Arrow Electronics Non-GAAP Earnings Per Share of $1.12, Ahead of Expectations

Arrow Electronics Non-GAAP Earnings Per Share of $1.12, Ahead of Expectations

-- Cash Flow from Operations of $334 Million --

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYS: ARW) today reported second-quarter 2013 net income of $89.9 million, or $.86 per share on a diluted basis, compared with net income of $114.4 million, or $1.02 per share on a diluted basis in the second quarter of 2012. Excluding certain items in both the second quarters of 2013 and 2012 as described in the non-GAAP earnings reconciliation table found herein, net income would have been $116.9 million, or $1.12 per share on a diluted basis, in the second quarter of 2013 compared with net income of $124.1 million, or $1.11 per share on a diluted basis, in the second quarter of 2012. The results for the second quarter of 2013 and 2012 include intangible amortization expense of approximately $9 million ($7 million net of tax, or $.07 per share on a diluted basis). Second-quarter sales of $5.31 billion increased 3 percent from sales of $5.15 billion in the prior year.


"We executed very well in the second quarter, with revenue at the top end of our guidance and non-GAAP earnings per share well ahead of our expectations. In our components segment, we saw each of our regions post sales above the high end of normal sequential seasonality. Our enterprise computing solutions business performed especially well, with our 14th consecutive quarter of year-over-year organic growth and operating margins at the highest level in five years," said Michael J. Long, chairman, president, and chief executive officer. "Our differentiated value-added strategy continues to drive strong financial performance."

Global components second-quarter sales of $3.40 billion decreased 2 percent year over year. Sales, as adjusted in the non-GAAP sales reconciliation table below, increased 1 percent year over year. In the Americas, sales declined 4 percent year over year due to ongoing market weakness amid economic uncertainty. European sales were down 9 percent year over year primarily due to the prospective change in the accounting for revenue related to a fulfillment contract. European sales, as adjusted in the non-GAAP earnings table below, increased 4 percent year over year. Sales in the Asia-Pacific region increased 10 percent year over year, driven by strong growth in China and the ASEAN region.

Global ECS second-quarter sales of $1.91 billion increased 12 percent year over year. Sales, as adjusted in the non-GAAP sales reconciliation table below, increased 7 percent year over year. In the Americas, sales growth was 10 percent year over year. In Europe, sales growth, including the Altimate acquisition, was 18 percent with broad-based strength across the region.

"Cash flow is again a great story as we generated $334 million in cash flow from operations in the second quarter of 2013 and $519 million on a trailing 12 month basis, meaningfully exceeding our targets," said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. "In the first half of 2013 we returned nearly $300 million to shareholders through our stock repurchase program, bringing the total amount returned to shareholders to $900 million since the beginning of 2010."

SIX-MONTH RESULTS

Arrow's net income for the first six months of 2013 was $167.8 million, or $1.58 per share on a diluted basis, compared with net income of $228.0 million, or $2.02 per share on a diluted basis in the first six months of 2012. Excluding certain items in both the first six months of 2013 and 2012 as described in the non-GAAP earnings reconciliation table found herein, net income would have been $212.9 million, or $2.01 per share on a diluted basis, in the first six months of 2013 compared with net income of $243.9 million, or $2.16 per share on a diluted basis, in the first six months of 2012. The results for the first six months of 2013 and 2012 include intangible amortization expense of approximately $18 million and $19 million, respectively ($14 million and $15 million net of tax, respectively, or $.13 per share on a diluted basis for both 2013 and 2012). In the first six months of 2013, sales of $10.16 billion increased 1 percent from sales of $10.04 billion in the first six months of 2012.

GUIDANCE

Looking ahead to the third quarter of 2013, there remains economic uncertainty across the globe. In light of these economic conditions, the company remains somewhat cautious in the outlook for business activity in the third quarter. The company expects sales to be at the low to midpoint of normal sequential seasonal activity.

"As we look to the third quarter, we believe that total sales will be between $4.9 billion and $5.3 billion, with global components sales between $3.35 billion and $3.55 billion and global enterprise computing solutions sales between $1.55 billion and $1.75 billion. We expect earnings per share, on a diluted basis, excluding amortization of intangible assets of approximately $.07 per share, and any charges to be in the range of $1.14 to $1.26. Our guidance assumes an average tax rate in the range of 27 to 29 percent, average diluted shares outstanding are expected to be 101.7 million, and the average USD to Euro exchange rate for the third quarter is 1.31 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 100,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 470 locations in 55 countries.

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 foreign currency and certain other items that impact the year-over-year comparison. These other items include a prospective revision of sales related to a certain fulfillment contract to present these revenues on an agency basis as net fees, as compared to presenting gross sales (referred to as "change in presentation of sales" which had no impact on profitability or cash flow) and the impact of acquisitions by adjusting the company's prior periods to include the sales of businesses acquired as if the acquisitions had occurred at the beginning of the 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, prepayment of debt, and adjustments related to certain tax matters. 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.
SALES RECONCILIATION
(In thousands)
(Unaudited)

 

 

Quarter Ended

 
June 29, June 30,
20132012% Change
 
Consolidated sales, as reported$5,306,085$5,150,5633.0%
Impact of foreign currency-33,884
Impact of acquisitions-97,840
Change in presentation of sales - (149,138)
Consolidated sales, as adjusted$5,306,085$5,133,1493.4%
 
Global components sales, as reported$3,398,690$3,453,687(1.6)%
Impact of foreign currency-21,575
Impact of acquisitions-25,792
Change in presentation of sales - (149,138)
Global components sales, as adjusted$3,398,690$3,351,9161.4%
 
Europe components sales, as reported$901,748$991,586(9.1)%
Impact of foreign currency-23,841
Change in presentation of sales - (149,138)
Europe components sales, as adjusted$901,748$866,2894.1%
 
Global ECS sales, as reported$1,907,395$1,696,87612.4%
Impact of foreign currency-12,309
Impact of acquisitions - 72,048
Global ECS sales, as adjusted$1,907,395$1,781,2337.1%
 

 

Six Months Ended

June 29,June 30,
20132012% Change
 
Consolidated sales, as reported$10,155,714$10,040,0921.2%
Impact of foreign currency-43,027
Impact of acquisitions3,219225,293
Change in presentation of sales - (280,626)
Consolidated sales, as adjusted$10,158,933$10,027,7861.3%
 
Global components sales, as reported$6,591,270$6,803,241(3.1)%
Impact of foreign currency-32,710
Impact of acquisitions3,21959,621
Change in presentation of sales - (280,626)
Global components sales, as adjusted$6,594,489$6,614,946(.3)%
 
Europe components sales, as reported$1,788,384$2,048,217(12.7)%
Impact of foreign currency-37,297
Change in presentation of sales - (280,626)
Europe components sales, as adjusted$1,788,384$1,804,888(.9)%
 
Global ECS sales, as reported$3,564,444$3,236,85110.1%
Impact of foreign currency-10,317
Impact of acquisitions - 165,672
Global ECS sales, as adjusted$3,564,444$3,412,8404.4%
 
 
ARROW ELECTRONICS, INC.
EARNINGS RECONCILIATION
(In thousands except per share data)
(Unaudited)
 

 

 

Quarter Ended

 Six Months Ended

 

June 29,

 June 30,June 29, June 30,

 

2013

201220132012
   
Operating income, as reported$155,875$188,689$293,427$376,138
Restructuring, integration, and other charges 30,224 13,347 51,834 21,590
Operating income, as adjusted$186,099$202,036$345,261$397,728
 
Net income attributable to shareholders, as reported$89,935$114,383$167,810$228,011
Restructuring, integration, and other charges20,6889,70236,18315,843
Loss on prepayment of debt--2,627-
Adjustments to tax reserves
Income tax5,362-5,362-
Interest (net of taxes) 939 - 939 -
Net income attributable to shareholders, as adjusted$116,924$124,085$212,921$243,854
 
Net income per basic share, as reported$.87$1.04$1.61$2.05
Restructuring, integration, and other charges.20.09.35.14
Loss on prepayment of debt--.03-
Adjustments to tax reserves
Income tax.05-.05-
Interest (net of taxes) .01 - .01 -
Net income per basic share, as adjusted$1.13$1.12$2.04$2.19
 
Net income per diluted share, as reported$.86$1.02$1.58$2.02
Restructuring, integration, and other charges.20.09.34.14
Loss on prepayment of debt--.02-
Adjustments to tax reserves
Income tax.05-.05-
Interest (net of taxes) .01 - .01 -
Net income per diluted share, as adjusted$1.12$1.11$2.01$2.16
 
 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, 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, 2012.

 
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
 
 Quarter Ended Six Months Ended
June 29, June 30,June 29, June 30,
2013201220132012
 
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