Arrow Posts Double-Digit Growth in Q2 Sales & Net Income

Ongoing high demand for electronic components contributed to Arrow Electronics Inc.'s double-digit growth in the second quarter (Q2) of 2018. Sales reached $7.39 billion, an increase of 15 percent from sales of $6.42 billion in Q2 2017. Second-quarter net income of $170 million, or $1.92 per share on a diluted basis, compared with net income of $100 million, or $1.11 per share on a diluted basis, in the second quarter of 2017. Excluding certain items, net income would have been $195 million, or $2.20 per share on a diluted basis, in the second quarter of 2018, compared with net income of $159 million, or $1.77 per share on a diluted basis, in Q2 2017. Excluding certain items, net income increased 23 percent year over year, and earnings per share on a diluted basis increased 24 percent year over year.

“We are providing more economic value to our customers and suppliers by expanding our design and engineering capabilities,” said Michael J. Long, chairman, president, and chief executive officer. “Customers increasingly want to purchase solutions, not just components or IT.”

Arrow CEO Mike Long

Arrow has aggressively added to its service capabilities to include soup-to-nuts design assistance; online tools for design, collaboration, procurement and post-sales support; and is enabling technology for non-electronics segments such as finance and agriculture. But components is the story for Q2 2018: Global components second-quarter sales of $5.28 billion increased 18 percent year over year. Second-quarter sales, as adjusted, increased 16 percent year over year. Americas components sales increased 14 percent year over year. Asia-Pacific components sales increased 21 percent year over year. Europe components sales increased 21 percent year over year. Sales in the region, as adjusted, increased 14 percent year over year. Global components second-quarter operating income increased 29 percent year over year.

“Demand conditions are favorable, and point to normal, sustained growth for the future,” said Long.

However, Arrow, like all distributors, is facing an ongoing shortage of components. Component scarcity is well into its second year and while that has led to firming or even increased prices, OEMs and EMS providers across the industry fear lines will be shut down for a lack of parts. To date, Arrow has reported it has enough inventory to meet customer needs. All distributors are keeping an eye on orders to make sure customers aren't asking for more than they need.

Global enterprise computing solutions second-quarter sales of $2.11 billion increased 8 percent year over year. Americas enterprise computing solutions sales increased 6 percent year over year. Sales in the region, as adjusted, increased 11 percent year over year. Europe enterprise computing solutions sales increased 10 percent year over year. Sales in the region, as adjusted, increased 1 percent year over year. Global enterprise computing solutions second-quarter operating income increased 2 percent year over year and was flat year over year excluding amortization of intangibles expense.

“We are well-aligned to current IT spending trends, and have leadership positions in security, hybrid cloud, and software-defined architectures,” added Long.

“Return on invested capital increased year over year for the fourth straight quarter. Second quarter cash flow from operations was negative $410 million driven by the need for working capital additions to service our record levels of growth. More than $200 million of the decline was a timing issue at quarter end between inventory and receivables on a new customer engagement,” said Chris Stansbury, senior vice president and chief financial officer. “We remain committed to returning excess cash to shareholders. During the second quarter, we returned approximately $20 million to shareholders through our stock repurchase program. We had approximately $299 million of remaining authorization under our share repurchase program at the end of the second quarter.”

SIX-MONTH RESULTS

In the first six months of 2018, Arrow’s sales of $14.27 billion increased 17 percent from sales of $12.16 billion in the first six months of 2017. Net income for the first six months of 2018 was $309 million, or $3.48 per share on a diluted basis, compared with net income of $214 million, or $2.38 per share on a diluted basis in the first six months of 2017. Excluding certain items, net income would have been $363 million, or $4.08 per share on a diluted basis, in the first six months of 2018 compared with net income of $291 million, or $3.23 per share on a diluted basis, in the first six months of 2017.

GUIDANCE

“As we look to the third quarter, we believe that total sales will be between $7.15 billion and $7.55 billion, with global components sales between $5.25 billion and $5.45 billion, and global enterprise computing solutions sales between $1.9 billion and $2.1 billion. As a result of this outlook, we expect earnings per share on a diluted basis to be in the range of $1.79 to $1.91, and earnings per share on a diluted basis, excluding certain items, to be in the range of $2.09 to $2.21 per share. Our guidance assumes an average tax rate of 23.5 percent to 25.5 percent, and average diluted shares outstanding are expected to be approximately 89 million. Guidance is based on an average USD-to-Euro exchange rate for the third quarter of approximately $1.17 to €1,” said 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 (ARW) guides innovation forward for over 150,000 of the world’s leading manufacturers of technology used in homes, business and daily life. With 2017 sales of $26.6 billion, Arrow aggregates electronics and enterprise computing solutions for customers and suppliers in industrial and commercial markets. The company maintains