Arrow Electronics, Inc. (NYSE:ARW) today reported first-quarter 2019
sales of $7.16 billion, an increase of 4 percent from sales of $6.88
billion in the first quarter of 2018. First-quarter net income of $141
million or $1.63 per share on a diluted basis, compared with net income
of $139 million, or $1.56 per share on a diluted basis, in the first
quarter of 2018. Excluding certain items1, net income would
have been $158 million, or $1.84 per share on a diluted basis, in the
first quarter of 2019, compared with net income of $168 million, or
$1.88 per share on a diluted basis, in the first quarter of 2018. In the
first quarter of 2019, changes in foreign currencies had negative
impacts on growth of approximately $197 million or 3 percent on sales
and $.09 or 5 percent on earnings per share on a diluted basis compared
to the first quarter of 2018.
Global components first-quarter sales of $5.19 billion increased 5
percent year over year. Sales, as adjusted, increased 8 percent year
over year. Americas components sales increased 6 percent year over year.
Europe components sales increased 2 percent year over year. Sales in the
region, as adjusted, increased 10 percent year over year. Asia-Pacific
components sales increased 8 percent year over year. Global components
first-quarter operating income increased 2 percent year over year.
Operating income, as adjusted, increased 6 percent year over year.
“Higher sales volumes in the first quarter allowed us to leverage our
operating expenses, assure profitability, and will lead to higher cash
flow in the coming quarters,” said Michael J. Long, chairman, president,
and chief executive officer. “The demand environment changed in the
first quarter with customers in all regions adjusting their inventories
by purchasing fewer high-value components, and more tightly managing
their working capital and cash.”
Global enterprise computing solutions first-quarter sales of $1.96
billion increased 1 percent year over year. Sales, as adjusted,
increased 6 percent year over year. Americas enterprise computing
solutions sales were flat year over year. Sales in the region, as
adjusted, increased 4 percent year over year. Europe enterprise
computing solutions sales increased 2 percent year over year. Sales in
the region, as adjusted, increased 10 percent year over year. Global
enterprise computing solutions first-quarter operating income increased
3 percent year over year and increased 1 percent year over year
excluding amortization of intangibles expense. Global enterprise
computing solutions operating income excluding amortization of
intangibles expense, as adjusted, increased 3 percent year over year.
“Enterprise computing solutions returned to profitable growth in the
first quarter from our efforts to better align with next-generation
hardware and software technologies, and to capture incremental business
from nontraditional systems integrator and operational technology
provider customers,” said Mr. Long.
“First-quarter cash flow from operations was negative $329 million. We
expect to adjust our working capital investments to current market
conditions and drive further improvements to cash flow and in returns in
the coming quarters,” said Chris Stansbury, senior vice president and
chief financial officer. “We remain committed to returning excess cash
to shareholders. During the first quarter, we returned approximately $40
million to shareholders through our stock repurchase program. We had
approximately $689 million of remaining authorization under our share
repurchase program at the end of the first quarter.”
|
1 |
A reconciliation of non-GAAP adjusted financial measures, |
|
GUIDANCE
“As we look to the second quarter, we believe that total sales will be
between $7.525 billion and $7.925 billion, with global components sales
between $5.5 billion and $5.7 billion, and global enterprise computing
solutions sales between $2.025 billion and $2.225 billion. As a result
of this outlook, we expect earnings per share on a diluted basis to be
in the range of $1.71 to $1.83, and earnings per share on a diluted
basis, excluding certain items1, to be in the range of $1.94
to $2.06 per share. Our guidance assumes interest expense will total
approximately $57 million. Our guidance also assumes an average tax rate
at the high end of the long-term range of 23.5 percent to 25.5 percent,
and average diluted shares outstanding of approximately 86 million. We
are expecting the average USD-to-Euro exchange rate for the second
quarter to be approximately $1.12 to €1. We estimate changes in foreign
currencies will have a negative impact on growth of approximately $138
million, or 2 percent on sales, and $.07, or 3 percent, on earnings per
share on a diluted basis compared to the second 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.
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, income, or expense on a non-GAAP basis adjusted for the
impact of changes in foreign currencies and the impact of dispositions
by adjusting the company’s operating results, including the amortization
expense related to disposed intangible assets, as if the dispositions
had occurred at the beginning of the earliest period presented (referred
to as “impact of dispositions”). Operating income, net income
attributable to shareholders, and net income per basic and diluted share
are adjusted to exclude identifiable intangible amortization,
restructuring, integration, and other charges, and certain charges,
credits, gains, and losses that the company believes impact the
comparability of its results of operations. These charges, credits,
gains, and losses arise out of the company’s efficiency enhancement
initiatives, acquisitions/dispositions (including intangible assets
amortization expense), and financing activities. 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 30, 2019 | March 31, 2018 | |||||||||
| Sales | $ | 7,155,991 | $ | 6,875,613 | ||||||
| Cost of sales | 6,294,303 | 6,006,669 | ||||||||
| Gross profit | 861,688 | 868,944 | ||||||||
| Operating expenses: | ||||||||||
| Selling, general, and administrative expenses | 556,076 | 562,969 | ||||||||
| Depreciation and amortization | 47,526 | 47,247 | ||||||||
| Loss on disposition of businesses, net | 866 | 1,562 | ||||||||
| Restructuring, integration, and other charges | 11,660 | 21,171 | ||||||||
| 616,128 | 632,949 | |||||||||
| Operating income | 245,560 | 235,995 | ||||||||
| Equity in losses of affiliated companies | (1,467 | ) | (673 | ) | ||||||
| Gain (loss) on investments, net | 5,348 | (2,452 | ) | |||||||
| Employee benefit plan expense | 1,139 | 1,231 | ||||||||
| Interest and other financing expense, net | 51,981 | 45,179 | ||||||||
| Income before income taxes | 196,321 | 186,460 | ||||||||
| Provision for income taxes | 53,907 | 46,590 | ||||||||
| Consolidated net income | 142,414 | 139,870 | ||||||||
| Noncontrolling interests | 1,679 | 776 | ||||||||
| Net income attributable to shareholders | $ | 140,735 | $ | 139,094 | ||||||
| Net income per share: | ||||||||||
| Basic | $ | 1.65 | $ | 1.58 | ||||||
| Diluted | $ | 1.63 | $ | 1.56 | ||||||
| Weighted-average shares outstanding: | ||||||||||
| Basic | 85,400 | 87,955 | ||||||||
| Diluted | 86,319 | 89,035 | ||||||||
| ARROW ELECTRONICS, INC. | ||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||
| (In thousands except par value) | ||||||||||
| (Unaudited) | ||||||||||
| March 30, 2019 | December 31, 2018 | |||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 351,899 | $ | 509,327 | ||||||
| Accounts receivable, net | 7,902,516 | 8,945,463 | ||||||||
| Inventories | 3,734,905 | 3,878,678 | ||||||||
| Other current assets | 264,564 | 274,832 | ||||||||
| Total current assets | 12,253,884 | 13,608,300 | ||||||||
| Property, plant, and equipment, at cost: | ||||||||||
| Land | 7,845 | 7,882 | ||||||||
| Buildings and improvements | 157,326 | 158,712 | ||||||||
| Machinery and equipment | 1,428,758 | 1,425,933 | ||||||||
| 1,593,929 | 1,592,527 | |||||||||
| Less: Accumulated depreciation and amortization | (774,325 | ) | (767,827 | ) | ||||||
| Property, plant, and equipment, net | 819,604 | 824,700 | ||||||||
| Investments in affiliated companies | 85,296 | 83,693 | ||||||||
| Intangible assets, net | 369,291 | 372,644 | ||||||||
| Goodwill | 2,632,451 | 2,624,690 | ||||||||
| Other assets | 670,226 | 270,418 | ||||||||
| Total assets | $ | 16,830,752 | $ | 17,784,445 | ||||||
| LIABILITIES AND EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 6,034,457 | $ | 7,631,879 | ||||||
| Accrued expenses | 860,982 | 912,292 | ||||||||
| Short-term borrowings, including current portion of long-term debt | 138,686 | 246,257 | ||||||||
| Total current liabilities | 7,034,125 | 8,790,428 | ||||||||
| Long-term debt | 3,575,891 | 3,239,115 | ||||||||
| Other liabilities | 719,326 | 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 | 1,128,757 | 1,135,934 | ||||||||
|
Treasury stock (40,251 and 40,233 shares in 2019 and 2018, respectively), at cost |
(1,992,981 | ) | (1,972,254 | ) | ||||||
| Retained earnings | 6,476,070 | 6,335,335 | ||||||||
| Accumulated other comprehensive loss | (288,267 | ) | (299,449 | ) | ||||||
| Total shareholders’ equity | 5,449,003 | 5,324,990 | ||||||||
| Noncontrolling interests | 52,407 | 51,376 | ||||||||
| Total equity | 5,501,410 | 5,376,366 | ||||||||
| Total liabilities and equity | $ | 16,830,752 | $ | 17,784,445 | ||||||
| ARROW ELECTRONICS, INC. | ||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
| (In thousands) | ||||||||||
| (Unaudited) | ||||||||||
| Quarter Ended | ||||||||||
| March 30, 2019 | March 31, 2018 | |||||||||
| Cash flows from operating activities: | ||||||||||
| Consolidated net income | $ | 142,414 | $ | 139,870 | ||||||
|
Adjustments to reconcile consolidated net income to net cash used by operations: |
||||||||||
| Depreciation and amortization | 47,526 | 47,247 | ||||||||
| Amortization of stock-based compensation | 19,090 | 13,043 | ||||||||
| Equity in losses of affiliated companies | 1,467 | 673 | ||||||||
| Deferred income taxes | 6,968 | (2,818 | ) | |||||||
| (Gain) loss on investments, net | (5,348 | ) | 2,452 | |||||||
| Other | 5,575 | 3,465 | ||||||||
|
Change in assets and liabilities, net of effects of acquired and disposed businesses: |
||||||||||
| Accounts receivable | 949,989 | 789,843 | ||||||||
| Inventories | 134,402 | (260,620 | ) | |||||||
| Accounts payable | (1,540,008 | ) | (691,818 | ) | ||||||
| Accrued expenses | (50,292 | ) | (22,087 | ) | ||||||
| Other assets and liabilities | (40,782 | ) | (94,327 | ) | ||||||
| Net cash used for operating activities | (328,999 | ) | (75,077 | ) | ||||||
| Cash flows from investing activities: | ||||||||||
| Cash consideration paid for acquired businesses, net of cash acquired | — | (331,467 | ) | |||||||
| Proceeds from disposition of businesses | — | 34,291 | ||||||||
| Acquisition of property, plant, and equipment | (33,815 | ) | (34,735 | ) | ||||||
| Other | 2,940 | (4,500 | ) | |||||||
| Net cash used for investing activities | (30,875 | ) | (336,411 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Change in short-term and other borrowings | (107,244 | ) | (18,387 | ) | ||||||
| Repayment of long-term bank borrowings, net | 335,023 | 601,386 | ||||||||
| Redemption of notes | — | (300,000 | ) | |||||||
| Proceeds from exercise of stock options | 6,931 | 4,997 | ||||||||
| Repurchases of common stock | (53,925 | ) | (52,513 | ) | ||||||
| Net cash provided by financing activities | 180,785 | 235,483 | ||||||||
| Effect of exchange rate changes on cash | 21,661 | (5,434 | ) | |||||||
| Net decrease in cash and cash equivalents | (157,428 | ) | (181,439 | ) | ||||||
| Cash and cash equivalents at beginning of period | 509,327 | 730,083 | ||||||||
| Cash and cash equivalents at end of period | $ | 351,899 | $ | 548,644 | ||||||
| ARROW ELECTRONICS, INC. | ||||||||||||||
| NON-GAAP SALES RECONCILIATION | ||||||||||||||
| (In thousands) | ||||||||||||||
| (Unaudited) | ||||||||||||||
| Quarter Ended | ||||||||||||||
| March 30, 2019 | March 31, 2018 | % Change | ||||||||||||
| Consolidated sales, as reported | $ | 7,155,991 | $ | 6,875,613 | 4.1 | % | ||||||||
| Impact of changes in foreign currencies | — | (196,829 | ) | |||||||||||
| Impact of dispositions | (11,141 | ) | (40,751 | ) | ||||||||||
| Consolidated sales, as adjusted | $ | 7,144,850 | $ | 6,638,033 | 7.6 | % | ||||||||
| Global components sales, as reported | $ | 5,191,927 | $ | 4,929,932 | 5.3 | % | ||||||||
| Impact of changes in foreign currencies | — | (129,719 | ) | |||||||||||
| Global components sales, as adjusted | $ | 5,191,927 | $ | 4,800,213 | 8.2 | % | ||||||||
| Americas Components sales, as reported | $ | 1,907,029 | $ | 1,796,698 | 6.1 | % | ||||||||
| Impact of changes in foreign currencies | — | (2,528 | ) | |||||||||||
| Americas Components sales, as adjusted | $ | 1,907,029 | $ | 1,794,170 | 6.3 | % | ||||||||
| Europe components sales, as reported | $ | 1,503,366 | $ | 1,478,386 | 1.7 | % | ||||||||
| Impact of changes in foreign currencies | — | (114,386 | ) | |||||||||||
| Europe components sales, as adjusted | $ | 1,503,366 | $ | 1,364,000 | 10.2 | % | ||||||||
| Asia components sales, as reported | $ | 1,781,532 | $ | 1,654,848 | 7.7 | % | ||||||||
| Impact of changes in foreign currencies | — | (12,805 | ) | |||||||||||
| Asia components sales, as adjusted | $ | 1,781,532 | $ | 1,642,043 | 8.5 | % | ||||||||
| Global ECS sales, as reported | $ | 1,964,064 | $ | 1,945,681 | 0.9 | % | ||||||||
| Impact of changes in foreign currencies | — | (67,110 | ) | |||||||||||
| Impact of dispositions | (11,141 | ) | (40,751 | ) | ||||||||||
| Global ECS sales, as adjusted | $ | 1,952,923 | $ | 1,837,820 | 6.3 | % | ||||||||
| Europe ECS sales, as reported | $ | 763,157 | $ | 750,270 | 1.7 | % | ||||||||
| Impact of changes in foreign currencies | — | (55,716 | ) | |||||||||||
| Impact of dispositions | (11,141 | ) | (13,258 | ) | ||||||||||
| Europe ECS sales, as adjusted | $ | 752,016 | $ | 681,296 | 10.4 | % | ||||||||
| Americas ECS sales, as reported | $ | 1,200,907 | $ | 1,195,411 | 0.5 | % | ||||||||
| Impact of changes in foreign currencies | — | (11,394 | ) | |||||||||||
| Impact of dispositions | — | (27,493 | ) | |||||||||||
| Americas ECS sales, as adjusted | $ | 1,200,907 | $ | 1,156,524 | 3.8 | % | ||||||||
| ARROW ELECTRONICS, INC. | ||||||||||||||||||||||
| NON-GAAP EARNINGS RECONCILIATION | ||||||||||||||||||||||
| (In thousands except per share data) | ||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||
| Three months ended March 30, 2019 | ||||||||||||||||||||||
|
Reported GAAP measure |
Intangible amortization expense |
Restructuring & Integration charges |
Other* |
Non-GAAP measure |
||||||||||||||||||
| Operating income | $ | 245,560 | $ | 11,930 | $ | 11,660 | $ | 866 | $ | 270,016 | ||||||||||||
| Income before income taxes | 196,321 | 11,930 | 11,660 | (4,482 | ) | 215,429 | ||||||||||||||||
| Provision for income taxes | 53,907 | 3,207 | 2,852 | (4,821 | ) | 55,145 | ||||||||||||||||
| Consolidated net income | 142,414 | 8,723 | 8,808 | 339 | 160,284 | |||||||||||||||||
| Noncontrolling interests | 1,679 | 142 | — | — | 1,821 | |||||||||||||||||
| Net income attributable to shareholders | $ | 140,735 | $ | 8,581 | $ | 8,808 | $ | 339 | $ | 158,463 | ||||||||||||
| Net income per diluted share*** | $ | 1.63 | $ | 0.10 | $ | 0.10 | $ | — | $ | 1.84 | ||||||||||||
| Effective tax rate | 27.5 | % | 25.6 | % | ||||||||||||||||||
| Three months ended March 31, 2018 | ||||||||||||||||||||||
|
|
Reported GAAP measure |
Intangible amortization expense |
Restructuring & Integration charges |
Other** |
Non-GAAP measure |
|||||||||||||||||
| Operating income | $ | 235,995 | $ | 13,520 | $ | 21,171 | $ | 1,562 | $ | 272,248 | ||||||||||||
| Income before income taxes | 186,460 | 13,520 | 21,171 | 4,014 | 225,165 | |||||||||||||||||
| Provision for income taxes | 46,590 | 3,604 | 5,535 | 782 | 56,511 | |||||||||||||||||
| Consolidated net income | 139,870 | 9,916 | 15,636 | 3,232 | 168,654 | |||||||||||||||||
| Noncontrolling interests | 776 | 153 | — | — | 929 | |||||||||||||||||
| Net income attributable to shareholders | $ | 139,094 | 9,763 | 15,636 | 3,232 | 167,725 | ||||||||||||||||
| Net income per diluted share*** | $ | 1.56 | $ | 0.11 | $ | 0.18 | $ | 0.04 | $ | 1.88 | ||||||||||||
| Effective tax rate | 25.0 | % | 25.1 | % | ||||||||||||||||||
|
* Other includes loss on disposition of businesses, net and gain (loss) on investments, net and impact of Tax Act. |
||||||||||||||||||||||
|
** Other includes gain (loss) on investments, net and loss on disposition of businesses, net. |
||||||||||||||||||||||
|
*** 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 30, 2019 | March 31, 2018 | |||||||||||
| Sales: | ||||||||||||
| Global components | $ | 5,191,927 | $ | 4,929,932 | ||||||||
| Global ECS | 1,964,064 | 1,945,681 | ||||||||||
| Consolidated | $ | 7,155,991 | $ | 6,875,613 | ||||||||
| Operating income (loss): | ||||||||||||
| Global components | $ | 234,532 | $ | 229,546 | ||||||||
| Global ECS | 86,718 | 83,806 | ||||||||||
| Corporate (a) | (75,690 | ) | (77,357 | ) | ||||||||
| Consolidated | $ | 245,560 | $ | 235,995 | ||||||||
| (a) |
Includes restructuring, integration, and other charges of $11.7 million and $21.2 million for the first quarter of 2019 and 2018, respectively, as well as a net loss on the disposition of businesses of $0.9 million and $1.6 million first quarter 2019 and 2018, respectively. |
|||
| NON-GAAP SEGMENT RECONCILIATION | |||||||||||
| Quarter Ended | |||||||||||
| March 30, 2019 | March 31, 2018 | ||||||||||
| Global components operating income, as reported | $ | 234,532 | $ | 229,546 | |||||||
| Intangible assets amortization expense | 9,041 | 8,599 | |||||||||
| Global components operating income, as adjusted | $ | 243,573 | $ | 238,145 | |||||||
| Global ECS operating income, as reported | $ | 86,718 | $ | 83,806 | |||||||
| Intangible assets amortization expense | 2,889 | 4,921 | |||||||||
| Global ECS operating income, as adjusted | $ | 89,607 | $ | 88,727 | |||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20190502005229/en/