Arrow Electronics : Reports Third-Quarter Sales of $5.7 Billion

Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2015 net income of $109.2 million, or $1.15 per share on a diluted basis, compared with net income of $146.9 million, or $1.47 per share on a diluted basis, in the third quarter of 2014. Excluding certain items¹ in the third quarters of 2015 and 2014, net income would have been $133.4 million, or $1.40 per share on a diluted basis, in the third quarter of 2015, compared with net income of $140.2 million, or $1.40 per share on a diluted basis, in the third quarter of 2014. Third-quarter sales of $5.7 billion increased 2 percent from sales of $5.61 billion in the prior year. Third-quarter sales, adjusted for the impact of acquisitions and changes in foreign currencies, decreased 1 percent year over year. In the third quarter of 2015, changes in foreign currencies had negative impacts on growth of approximately $280 million on sales and $.07 or 5 percent on earnings per share on a diluted basis compared to the third quarter of 2014.

“Both our global components and enterprise computing solutions businesses continued to experience strong demand in Europe, while our Americas businesses broadly performed as we had anticipated. In Asia, the economic deterioration was worse than we expected,” said Michael J. Long, chairman, president, and chief executive officer. “We remain committed to continual productivity improvement, and have enhanced our ongoing efficiency initiatives to drive $40 million of expense savings on an annual basis. We are principally accelerating the integrations of some of our recent acquisitions, increasing automation across multiple functions enabled by our Unity enterprise resource planning tool, utilizing our enterprise strengths for greater purchasing leverage, and rationalizing our real estate footprint.”

Global components third-quarter sales of $3.69 billion declined 1 percent year over year. Third-quarter sales, as adjusted, declined 3 percent year over year. Americas components sales declined 4 percent year over year. Europe components sales grew 5 percent year over year. Sales in the region, as adjusted, grew 11 percent year over year. Asia-Pacific components sales declined 2 percent year over year. Core components sales in Asia declined 5 percent year over year.

Global enterprise computing solutions third-quarter sales of $2.01 billion grew 7 percent year over year. Sales, as adjusted, grew 1 percent year over year. Americas sales grew 11 percent year over year. Sales in the region, as adjusted, declined 4 percent year over year. Europe sales declined 3 percent year over year. Sales in the region, as adjusted, grew 15 percent year over year. “Enterprise computing solutions posted record third-quarter operating income and operating margins, with our software sales a greater percentage of our product mix,” added Mr. Long.

“Cash flow from operations on a trailing 12-month basis was $568 million as we continue to exceed our cash flow target,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. “During the quarter, we returned approximately $50 million to shareholders through our stock repurchase program, and approximately $307 million on a trailing 12-month basis. We had approximately $469 million of remaining authorization under our share repurchase programs at the end of the third quarter.”

¹ A reconciliation of non-GAAP adjusted financial measures, including sales, as adjusted, 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.

NINE-MONTH RESULTS

Arrow’s net income for the first nine months of 2015 was $339.2 million, or $3.52 per share on a diluted basis, compared with net income of $381.9 million, or $3.80 per share on a diluted basis in the first nine months of 2014. Excluding certain items¹ in both the first nine months of 2015 and 2014, net income would have been $410.1 million, or $4.26 per share on a diluted basis, in the first nine months of 2015 compared with net income of $408.6 million, or $4.06 per share on a diluted basis, in the first nine months of 2014. In the first nine months of 2015, sales of $16.53 billion increased 1 percent from sales of $16.37 billion in the first nine months of 2014. Nine-month sales, adjusted for acquisitions and changes in foreign currencies, increased 2 percent year over year. For the first nine months of 2015, changes in foreign currencies had negative impacts on growth of approximately $950 million on sales and $.27 or 7 percent on earnings per share on a diluted basis compared to the first nine months of 2014.

GUIDANCE

“As we look to the fourth quarter, we believe that total sales will be between $6.15 billion and $6.55 billion, with global components sales between $3.45 billion and $3.65 billion, and global enterprise computing solutions sales between $2.7 billion and $2.9 billion. As a result of this outlook, we expect earnings per share on a diluted basis, excluding any charges, to be in the range of $1.75 to $1.91 per share. Our guidance assumes an average tax rate in the range of 27 to 29 percent and average diluted shares outstanding are expected to be 95 million. We are expecting the average USD-to-Euro exchange rate for the fourth quarter to be approximately $1.12 to €1. Based on this assumption, changes in foreign currencies will have a negative impact of approximately $215 million or 3 percent on sales and $.08 or 4 percent on earnings per share on a diluted basis, respectively, when compared with the fourth quarter of 2014. At the midpoint of our fourth-quarter guidance range, full-year 2015 earnings per share, on a diluted basis, excluding any charges, would total approximately $6.08 and grow 3 percent compared to full-year 2014. Adjusted for the impact of changes in foreign currencies, earnings per share would grow 9 percent compared to full-year 2014,” said Mr. Reilly.

Please refer to the CFO commentary, which can be found at www.arrow.com/investor, as a supplement to the company’s earnings release.

Arrow Electronics (www.arrow.com) is a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. Arrow serves as a supply channel partner for more than 100,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 460 locations in 56 countries.

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 December 31, 2014.

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 on a non-GAAP basis adjusted for the impact of changes in foreign currencies and the impact of acquisitions by adjusting the company's operating results for businesses acquired, including the amortization expense related to acquired intangible assets, as if the acquisitions had occurred at the beginning of the earliest period presented (referred to as "impact of acquisitions"). Operating income, net income attributable to shareholders, and net income per basic and diluted share are adjusted for 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 (including intangible assets amortization expense), loss on prepayment of debt, and (gain)/loss on investments. 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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