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Arrow Electronics Reports Second-Quarter 2020 Results

Published : Thursday, July 30, 2020, 5:00 am
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-- Cash Provided by Operating Activities of $418 Million --

-- Announces Additional $600 Million Share Repurchase Program --

CENTENNIAL, Colo.--(BUSINESS WIRE)--Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2020 sales of $6.61 billion, a decrease of 10 percent from sales of $7.34 billion in the second quarter of 2019. Second-quarter sales, as adjusted, decreased 8 percent year over year. Second-quarter net income of $133 million, or $1.68 per share on a diluted basis, compared with a net loss of $(549) million, or $(6.48) per share on a diluted basis, in the second quarter of 2019. Excluding certain items1, net income, as adjusted, was $126 million, or $1.59 per share on a diluted basis, in the second quarter of 2020, compared with net income, as adjusted, of $137 million, or $1.60 per share on a diluted basis, in the second quarter of 2019.


“Arrow has again proven to be a source of reliability and stability for suppliers and customers amidst supply chain disruptions and an uncertain economic backdrop. Our efforts to expand our engineering and design expertise both prior to and during the COVID-19 pandemic are helping customers quickly get back to business,” said Michael J. Long, chairman, president, and chief executive officer. “In turn, our vital position in the technology ecosystem, and our ever-expanding capabilities drove results above our expectations.”

Global components second-quarter sales of $4.72 billion decreased 10 percent year over year. Sales, as adjusted, decreased 8 percent year over year. Asia-Pacific components sales increased 7 percent year over year. Europe components sales decreased 21 percent year over year. Sales in the region, as adjusted, decreased 18 percent year over year. Americas components sales decreased 21 percent year over year. Sales in the region, as adjusted, decreased 18 percent year over year. Global components second-quarter operating income was $182 million. Second-quarter operating income, as adjusted, was $177 million.

“Arrow is harnessing data from billions of transactions with thousands of customers to sell and deliver the products and solutions that our customers want when they need them,” continued Mr. Long. “Sales were above the high end of our expectation driven by Asia that has seen a remarkable rebound in manufacturing activity due to earlier pandemic onset and recovery.”

Global enterprise computing solutions second-quarter sales of $1.89 billion decreased 9 percent year over year. Sales, as adjusted, decreased 8 percent year over year. Europe enterprise computing solutions sales decreased 6 percent year over year. Sales in the region, as adjusted, decreased 4 percent year over year. Americas enterprise computing solutions sales decreased 11 percent year over year. Global enterprise computing solutions second-quarter operating income was $73 million. Second-quarter operating income, as adjusted, was $80 million.

“In terms of product segments, demand remains strong for the software, cloud, and security solutions needed to enable business continuity and remote working,” said Mr. Long. “We continue to evolve our portfolio to areas with greater long-term growth potential.”

“With financial returns improving and the effective management of our balance sheet and cash flow, we enhanced our commitment to returning excess cash to shareholders through a new $600 million repurchase authorization,” said Chris Stansbury, senior vice president and chief financial officer. “Our liquidity position remains the best in our company’s history and improved further, with more than $3.2 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.

THIRD-QUARTER 2020 OUTLOOK

  • Consolidated sales of $6.325 billion to $6.925 billion, with global components sales of $4.675 billion to $4.975 billion, and global enterprise computing solutions sales of $1.65 billion to $1.95 billion
  • Earnings per share on a diluted basis of $1.34 to $1.50, and earnings per share on a diluted basis, excluding certain items1 of $1.54 to $1.70 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 78.5 million
  • Interest expense of approximately $33 million

Third-Quarter 2020 Outlook

 

Reported GAAP
measure

Intangible amortization
expense

Restructuring &
integration charges

Non-GAAP measure

Net income per diluted share

$1.34 - $1.50

$0.10

$0.10

$1.54 - $1.70

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 and the risk factor update in Form 10-Q for the quarter ended June 27, 2020. 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 expenses as 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, loss on disposition of businesses, net, AFS notes receivable reserves and credits and inventory write-downs and recoveries, digital inventory write-downs and recoveries, the impact of non-cash charges related to goodwill, trade names, and long-lived assets, 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, 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 non-cash charges related to goodwill, trade names, and long-lived assets, certain tax adjustments, and the impact of wind down. 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

 

Six Months Ended

 

 

June 27, 2020

 

June 29, 2019

 

June 27, 2020

 

June 29, 2019

 

 

 

 

 

 

 

 

 

Sales

 

$

6,606,494

 

 

 

$

7,344,548

 

 

 

$

12,987,911

 

 

 

$

14,500,539

 

 

Cost of sales

 

5,856,031

 

 

 

6,529,639

 

 

 

11,509,057

 

 

 

12,823,942

 

 

Gross profit

 

750,463

 

 

 

814,909

 

 

 

1,478,854

 

 

 

1,676,597

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

501,470

 

 

 

599,212

 

 

 

1,035,309

 

 

 

1,155,288

 

 

Depreciation and amortization

 

46,812

 

 

 

46,982

 

 

 

93,922

 

 

 

94,508

 

 

Loss on disposition of businesses, net

 

 

 

 

 

 

 

 

 

 

866

 

 

Impairments

 

4,918

 

 

 

697,993

 

 

 

4,918

 

 

 

697,993

 

 

Restructuring, integration, and other charges

 

650

 

 

 

19,912

 

 

 

9,788

 

 

 

31,572

 

 

 

 

553,850

 

 

 

1,364,099

 

 

 

1,143,937

 

 

 

1,980,227

 

 

Operating income (loss)

 

196,613

 

 

 

(549,190

)

 

 

334,917

 

 

 

(303,630

)

 

Equity in earnings (losses) of affiliated companies

 

(283

)

 

 

382

 

 

 

247

 

 

 

(1,085

)

 

Gain (loss) on investments, net

 

10,901

 

 

 

1,390

 

 

 

(5,909

)

 

 

6,738

 

 

Employee benefit plan expense

 

(1,173

)

 

 

(1,139

)

 

 

(2,282

)

 

 

(2,278

)

 

Interest and other financing expense, net

 

(31,867

)

 

 

(51,563

)

 

 

(75,135

)

 

 

(103,544

)

 

Income (loss) before income taxes

 

174,191

 

 

 

(600,120

)

 

 

251,838

 

 

 

(403,799

)

 

Provision (benefit) for income taxes

 

40,854

 

 

 

(52,369

)

 

 

68,746

 

 

 

1,538

 

 

Consolidated net income (loss)

 

133,337

 

 

 

(547,751

)

 

 

183,092

 

 

 

(405,337

)

 

Noncontrolling interests

 

533

 

 

 

1,215

 

 

 

785

 

 

 

2,894

 

 

Net income (loss) attributable to shareholders

 

$

132,804

 

 

 

$

(548,966

)

 

 

$

182,307

 

 

 

$

(408,231

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

1.69

 

 

 

$

(6.48

)

 

 

$

2.29

 

 

 

$

(4.80

)

 

Diluted

 

$

1.68

 

 

 

$

(6.48

)

 

 

$

2.28

 

 

 

$

(4.80

)

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

78,677

 

 

 

84,652

 

 

 

79,527

 

 

 

85,022

 

 

Diluted

 

79,226

 

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