Arrow Electronics Reports Third-Quarter Results

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Arrow Electronics Reports Third-Quarter Results

-- Sales of $4.96 Billion and Non-GAAP Earnings Per Share of $1.02 --

-- Generated More Than $630 Million in Cash from Operations over Last 12 Months --

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYS: ARW) today reported third-quarter 2012 net income of $103.6 million, or $.94 per share on a diluted basis, compared with net income of $132.2 million, or $1.15 per share on a diluted basis in 2011. Excluding certain items in both 2012 and 2011 as described in the non-GAAP earnings reconciliation table found below, net income of $112.2 million, or $1.02 per share on a diluted basis, in the third quarter of 2012 compared with net income of $138.3 million, or $1.20 per share on a diluted basis, in the third quarter of 2011.


In the third quarter of 2012, the company prospectively revised its presentation of sales related to certain fulfillment contracts to present these revenues on an agency basis as net fees, as compared to presenting gross sales and costs of sales in prior periods. On a gross basis, these contracts would have contributed approximately $176.5 million, or 3.4 percent, to the company's sales in the third quarter of 2012. Within the company's statement of operations, this revised presentation had no impact on gross profit dollars, operating income dollars, net income dollars, and earnings per share for any periods reported. It also had no impact on the company's consolidated balance sheet or statement of cash flows.

Third-quarter sales of $4.96 billion declined 4 percent from sales of $5.19 billion in the prior year. Pro forma for acquisitions and excluding the impact of both foreign currency and the aforementioned change in revenue presentation, sales were flat year over year. Third-quarter operating income as a percentage of sales declined 70 basis points year over year. Pro forma for acquisitions and the aforementioned change in revenue presentation, operating income as a percentage of sales decreased 90 basis points year over year.

"The third quarter again demonstrated our strong execution in what continues to be a challenging global macroeconomic environment. We reported third-quarter revenue of $5.0 billion and EPS of $1.02, both in line with our expectations," said Michael J. Long, chairman, president, and chief executive officer. "Our fundamentals are strong and we continue to focus on operating the business for the long-term health of Arrow."

"Our cash flow generation was strong again this quarter, bringing the total amount generated over the last twelve months to more than $630 million or nearly double our targeted conversion rate," said Paul J. Reilly, executive vice president, finance and operations and chief financial officer. "Return on invested capital remains an important metric for us, and we again generated returns in excess of our weighted average cost of capital."

Global components third-quarter sales of $3.37 billion decreased 8 percent year over year. Pro forma for acquisitions and excluding the impact of both foreign currency and the aforementioned change in revenue presentation, sales were flat year over year. Sales in the Asia Pacific region increased 10 percent year over year, driven by the core business and a rebound in the company's Ultra Source business. In the Americas sales declined 1 percent year over year due to a weaker overall market as well as customer cautiousness. European sales were down 4 percent year over year in local currency as the macroeconomic environment continues to impact the region.

Global enterprise computing solutions ("ECS") third-quarter sales of $1.59 billion increased 3 percent year over year. This represents the 11th consecutive quarter of year-over-year organic growth for the ECS team. On a global basis, solid year-over-year growth in storage and software was offset by continued weakness in the server market. In the third quarter the company saw good performance in the Americas, with sales in the core value-added distribution business in line with expectations in a seasonally slow quarter. In Europe, the team delivered solid results in line with normal seasonality on a local currency basis, even as market conditions weakened somewhat in the region. The company's matrix expansion strategy remains a key driver of the successes in the region.

NINE-MONTH RESULTS

Arrow's net income for the first nine months of 2012 was $331.6 million, or $2.96 per share on a diluted basis, compared with net income of $424.7 million, or $3.64 per share on a diluted basis, in the first nine months of 2011. Sales of $15.00 billion declined 6 percent year over year from sales of $15.95 billion in the year-ago period. Pro forma for acquisitions and excluding the impact of both foreign currency and the aforementioned change in revenue presentation, sales declined 3 percent year over year in the first nine months of 2012.

Excluding certain items in both the first nine months of 2012 and 2011 as described in the non-GAAP earnings reconciliation found below, net income would have been $356.0 million, or $3.18 per share on a diluted basis, for the first nine months of 2012 compared with $444.1 million, or $3.81 per share on a diluted basis, for the first nine months of 2011.

GUIDANCE

"Looking ahead, we believe that total fourth-quarter sales will be between $5.1 and $5.5 billion, with global components sales between $3.0 and $3.2 billion and global enterprise computing solutions sales between $2.1 and $2.3 billion. Earnings per share, on a diluted basis, excluding any charges, are expected to be in the range of $1.01 to $1.13. Our guidance assumes that average diluted shares outstanding are 107.3 million and the average Euro to USD exchange rate for the fourth quarter is 1.29 to 1," said Mr. Reilly.

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

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 120,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 390 locations in 53 countries.

Certain Non-GAAP Financial Information

In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles ("GAAP"), the company provides certain non-GAAP financial information relating to operating income, net income attributable to shareholders and net income per basic and diluted share, each as adjusted for certain charges, credits and losses that the company believes impact the comparability of its results of operations. These charges, credits and losses arise out of the company's efficiency enhancement initiatives, acquisitions, and settlement of certain legal matters. A reconciliation of the company's non-GAAP financial information to GAAP is set forth in the table 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 the charges, credits and losses 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, 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.

EARNINGS RECONCILIATION

(In thousands except per share data)


(unaudited)

 

Quarter Ended

Nine Months Ended

September 29,
2012

  

October 1,
2011

September 29,
2012

  

October 1,
2011

 
Operating income, as reported$163,817$209,162$539,955$676,660
Restructuring, integration, and other charges14,5628,84836,15223,676
Settlement of legal matter - - - 5,875
Operating income, as adjusted$178,379$218,010$576,107$706,211
 
Net income attributable to shareholders,

as reported

$103,617$132,216$331,628$424,722
Restructuring, integration, and other charges8,5766,04824,41916,831
Settlement of legal matter---3,609
Gain on bargain purchase - - - (1,078)
Net income attributable to shareholders,

as adjusted

$112,193$138,264$356,047$444,084
 
Net income per basic share, as reported$.96$1.17$3.01$3.70
Restructuring, integration, and other charges.08.05.22.15
Settlement of legal matter---.03
Gain on bargain purchase - - - (.01)
Net income per basic share, as adjusted$1.04$1.22$3.23$3.87
 
Net income per diluted share, as reported$.94$1.15$2.96$3.64
Restructuring, integration, and other charges.08.05.22.14
Settlement of legal matter---.03
Gain on bargain purchase - - - (.01)
Net income per diluted share, as adjusted$1.02$1.20$3.18$3.81
 
 The sum of the components for basic and diluted net income per share, as adjusted, may not agree to totals, as presented, due to rounding.
 

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 ECS markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, 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.

  

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)


(unaudited)

 
Quarter EndedNine Months Ended

September 29,
2012

 

October 1,
2011

September 29,
2012

 

October 1,
2011

   
Sales$4,962,331$5,186,857$15,002,423$15,949,791
Costs and expenses:
Cost of sales4,299,6124,475,71812,971,98113,745,997
Selling, general and administrative expenses456,521467,3251,369,4311,422,835
Depreciation and amortization27,81925,80484,90474,748
Restructuring, integration, and other charges14,5628,84836,15223,676
Settlement of legal matter - - - 5,875
 4,798,514 4,977,695 14,462,468 15,273,131
Operating income163,817209,162539,955676,660
Equity in earnings of affiliated companies2,1542,1795,7664,800
Gain on bargain purchase---1,755
Interest and other financing expense, net 23,956 25,225 79,643 77,528
Income before income taxes142,015186,116466,078605,687
Provision for income taxes 38,323 53,738 134,182 180,501
Consolidated net income103,692132,378331,896425,186
Noncontrolling interests 75 162 268 464
Net income attributable to shareholders$103,617$132,216$331,628$424,722
Net income per share:
Basic$.96$1.17$3.01$3.70
Diluted$.94$1.15$2.96$3.64
Average number of shares outstanding:
Basic108,301113,378110,245114,680
Diluted109,894114,940112,096116,557
 

   

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

 
September 29,December 31,
20122011
ASSETS(unaudited)
Current assets:
Cash and cash equivalents$358,550$396,887

Accounts receivable, net

4,336,7574,482,117
Inventories2,079,4461,963,910
Other current assets 189,800 181,677
Total current assets 6,964,553 7,024,591
Property, plant and equipment, at cost:
Land23,85523,790
Buildings and improvements149,226147,215
Machinery and equipment 1,003,816 934,558
1,176,8971,105,563
Less: Accumulated depreciation and amortization (593,744) (549,334)
Property, plant and equipment, net 583,153 556,229
Investments in affiliated companies64,23260,579
Intangible assets, net424,548392,763
Cost in excess of net assets of companies acquired1,705,8111,473,333
Other assets 333,066 321,584
Total assets$10,075,363$9,829,079
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$3,372,036$3,264,088
Accrued expenses702,546660,996
Short-term borrowings, including current portion of

long-term debt

 379,470 33,843
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