Arrow Electronics Beats Q3 Earnings, Revenues; Shares Up - Analyst Blog

Shares of Arrow Electronics Inc. (ARW) were up 2.3% on Wednesday's trade as the company reported better-than-expected third-quarter results. The company also provided encouraging guidance.

Arrow's adjusted earnings per share (excluding the effect of restructuring and amortization) of $1.40 not only beat the Zacks Consensus Estimate of $1.31 but also increased 18.6% from the year-ago quarter.

 

Quarter Details

Arrow's revenues on a reported basis came in at $5.61 billion, up 11.2% from the year-ago quarter. On an adjusted basis, revenues increased 5.8% year over year to $5.63 billion, beating the Zacks Consensus Estimate of $5.43 billion. The company's book-to-bill ratio was 0.97.

On a segmental basis, revenues from Global components increased 7.6% on a year-over-year basis to $3.73 billion. Adjusted revenues increased 5.4% from the year-ago quarter and came in at $3.74 billion. Revenues from America increased 2%, while that from Asia-Pacific went up 18%. Adjusted European revenues increased 2.6% on a year-over-year basis.

Revenues from Global enterprise computing solutions (ECS) came in at $1.89 billion, up 19% on a year-over-year basis, primarily due to increased demand for storage, network and industry standard servers. Adjusted revenues increased 6.7% from the year-ago quarter. Revenues from America increased 11%. Revenues from Europe grew 7.1%, primarily due to the Computerlinks acquisition. 

Gross margin in the quarter came in at 12.9% compared with 13.3% in the year-ago quarter, primarily due to unfavorable business mix.

Arrow reported adjusted operating margin of 3.8%, which was down 2 basis points (bps) from the year-ago quarter, while in dollar terms, operating income increased 10.6% to $214.9 million. Adjusted operating expenses increased 7.6% from the year-ago quarter to $513.8 million. As a percentage of revenues, operating expenses were down 31 bps, which also positively impacted operating results.  

Arrow's adjusted net income (excluding the effect of restructuring, gain on sale of investment and amortization) came in at $140.2 million compared with $119.9 million in the year-ago quarter.

Arrow exited the quarter with cash and cash equivalents of $258.2 million compared with $308.9 million at the end of the previous quarter. Long-term debt (including current portion) was $2.23 billion compared with $2.10 billion at the end of the previous quarter. During the quarter, the company used $67.2 million in operations. Arrow repurchased shares worth $50.6 million in the quarter.

Guidance

For the fourth quarter of 2014, Arrow expects sales to range between $6.1 billion and $6.5 billion (mid-point $6.3 billion), reflecting an increase in revenues both sequentially and year over year. The Zacks Consensus Estimate is pegged at $6.29 billion.

Global components sales are projected between $3.4 billion and $3.6 billion. Global enterprise computing solutions sales are estimated between $2.7 billion and $2.9 billion. The company expects non-GAAP earnings to range between $1.75 and $1.87 per share (mid-point $1.81), up sequentially and on a year-over-year basis. The Zacks Consensus Estimate of $1.72 per share is less than the mid-point of the guided range.

The company expects fiscal 2014 earnings to increase in the 6–17% range from the year-ago period.

Our Take

Electronic component distributor Arrow posted better-than-expected third-quarter results. Year-over-year comparisons were also favorable and Arrow had a better book-to-bill ratio. Moreover, positive commentary about enhanced productivity and continued higher contributions from Europe are encouraging. Also, the company provided robust fourth-quarter guidance.

Moreover, incremental sales from strategic acquisitions, such as Computerlinks, are expected to boost Arrow's top line, going forward. However, uncertain economic conditions, high debt burden and competition from Avnet (AVT) and Ingram Micro (IM) are the concerns, going forward.

Currently, Arrow has a Zacks Rank #4 (Sell).

Investors may also consider SunEdison (SUNE) sporting a Zacks Rank #1 (Strong Buy) and is worth buying.

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