Component buyers around the world remain cautious about adding inventory — a trend reflected in flat revenue growth among electronics distributors. Lackluster demand is expected to continue through the second quarter, Arrow Electronics Inc.’s executives said, although more in line with seasonality.
For its first quarter ended in March, Arrow’s results were in line with expectations, with revenue roughly flat year-over-year. Arrow’s first-quarter 2013 net income reached $77.9 million, compared with net income of $113.6 million in the first quarter of 2012. First-quarter sales of $4.85 billion declined 1 percent from sales of $4.89 billion in the prior year.
“We performed well in the first quarter. Sales of $4.8 billion were in line with our expectations and earnings per share of $.89 were above the midpoint of our guidance. Our ECS business continues to deliver excellent performance, reaching record-level first-quarter sales, while posting the 13th consecutive quarter of organic growth,” said Michael J. Long, chairman, president, and chief executive officer. “As we look to the second quarter, we would expect the world’s economies to be consistent with what we experienced in the first quarter, and therefore we would expect to see normal seasonality across our businesses.”
Global components first-quarter sales of $3.19 billion decreased 5 percent year over year. Sales, as adjusted in the non-GAAP sales reconciliation table below, declined 2 percent year over year. In the Americas, sales declined 5 percent year over year as market conditions weakened and customers maintained a cautious stance. European sales were down 16 percent year over year, due to a prospective change in the accounting for revenue related to a certain fulfillment contract, and to a lesser extent, a worsening of the economic conditions in the region over the past nine months. Sales in Europe, as adjusted in the non-GAAP sales reconciliation table below, declined 6 percent. Sales in the Asia-Pacific region increased 11 percent year over year, driven by strength in the core business.
Global enterprise computing solutions (“ECS”) first-quarter sales of $1.66 billion increased 8 percent year over year. Sales, as adjusted in the non-GAAP sales reconciliation table below, increased 2 percent year over year. Storage, software, and services grew at a healthy rate year over year as customers focus on productivity and efficiency enhancements for their organizations. In the Americas, sales growth was above normal seasonality in the core value-added distribution business with a stronger-than-expected close to the quarter. In Europe, as expected, sales were modestly below normal seasonality, as the European economies further weakened in the first quarter.
“In February we committed to delivering $40 million in annual expense reductions during 2013. With a more thorough review of our processes and productivity enhancement opportunities, in part driven by new systems, we will be able to exceed that commitment and reduce expenses by more than $75 million on an annual basis, all while selectively investing in the long-term future of the company,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer.
In the second quarter the company believes that total sales will be between $4.9 billion and $5.3 billion, with global components sales between $3.15 billion and $3.35 billion and global enterprise computing solutions sales between $1.75 billion and $1.95 billion. As a result of this outlook, earnings per share, on a diluted basis, excluding any charges should be in the range of $.95 to $1.07 per share. The company’s guidance assumes an average tax rate in the range of 27 to 29 percent, average diluted shares outstanding of 107.1 million, and an average Euro to USD exchange rate for the second quarter of