BusinessWire

Arrow Electronics Reports First-Quarter 2020 Results

-- Enabling Secure Work-from-Home Environments --

-- Dedicating Resources to Medical Equipment Production --

CENTENNIAL, Colo.--(BUSINESS WIRE)--Arrow Electronics, Inc. (NYSE:ARW) today reported first-quarter 2020 sales of $6.38 billion, a decrease of 11 percent from sales of $7.16 billion in the first quarter of 2019. First-quarter sales, as adjusted, decreased 9 percent year over year. First-quarter net income of $50 million, or $.61 per share on a diluted basis, compared with net income of $141 million, or $1.63 per share on a diluted basis, in the first quarter of 2019. Excluding certain items1, net income would have been $79 million, or $0.97 per share on a diluted basis, in the first quarter of 2020, compared with net income of $164 million, or $1.90 per share on a diluted basis, in the first quarter of 2019. Net income and diluted earnings per share in the first quarter of 2020 included charges related to foreign tax and other loss contingencies totaling approximately $33 million and $.41, respectively. In the first quarter of 2020, changes in foreign currencies negatively impacted growth by approximately $42 million or 1 percent on sales and $.02 or 1 percent on earnings per share on a diluted basis compared to the first quarter of 2019.


“Arrow maintains a firm commitment to our design, engineering, marketing and supply chain services, which play an essential role for our stakeholders as they navigate the unprecedented challenges associated with the COVID-19 pandemic,” said Michael J. Long, chairman, president, and chief executive officer. “I am grateful to our dedicated teams in all regions who have been working with urgency to ensure our customers and suppliers are well equipped to continue their business operations in the current environment. In addition to enabling secure work-from-home environments, Arrow is supporting the medical community’s life-saving efforts by providing critical electronic components and data management hardware and software.”

Global components first-quarter sales of $4.55 billion decreased 12 percent year over year. Sales, as adjusted, decreased 10 percent year over year. Asia-Pacific components sales decreased 5 percent year over year. Europe components sales decreased 13 percent year over year. Sales in the region, as adjusted, decreased 10 percent year over year. Americas components sales decreased 19 percent year over year. Sales in the region, as adjusted, decreased 16 percent year over year. Global components first-quarter operating income was $165 million. First-quarter operating income, excluding amortization of intangibles expense, as adjusted, was $171 million.

“Despite production stoppages, border closures and stay-at-home orders, our global components team demonstrated unwavering focus on our customers’ needs in the production of vital electronic equipment, delivering first-quarter financial performance consistent with pre-pandemic expectations,” continued Mr. Long. “We view global components financial results as a testament to the efforts of our team and our long-held belief that doing good is also good for business.”

Global enterprise computing solutions first-quarter sales of $1.83 billion decreased 7 percent year over year. Sales, as adjusted, decreased 6 percent year over year. Europe enterprise computing solutions sales decreased 8 percent year over year. Sales in the region, as adjusted, decreased 5 percent year over year. Americas enterprise computing solutions sales decreased 6 percent year over year. Global enterprise computing solutions first-quarter operating income was $42 million. First-quarter operating income, excluding amortization of intangibles expense, as adjusted, was $45 million. Operating income in the first quarter of 2020 included charges related to foreign tax and other loss contingencies of approximately $30 million.

“In connection with our shift from provisioning complex hybrid cloud solutions to rapidly enabling the massive migration to an at-home workforce, Arrow reported global enterprise computing solutions sales near the high-end of our prior expectations,” said Mr. Long.

“Looking ahead to the second half of the year, we anticipate a cautious, measured return to normal business activity, and Arrow is well positioned to continue benefiting from the robust cash flow our business generates. First-quarter cash provided by operating activities was $467 million thanks to our disciplined working capital management, including our new EMEA asset securitization program, and efficiencies from our previously announced cost optimization program,” said Chris Stansbury, senior vice president and chief financial officer. “Our liquidity position is the best in our company’s history, with more than $3.1 billion of undrawn committed borrowing capacity in addition to cash on hand.”

1 A reconciliation of non-GAAP adjusted financial measures, including sales, gross profit, operating income, net income attributable to shareholders, and net income per share, as adjusted, to GAAP financial measures is presented in the reconciliation tables included herein.

SECOND-QUARTER 2020 OUTLOOK

  • Consolidated sales of $6.075 billion to $6.675 billion, with global components sales of $4.4 billion to $4.7 billion, and global enterprise computing solutions sales of $1.675 billion to $1.975 billion
  • Earnings per share on a diluted basis of $.98 to $1.14, and earnings per share on a diluted basis, excluding certain items1 of $1.38 to $1.54 per share
  • Average tax rate of approximately 24 percent compared to the long-term range of 23 to 25 percent
  • Average diluted shares outstanding of 81 million
  • Interest expense of approximately $40 million
  • Expect average USD-to-Euro exchange rate of $1.10 to €1

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 175,000 leading technology manufacturers and service providers. With 2019 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 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: potential adverse effects of the ongoing global coronavirus pandemic, including actions taken to contain or treat the coronavirus, industry conditions, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and global ECS markets, changes in relationships with key suppliers, increased profit margin pressure, 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 Annual Report on Form 10-K for the year ended December 31, 2019. 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.

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 credits and inventory write-downs and recoveries, digital inventory write-downs and recoveries, 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 credits and inventory write-downs and recoveries, digital inventory write-downs and recoveries, net gains and losses on investments, the impact of wind down, and certain tax adjustments. 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.

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

 

 

 

 

 

 

 

Quarter Ended

 

 

March 28, 2020

 

March 30, 2019

 

 

 

 

 

Sales

 

$

6,381,417

 

 

$

7,155,991

 

Cost of sales

 

5,653,026

 

 

6,294,303

 

Gross profit

 

728,391

 

 

861,688

 

Operating expenses:

 

 

 

 

Selling, general, and administrative expenses

 

533,839

 

 

556,076

 

Depreciation and amortization

 

47,110

 

 

47,526

 

Loss on disposition of businesses, net

 

 

 

866

 

Restructuring, integration, and other charges

 

9,138

 

 

11,660

 

 

 

590,087

 

 

616,128

 

Operating income

 

138,304

 

 

245,560

 

Equity in earnings (losses) of affiliated companies

 

530

 

 

(1,467

)

Gain (loss) on investments, net

 

(16,810

)

 

5,348

 

Employee benefit plan expense

 

(1,109

)

 

(1,139

)

Interest and other financing expense, net

 

(43,268

)

 

(51,981

)

Income before income taxes

 

77,647

 

 

196,321

 

Provision for income taxes

 

27,892

 

 

53,907

 

Consolidated net income

 

49,755

 

 

142,414

 

Noncontrolling interests

 

252

 

 

1,679

 

Net income attributable to shareholders

 

$

49,503

 

 

$

140,735

 

 

 

 

 

 

Net income per share:

 

 

 

 

Basic

 

$

0.62

 

 

$

1.65

 

Diluted

 

$

0.61

 

 

$

1.63

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

Basic

 

80,407

 

 

85,400

 

Diluted

 

81,108

 

 

86,319

 

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

(Unaudited)

 

 

 

 

 

March 28, 2020

 

December 31, 2019

 

 

 

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

200,998

 

 

$

300,103

 

Accounts receivable, net

7,817,019

 

 

8,482,687

 

Inventories

3,334,298

 

 

3,477,120

 

Other current assets

235,743

 

 

266,249

 

Total current assets

11,588,058

 

 

12,526,159

 

Property, plant, and equipment, at cost:

 

 

 

Land

7,728

 

 

7,793

 

Buildings and improvements

185,542

 

 

173,370

 

Machinery and equipment

1,492,802

 

 

1,481,525

 

 

1,686,072

 

 

1,662,688

 

Less: Accumulated depreciation and amortization

(882,650

)

 

(859,578

)

Property, plant, and equipment, net

803,422

 

 

803,110

 

Investments in affiliated companies

80,337

 

 

86,942

 

Intangible assets, net

260,955

 

 

271,903

 

Goodwill

2,044,898

 

 

2,061,322

 

Other assets

613,790

 

 

651,360

 

Total assets

$

15,391,460

 

 

$

16,400,796

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

6,662,333

 

 

$

7,046,221

 

Accrued expenses

873,668

 

 

880,507

 

Short-term borrowings, including current portion of long-term debt

377,177

 

 

331,431

 

Total current liabilities

7,913,178

 

 

8,258,159

 

Long-term debt

2,222,789

 

 

2,640,129

 

Other liabilities

605,884

 

 

636,115

 

Commitments and contingencies

 

 

 

Equity:

 

 

 

Shareholders’ equity:

 

 

 

Common stock, par value $1:

 

 

 

Authorized - 160,000 shares in both 2020 and 2019, respectively

 

 

 

Issued - 125,424 shares in both 2020 and 2019, respectively

125,424

 

 

125,424

 

Capital in excess of par value

1,145,744

 

 

1,150,006

 

Treasury stock (46,756 and 44,804 shares in 2020 and 2019, respectively), at cost

(2,471,375

)

 

(2,332,548

)

Retained earnings

6,144,816

 

 

6,131,248

 

Accumulated other comprehensive loss

(349,484

)

 

(262,211

)

Total shareholders’ equity

4,595,125

 

 

4,811,919

 

Noncontrolling interests

54,484

 

 

54,474

 

Total equity

4,649,609

 

 

4,866,393

 

Total liabilities and equity

$

15,391,460

 

 

$

16,400,796

 

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Quarter Ended

 

March 28, 2020

 

March 30, 2019

Cash flows from operating activities:

 

 

 

Consolidated net income

$

49,755

 

 

$

142,414

 

Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:

 

 

 

Depreciation and amortization

47,110

 

 

47,526

 

Amortization of stock-based compensation

13,920

 

 

19,090

 

Equity in (earnings) losses of affiliated companies

(530

)

 

1,467

 

Deferred income taxes

32,613

 

 

6,968

 

(Gain) loss on investments, net

16,810

 

 

(5,348

)

Other

(205

)

 

5,575

 

Change in assets and liabilities, net of effects of acquired and disposed businesses:

 

 

 

Accounts receivable

558,605

 

 

949,989

 

Inventories

133,392

 

 

134,402

 

Accounts payable

(343,051

)

 

(1,540,008

)

Accrued expenses

(31,326

)

 

(50,292

)

Other assets and liabilities

(10,228

)

 

(40,782

)

Net cash provided by (used for) operating activities

466,865

 

 

(328,999

)

Cash flows from investing activities:

 

 

 

Acquisition of property, plant, and equipment

(27,971

)

 

(33,815

)

Other

(5,466

)

 

2,940

 

Net cash used for investing activities

(33,437

)

 

(30,875

)

Cash flows from financing activities:

 

 

 

Change in short-term and other borrowings

(84,354

)

 

(107,244

)

Proceeds from (repayments of) long-term bank borrowings, net

(288,577

)

 

335,023

 

Proceeds from exercise of stock options

1,980

 

 

6,931

 

Repurchases of common stock

(158,989

)

 

(53,925

)

Net cash provided by (used for) financing activities

(529,940

)

 

180,785

 

Effect of exchange rate changes on cash

(2,593

)

 

21,661

 

Net decrease in cash and cash equivalents

(99,105

)

 

(157,428

)

Cash and cash equivalents at beginning of period

300,103

 

 

509,327

 

Cash and cash equivalents at end of period

$

200,998

 

 

$

351,899

 

ARROW ELECTRONICS, INC.

NON-GAAP SALES RECONCILIATION

(In thousands)

(Unaudited)

 

Quarter Ended

 

 

 

March 28, 2020

 

March 30, 2019

 

% Change

 

 

 

 

 

 

Consolidated sales, as reported

$

6,381,417

 

 

$

7,155,991

 

 

(10.8

)%

Impact of changes in foreign currencies

 

 

(41,571

)

 

 

Impact of dispositions and wind down

 

 

(94,195

)

 

 

Consolidated sales, as adjusted

$

6,381,417

 

 

$

7,020,225

 

 

(9.1

)%

 

 

 

 

 

 

Global components sales, as reported

$

4,550,601

 

 

$

5,191,927

 

 

(12.4

)%

Impact of changes in foreign currencies

 

 

(29,718

)

 

 

Impact of wind down

 

 

(83,054

)

 

 

Global components sales, as adjusted

$

4,550,601

 

 

$

5,079,155

 

 

(10.4

)%

 

 

 

 

 

 

Americas Components sales, as reported

$

1,552,798

 

 

$

1,907,029

 

 

(18.6

)%

Impact of changes in foreign currencies

 

 

(840

)

 

 

Impact of wind down

 

 

(62,866

)

 

 

Americas Components sales, as adjusted

$

1,552,798

 

 

$

1,843,323

 

 

(15.8

)%

 

 

 

 

 

 

Europe components sales, as reported

$

1,309,990

 

 

$

1,503,366

 

 

(12.9

)%

Impact of changes in foreign currencies

 

 

(23,951

)

 

 

Impact of wind down

 

 

(20,188

)

 

 

Europe components sales, as adjusted

$

1,309,990

 

 

$

1,459,227

 

 

(10.2

)%

 

 

 

 

 

 

Asia components sales, as reported

$

1,687,813

 

 

$

1,781,532

 

 

(5.3

)%

Impact of changes in foreign currencies

 

 

(4,927

)

 

 

Asia components sales, as adjusted

$

1,687,813

 

 

$

1,776,605

 

 

(5.0

)%

 

 

 

 

 

 

Global ECS sales, as reported

$

1,830,816

 

 

$

1,964,064

 

 

(6.8

)%

Impact of changes in foreign currencies

 

 

(11,853

)

 

 

Impact of dispositions

 

 

(11,141

)

 

 

Global ECS sales, as adjusted

$

1,830,816

 

 

$

1,941,070

 

 

(5.7

)%

 

 

 

 

 

 

Europe ECS sales, as reported

$

702,128

 

 

$

763,157

 

 

(8.0

)%

Impact of changes in foreign currencies

 

 

(11,919

)

 

 

Impact of dispositions

 

 

(11,141

)

 

 

Europe ECS sales, as adjusted

$

702,128

 

 

$

740,097

 

 

(5.1

)%

 

 

 

 

 

 

Americas ECS sales, as reported

$

1,128,688

 

 

$

1,200,907

 

 

(6.0

)%

Impact of changes in foreign currencies

 

 

66

 

 

 

Americas ECS sales, as adjusted

$

1,128,688

 

 

$

1,200,973

 

 

(6.0

)%

ARROW ELECTRONICS, INC.

NON-GAAP EARNINGS RECONCILIATION

(In thousands except per share data)

(Unaudited)

 

Three months ended March 28, 2020

 

Reported
GAAP
measure

Intangible
amortization
expense

Restructuring
& Integration
charges

AFS Write
Downs

Non-recurring
tax items

Impact of
Wind Down

Other(1)

Non-GAAP
measure

Sales

$

6,381,417

 

$

 

$

 

$

 

$

 

$

 

$

 

$

6,381,417

 

Gross Profit

728,391

 

 

 

 

 

 

 

728,391

 

Operating income

138,304

 

9,955

 

9,138

 

(920

)

 

 

 

156,477

 

Income before income taxes

77,647

 

9,955

 

9,138

 

(920

)

 

 

16,810

 

112,630

 

Provision for income taxes

27,892

 

2,564

 

2,571

 

(222

)

(3,615

)

 

4,057

 

33,247

 

Consolidated net income

49,755

 

7,391

 

6,567

 

(698

)

3,615

 

 

12,753

 

79,383

 

Noncontrolling interests

252

 

137

 

 

 

 

 

 

389

 

Net income attributable to shareholders

$

49,503

 

$

7,254

 

$

6,567

 

$

(698

)

$

3,615

 

$

 

$

12,753

 

$

78,994

 

Net income per diluted share

$

0.61

 

$

0.09

 

$

0.08

 

$

(0.01

)

$

0.04

 

$

 

$

0.16

 

$

0.97

 

Effective tax rate

35.9

%

 

 

 

 

 

 

29.5

%

Three months ended March 30, 2019

 

Reported
GAAP
measure

Intangible
amortization
expense(2)

Restructuring
& Integration
charges

AFS Write
Downs

Non-recurring
tax items

Impact of
Wind Down(2)

Other(3)

Non-GAAP
measure

Sales

$

7,155,991

 

$

 

$

 

$

 

$

 

$

(83,054

)

$

 

$

7,072,937

 

Gross Profit

861,688

 

 

 

 

 

(8,127

)

 

853,561

 

Operating income

245,560

 

9,142

 

11,086

 

 

 

10,196

 

866

 

276,850

 

Income before income taxes

196,321

 

9,142

 

11,086

 

 

 

10,343

 

(4,482

)

222,410

 

Provision for income taxes

53,907

 

2,540

 

2,711

 

 

(3,502

)

2,528

 

(1,319

)

56,865

 

Consolidated net income

142,414

 

6,602

 

8,375

 

 

3,502

 

7,815

 

(3,163

)

165,545

 

Noncontrolling interests

1,679

 

142

 

 

 

 

 

 

1,821

 

Net income attributable to shareholders

$

140,735

 

$

6,460

 

$

8,375

 

$

 

$

3,502

 

$

7,815

 

$

(3,163

)

$

163,724

 

Net income per diluted share(4)

$

1.63

 

$

0.07

 

$

0.10

 

$

 

$

0.04

 

$

0.09

 

$

(0.04

)

$

1.90

 

Effective tax rate

27.5

%

 

 

 

 

 

 

25.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Other includes loss on investments, net

(2) Identifiable intangible asset amortization related to the personal computer and mobility asset disposition business are included in “impact of wind down” above.

(3) Other includes loss on disposition of businesses, net and loss on investments, net.

(4) The sum of the components for diluted EPS, as adjusted may not agree to totals, as presented, due to rounding.

ARROW ELECTRONICS, INC.

SEGMENT INFORMATION

(In thousands)

(Unaudited)

 

 

 

Quarter Ended

 

March 28, 2020

 

March 30, 2019

Sales:

 

 

 

Global components

$

4,550,601

 

 

$

5,191,927

 

Global ECS

1,830,816

 

 

1,964,064

 

Consolidated

$

6,381,417

 

 

$

7,155,991

 

Operating income (loss):

 

 

 

Global components

$

164,767

 

 

$

234,532

 

Global ECS

42,433

 

 

86,718

 

Corporate (a)

(68,896

)

 

(75,690

)

Consolidated

$

138,304

 

 

$

245,560

 

(a)

Includes restructuring, integration, and other charges of $9,138 and $11,660 for the first quarter of 2020 and 2019, respectively. Also includes a loss on disposition of business of $866 for the first quarter of 2019.

NON-GAAP SEGMENT RECONCILIATION

 

 

 

Quarter Ended

 

March 28, 2020

 

March 30, 2019

 

 

 

 

Global components operating income, as reported

$

164,767

 

 

$

234,532

 

Intangible assets amortization expense (b)

7,380

 

 

6,253

 

Impact of wind-down (b)

 

 

9,622

 

AFS notes receivable reserve

(920

)

 

 

Global components operating income, as adjusted

$

171,227

 

 

$

250,407

 

 

 

 

 

Global ECS operating income, as reported

$

42,433

 

 

$

86,718

 

Intangible assets amortization expense

2,575

 

 

2,889

 

Global ECS operating income, as adjusted

$

45,008

 

 

$

89,607

 

(b)

Identifiable intangible asset amortization related to the personal computer and mobility asset disposition business is included in “impact of wind down” above.

 


Contacts

Steven O’Brien,
Vice President, Investor Relations
303-824-4544

Media Contact:
John Hourigan,
Vice President, Global Communications
303-824-4586