,945
|
)
|
|
Employee benefit plan expense
|
|
(1,071
|
)
|
|
(1,296
|
)
|
|
(3,349
|
)
|
|
(3,784
|
)
|
|
Interest and other financing expense, net
|
|
(49,882
|
)
|
|
(54,205
|
)
|
|
(153,426
|
)
|
|
(160,187
|
)
|
|
Income (loss) before income taxes
|
|
122,321
|
|
|
235,227
|
|
|
(281,478
|
)
|
|
644,408
|
|
|
Provision for income taxes
|
|
29,340
|
|
|
57,054
|
|
|
30,878
|
|
|
155,325
|
|
|
Consolidated net income (loss)
|
|
92,981
|
|
|
178,173
|
|
|
(312,356
|
)
|
|
489,083
|
|
|
Noncontrolling interests
|
|
850
|
|
|
1,640
|
|
|
3,744
|
|
|
3,541
|
|
|
Net income (loss) attributable to shareholders
|
|
$
|
92,131
|
|
|
$
|
176,533
|
|
|
$
|
(316,100
|
)
|
|
$
|
485,542
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.11
|
|
|
$
|
2.02
|
|
|
$
|
(3.75
|
)
|
|
$
|
5.53
|
|
|
Diluted
|
|
$
|
1.10
|
|
|
$
|
1.99
|
|
|
$
|
(3.75
|
)
|
|
$
|
5.47
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
82,711
|
|
|
87,602
|
|
|
84,246
|
|
|
87,785
|
|
|
Diluted
|
|
83,397
|
|
|
88,608
|
|
|
84,246
|
|
|
88,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARROW ELECTRONICS, INC.
|
|
CONSOLIDATED BALANCE SHEETS
|
|
(In thousands except par value)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
December 31, 2018
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
262,254
|
|
|
$
|
509,327
|
|
|
Accounts receivable, net
|
|
7,841,851
|
|
|
8,945,463
|
|
|
Inventories
|
|
3,503,481
|
|
|
3,878,678
|
|
|
Other current assets
|
|
232,062
|
|
|
274,832
|
|
|
Total current assets
|
|
11,839,648
|
|
|
13,608,300
|
|
|
Property, plant, and equipment, at cost:
|
|
|
|
|
|
Land
|
|
7,746
|
|
|
7,882
|
|
|
Buildings and improvements
|
|
164,544
|
|
|
158,712
|
|
|
Machinery and equipment
|
|
1,438,600
|
|
|
1,425,933
|
|
|
|
|
1,610,890
|
|
|
1,592,527
|
|
|
Less: Accumulated depreciation and amortization
|
|
(805,626
|
)
|
|
(767,827
|
)
|
|
Property, plant, and equipment, net
|
|
805,264
|
|
|
824,700
|
|
|
Investments in affiliated companies
|
|
85,399
|
|
|
83,693
|
|
|
Intangible assets, net
|
|
277,720
|
|
|
372,644
|
|
|
Goodwill
|
|
2,041,073
|
|
|
2,624,690
|
|
|
Other assets
|
|
640,607
|
|
|
270,418
|
|
|
Total assets
|
|
$
|
15,689,711
|
|
|
$
|
17,784,445
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,181,408
|
|
|
$
|
7,631,879
|
|
|
Accrued expenses
|
|
833,390
|
|
|
912,292
|
|
|
Short-term borrowings, including current portion of long-term debt
|
|
356,843
|
|
|
246,257
|
|
|
Total current liabilities
|
|
7,371,641
|
|
|
8,790,428
|
|
|
Long-term debt
|
|
2,942,293
|
|
|
3,239,115
|
|
|
Other liabilities
|
|
631,530
|
|
|
378,536
|
|
|
Commitments and contingencies
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
Common stock, par value $1:
|
|
|
|
|
|
Authorized – 160,000 shares in both 2019 and 2018, respectively
|
|
|
|
|
|
Issued – 125,424 shares in both 2019 and 2018, respectively
|
|
125,424
|
|
|
125,424
|
|
|
Capital in excess of par value
|
|
1,143,830
|
|
|
1,135,934
|
|
|
Treasury stock (43,660 and 40,233 shares in 2019 and 2018, respectively), at cost
|
|
(2,237,884
|
)
|
|
(1,972,254
|
)
|
|
Retained earnings
|
|
6,019,235
|
|
|
6,335,335
|
|
|
Accumulated other comprehensive loss
|
|
(359,786
|
)
|
|
(299,449
|
)
|
|
Total shareholders’ equity
|
|
4,690,819
|
|
|
5,324,990
|
|
|
Noncontrolling interests
|
|
53,428
|
|
|
51,376
|
|
|
Total equity
|
|
4,744,247
|
|
|
5,376,366
|
|
|
Total liabilities and equity
|
|
$
|
15,689,711
|
|
|
$
|
17,784,445
|
|
|
|
|
|
|
|
|
|
|
