Press release

Arrow Electronics Reports First-Quarter 2021 Results

0
Sponsored by Businesswire

Arrow Electronics, Inc. (NYSE:ARW) today reported first-quarter 2021 sales of $8.39 billion, an increase of 31 percent from sales of $6.38 billion in the first quarter of 2020. First-quarter net income was $206 million, or $2.72 per share on a diluted basis, compared with a net income of $50 million, or $0.61 per share on a diluted basis, in the first quarter of 2020. Non-GAAP net income1 was $216 million, or $2.84 per share on a diluted basis, in the first quarter of 2021, compared with non-GAAP net income of $79 million, or $0.97 per share on a diluted basis, in the first quarter of 2020.

“Arrow’s commitment to guiding innovation forward on behalf of our customers and suppliers enabled us to deliver record results in the quarter. I am incredibly impressed with our team’s execution as we continued to help customers across key industries thrive and benefit by delivering the products, services and solutions they need,” said Michael J. Long, chairman, president, and chief executive officer. “Our continually evolving business model has adapted well to significant swings in demand and shifts in business priorities over the last year, and we look forward to further building on this strong momentum in the months ahead.”

Global components first-quarter sales of $6.44 billion reflected an increase of 42 percent year over year. Asia-Pacific components sales increased 88 percent year over year. Americas components first-quarter sales increased 10 percent year over year. Europe components first-quarter sales increased 20 percent year over year and non-GAAP sales in the region increased 10 percent year over year. Global components first-quarter operating income was $289 million and first-quarter non-GAAP operating income was $296 million.

“Strength and stability are the hallmarks of our global components business. Sales were above the high-end of our expectations for the fourth consecutive quarter, and, importantly, we are realizing robust operating leverage on our sales growth,” said Mr. Long. “We see current supply challenges as transitory and expect more balance with demand in the coming quarters.”

Global enterprise computing solutions first-quarter sales of $1.94 billion reflected an increase of 6 percent year over year and non-GAAP sales increased 2 percent year over year. Europe enterprise computing solutions first-quarter sales increased 13 percent year over year and non-GAAP sales in the region increased 4 percent year over year. Americas enterprise computing solutions first-quarter sales increased 2 percent year over year. Global enterprise computing solutions first-quarter operating income was $77 million and first-quarter non-GAAP operating income was $80 million.

Mr. Long said, “First-quarter global enterprise computing solutions sales were in-line with our prior outlook. We are seeing early indications that spending priorities are shifting to more complex projects with transformational business outcomes that are well-suited for our enterprise capabilities.”

“Our financial returns continue to improve meaningfully,” said Chris Stansbury, senior vice president and chief financial officer. “Through our disciplined working capital management, we are well-positioned to continue realizing operational leverage and converting growing profits to free cash flow in future quarters. As always, we remain committed to improving value to shareholders. During the first quarter, we repurchased approximately $150 million of shares through our stock repurchase program, ending the quarter with approximately $313 million of remaining authorization. Our balance sheet and liquidity position remain strong, and we are pleased to report return on invested capital increased year over year for the fourth straight quarter.”

1 A reconciliation of non-GAAP financial measures, including sales, gross profit, operating income, net income attributable to shareholders, and net income per share, to GAAP financial measures is presented in the reconciliation tables included herein.

SECOND-QUARTER 2021 OUTLOOK

  • Consolidated sales of $8.1 billion to $8.7 billion, with global components sales of $6.3 billion to $6.6 billion, and global enterprise computing solutions sales of $1.8 billion to $2.1 billion
  • Net income per share on a diluted basis of $2.67 to $2.83, and non-GAAP net income per share on a diluted basis1 of $2.82 to $2.98
  • Average tax rate of approximately 23 percent compared to the long-term range of 23 to 25 percent
  • Average diluted shares outstanding of 75 million
  • Interest expense of approximately $33 million
  • Expecting average USD-to-Euro exchange rate of $1.18 to €1; changes in foreign currencies to increase sales by approximately $150 million, and earnings per share on a diluted basis by $.08 compared to the second quarter of 2020

Second-Quarter 2021 Outlook

 

Reported GAAP measure

Intangible amortization expense

Restructuring & integration charges

Non-GAAP measure

Net income per diluted share

$2.67 – $2.83

$.10

$.05

$2.82 – $2.98

 

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 180,000 leading technology manufacturers and service providers. With 2020 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, as the term is defined under the federal securities laws, including but not limited to statements regarding: Arrow’s future financial performance, including its outlook on financial results for the second quarter of fiscal 2021, such as sales, net income per diluted share, non-GAAP net income per diluted share, average tax rate, average diluted shares outstanding, interest expense, average USD-to-Euro exchange rate, impact to sales due to changes in foreign currencies, intangible amortization expense per diluted share, restructuring and integration charges per diluted share, and expectation regarding market demand. These forward-looking statements 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 COVID-19 pandemic, including actions taken to contain or treat COVID-19, industry conditions, 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, foreign currency fluctuation, 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 periodic reports on Form 10-K and Form 10-Q and subsequent filings made with the Securities and Exchange Commission. 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 non-GAAP sales, gross profit, operating income, income before income taxes, provision for income taxes, net income, and net income per share on a diluted basis which are adjusted GAAP measures 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 and the impact of notes receivable reserves and recoveries related to the AFS business (referred to as “AFS notes receivable reserves and recoveries”). Non-GAAP operating income excludes identifiable intangible asset amortization, restructuring, integration, and other charges, AFS notes receivable reserves and recoveries. Non-GAAP effective tax rate excludes identifiable intangible asset amortization, restructuring, integration, and other charges, gain (loss) on investments, net, the impact of tax legislation charges, and AFS notes receivable recoveries. Net income attributable to shareholders, and net income per basic and diluted share as adjusted to exclude identifiable intangible asset amortization, restructuring, integration, and other charges, AFS notes receivable reserves and recoveries, net gains and losses on investments, and certain tax adjustments.

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 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.

A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the tables below.

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

Quarter Ended

 

 

 

April 3, 2021

 

March 28, 2020

 

 

 

 

 

 

 

Sales

 

$

8,385,919

 

 

 

$

6,381,417

 

 

 

Cost of sales

 

7,455,809

 

 

 

5,653,026

 

 

 

Gross profit

 

930,110

 

 

 

728,391

 

 

 

Operating expenses:

 

 

 

 

 

Selling, general, and administrative expenses

 

574,567

 

 

 

533,839

 

 

 

Depreciation and amortization

 

50,331

 

 

 

47,110

 

 

 

Restructuring, integration, and other charges

 

5,709

 

 

 

9,138

 

 

 

 

 

630,607

 

 

 

590,087

 

 

 

Operating income

 

299,503

 

 

 

138,304

 

 

 

Equity in earnings of affiliated companies

 

844

 

 

 

530

 

 

 

Gain (loss) on investments, net

 

2,793

 

 

 

(16,810

)

 

 

Employee benefit plan (expense) credit

 

(1,230

)

 

 

(1,109

)

 

 

Interest and other financing expense, net

 

(33,656

)

 

 

(43,268

)

 

 

Income before income taxes

 

268,254

 

 

 

77,647

 

 

 

Provision for income taxes

 

61,026

 

 

 

27,892

 

 

 

Consolidated net income

 

207,228

 

 

 

49,755

 

 

 

Noncontrolling interests

 

907

 

 

 

252

 

 

 

Net income attributable to shareholders

 

$

206,321

 

 

 

$

49,503

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

Basic

 

$

2.76

 

 

 

$

0.62

 

 

 

Diluted

 

$

2.72

 

 

 

$

0.61

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

Basic

 

74,882

 

 

 

80,407

 

 

 

Diluted

 

75,794

 

 

 

81,108

 

 

 

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

(Unaudited)

 

 

 

 

 

April 3, 2021

 

December 31, 2020

 

 

 

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

227,701

 

 

 

$

373,615

 

 

Accounts receivable, net

8,503,010

 

 

 

9,205,343

 

 

Inventories

3,275,389

 

 

 

3,287,308

 

 

Other current assets

360,968

 

 

 

286,633

 

 

Total current assets

12,367,068

 

 

 

13,152,899

 

 

Property, plant, and equipment, at cost:

 

 

 

Land

5,691

 

 

 

7,940

 

 

Buildings and improvements

177,615

 

 

 

207,614

 

 

Machinery and equipment

1,521,489

 

 

 

1,553,371

 

 

 

1,704,795

 

 

 

1,768,925

 

 

Less: Accumulated depreciation and amortization

(957,257

)

 

 

(969,320

)

 

Property, plant, and equipment, net

747,538

 

 

 

799,605

 

 

Investments in affiliated companies

77,330

 

 

 

76,358

 

 

Intangible assets, net

223,848

 

 

 

233,819

 

 

Goodwill

2,101,938

 

 

 

2,115,469

 

 

Other assets

655,838

 

 

 

675,761

 

 

Total assets

$

16,173,560

 

 

 

$

17,053,911

 

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

7,045,759

 

 

 

$

7,937,889

 

 

Accrued expenses

985,928

 

 

 

1,034,361

 

 

Short-term borrowings, including current portion of long-term debt

361,327

 

 

 

158,633

 

 

Total current liabilities

8,393,014

 

 

 

9,130,883

 

 

Long-term debt

1,903,848

 

 

 

2,097,940

 

 

Other liabilities

662,252

 

 

 

676,136

 

 

Commitments and contingencies

 

 

 

Equity:

 

 

 

Shareholders’ equity:

 

 

 

Common stock, par value $1:

 

 

 

Authorized – 160,000 shares in both 2021 and 2020

 

 

 

Issued – 125,424 shares in both 2021 and 2020

125,424

 

 

 

125,424

 

 

Capital in excess of par value

1,166,554

 

 

 

1,165,850

 

 

Treasury stock (51,426 and 50,581 shares in 2021 and 2020, respectively), at cost

(2,898,830

)

 

 

(2,776,821

)

 

Retained earnings

6,886,072

 

 

 

6,679,751

 

 

Accumulated other comprehensive loss

(123,461

)

 

 

(104,885

)

 

Total shareholders’ equity

5,155,759

 

 

 

5,089,319

 

 

Noncontrolling interests

58,687

 

 

 

59,633

 

 

Total equity

5,214,446

 

 

 

5,148,952

 

 

Total liabilities and equity

$

16,173,560

 

 

 

$

17,053,911

 

 

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Quarter Ended

 

April 3, 2021

 

March 28, 2020

Cash flows from operating activities:

 

 

 

Consolidated net income

$

207,228

 

 

 

$

49,755

 

 

Adjustments to reconcile consolidated net income to net cash provided by operations:

 

 

 

Depreciation and amortization

50,331

 

 

 

47,110

 

 

Amortization of stock-based compensation

13,223

 

 

 

13,920

 

 

Equity in (earnings) losses of affiliated companies

(844

)

 

 

(530

)

 

Deferred income taxes

13,663

 

 

 

32,613

 

 

Gain on investments, net

(2,793

)

 

 

16,810

 

 

Other

1,374

 

 

 

(205

)

 

Change in assets and liabilities, net of effects of acquired and disposed businesses:

 

 

 

Accounts receivable, net

596,777

 

 

 

558,605

 

 

Inventories

(13,147

)

 

 

133,392

 

 

Accounts payable

(840,124

)

 

 

(343,051

)

 

Accrued expenses

3,643

 

 

 

(31,326

)

 

Other assets and liabilities

(33,867

)

 

 

(10,228

)

 

Net cash provided by operating activities

(4,536

)

 

 

466,865

 

 

Cash flows from investing activities:

 

 

 

Acquisition of property, plant, and equipment

(20,180

)

 

 

(27,971

)

 

Proceeds from sale of property, plant, and equipment

22,171

 

 

 

 

 

Other

 

 

 

(5,466

)

 

Net cash used for investing activities

1,991

 

 

 

(33,437

)

 

Cash flows from financing activities:

 

 

 

Change in short-term and other borrowings

(12,452

)

 

 

(84,354

)

 

Proceeds from (repayments of) long-term bank borrowings, net

154,674

 

 

 

(288,577

)

 

Redemption of notes

(130,860

)

 

 

 

 

Proceeds from exercise of stock options

26,091

 

 

 

1,980

 

 

Repurchases of common stock

(160,619

)

 

 

(158,989

)

 

Net cash used for financing activities

(123,166

)

 

 

(529,940

)

 

Effect of exchange rate changes on cash

(20,203

)

 

 

(2,593

)

 

Net increase (decrease) in cash and cash equivalents

(145,914

)

 

 

(99,105

)

 

Cash and cash equivalents at beginning of period

373,615

 

 

 

300,103

 

 

Cash and cash equivalents at end of period

$

227,701

 

 

 

$

200,998

 

 

ARROW ELECTRONICS, INC.

NON-GAAP SALES RECONCILIATION

(In thousands)

(Unaudited)

 

Quarter Ended

 

 

 

April 3, 2021

 

March 28, 2020

 

% Change

 

 

 

 

 

 

Consolidated sales, as reported

$

8,385,919

 

 

$

6,381,417

 

 

 

31.4

%

Impact of changes in foreign currencies

 

 

202,672

 

 

 

 

Non-GAAP consolidated sales

$

8,385,919

 

 

$

6,584,089

 

 

 

27.4

%

 

 

 

 

 

 

Global components sales, as reported

$

6,443,253

 

 

$

4,550,601

 

 

 

41.6

%

Impact of changes in foreign currencies

 

 

130,299

 

 

 

 

Non-GAAP global components sales

$

6,443,253

 

 

$

4,680,900

 

 

 

37.6

%

 

 

 

 

 

 

Americas Components sales, as reported

$

1,701,173

 

 

$

1,552,798

 

 

 

9.6

%

Impact of changes in foreign currencies

 

 

(290

)

 

 

 

Non-GAAP Americas Components sales

$

1,701,173

 

 

$

1,552,508

 

 

 

9.6

%

 

 

 

 

 

 

Europe components sales, as reported

$

1,568,602

 

 

$

1,309,990

 

 

 

19.7

%

Impact of changes in foreign currencies

 

 

115,285

 

 

 

 

Non-GAAP Europe components sales

$

1,568,602

 

 

$

1,425,275

 

 

 

10.1

%

 

 

 

 

 

 

Asia components sales, as reported

$

3,173,478

 

 

$

1,687,813

 

 

 

88.0

%

Impact of changes in foreign currencies

 

 

15,304

 

 

 

 

Non-GAAP Asia components sales

$

3,173,478

 

 

$

1,703,117

 

 

 

86.3

%

 

 

 

 

 

 

Global ECS sales, as reported

$

1,942,666

 

 

$

1,830,816

 

 

 

6.1

%

Impact of changes in foreign currencies

 

 

72,373

 

 

 

 

Non-GAAP global ECS sales

$

1,942,666

 

 

$

1,903,189

 

 

 

2.1

%

 

 

 

 

 

 

Europe ECS sales, as reported

$

791,328

 

 

$

702,128

 

 

 

12.7

%

Impact of changes in foreign currencies

 

 

59,801

 

 

 

 

Non-GAAP Europe ECS sales

$

791,328

 

 

$

761,929

 

 

 

3.9

%

 

 

 

 

 

 

Americas ECS sales, as reported

$

1,151,338

 

 

$

1,128,688

 

 

 

2.0

%

Impact of changes in foreign currencies

 

 

12,572

 

 

 

 

Non-GAAP Americas ECS sales

$

1,151,338

 

 

$

1,141,260

 

 

 

0.9

%

ARROW ELECTRONICS, INC.

NON-GAAP EARNINGS RECONCILIATION

(In thousands except per share data)

(Unaudited)

 

Three months ended April 3, 2021

 

Reported

GAAP

measure

Intangible

amortization

expense

Restructuring

& Integration

charges

AFS Reserves & Recoveries

Non-recurring tax items

Other(1)

Non-GAAP

measure

Sales

$

8,385,919

 

$

 

$

 

$

 

 

$

 

 

$

 

 

$

8,385,919

 

Gross Profit

930,110

 

 

 

 

 

 

 

 

 

930,110

 

Operating income

299,503

 

9,326

 

5,709

 

 

 

 

 

 

 

314,538

 

Income before income taxes

268,254

 

9,326

 

5,709

 

 

 

 

 

(2,793

)

 

280,496

 

Provision for income taxes

61,026

 

2,385

 

1,166

 

 

 

 

 

(672

)

 

63,905

 

Consolidated net income

207,228

 

6,941

 

4,543

 

 

 

 

 

(2,121

)

 

216,591

 

Noncontrolling interests

907

 

150

 

 

 

 

 

 

 

 

1,057

 

Net income attributable to shareholders

$

206,321

 

$

6,791

 

$

4,543

 

$

 

 

$

 

 

$

(2,121

)

 

215,534

 

Net income per diluted share

$

2.72

 

$

0.09

 

$

0.06

 

$

 

 

$

 

 

$

(0.03

)

 

$

2.84

 

Effective tax rate (2)

22.7

%

 

 

 

 

 

22.8

%

 

 

 

 

 

 

 

 

Three months ended March 28, 2020

 

Reported

GAAP

measure

Intangible

amortization

expense

Restructuring

& Integration

charges

AFS Reserves & Recoveries

Non-recurring tax items

Other(1)

Non-GAAP

measure

Sales

$

6,381,417

 

$

 

$

 

$

 

 

$

 

 

$

 

 

$

6,381,417

 

Gross Profit

728,391

 

 

 

 

 

 

 

 

 

728,391

 

Operating income

138,304

 

9,955

 

9,138

 

(920

)

 

 

 

 

 

156,477

 

Income before income taxes

77,647

 

9,955

 

9,138

 

(920

)

 

 

 

16,810

 

 

112,630

 

Provision for income taxes

27,892

 

2,564

 

2,571

 

(222

)

 

(3,615

)

 

4,057

 

 

33,247

 

Consolidated net income

49,755

 

7,391

 

6,567

 

(698

)

 

3,615

 

 

12,753

 

 

79,383

 

Noncontrolling interests

252

 

137

 

 

 

 

 

 

 

 

389

 

Net income attributable to shareholders

$

49,503

 

$

7,254

 

$

6,567

 

$

(698

)

 

$

3,615

 

 

$

12,753

 

 

$

78,994

 

Net income per diluted share

$

0.61

 

$

0.09

 

$

0.08

 

$

(0.01

)

 

$

0.04

 

 

$

0.16

 

 

$

0.97

 

Effective tax rate (2)

35.9

%

 

 

 

 

 

29.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Other includes (gain) loss on investments, net.

(2) The items as shown in this table, represent the reconciling items for the tax rate as reported by GAAP measure and as a non-GAAP measure.

ARROW ELECTRONICS, INC.

SEGMENT INFORMATION

(In thousands)

(Unaudited)

 

 

 

 

Quarter Ended

 

 

April 3, 2021

 

March 28, 2020

 

Sales:

 

 

 

 

Global components

$

6,443,253

 

 

 

$

4,550,601

 

 

 

Global ECS

1,942,666

 

 

 

1,830,816

 

 

 

Consolidated

$

8,385,919

 

 

 

$

6,381,417

 

 

 

Operating income (loss):

 

 

 

 

Global components

$

289,383

 

 

 

$

164,767

 

 

 

Global ECS (a)

77,359

 

 

 

42,433

 

 

 

Corporate (b)

(67,239

)

 

 

(68,896

)

 

 

Consolidated

$

299,503

 

 

 

$

138,304

 

 

 

(a)

Includes reserves and other adjustments of approximately $29.9 million primarily related to foreign tax and other loss contingencies for the first quarter of 2020. These reserves are principally associated with transactional taxes on activity from several prior years, not significant to any one year.

(b)

Includes restructuring, integration, and other charges of $5.7 million for the first quarter of 2021, and $9.1 million for the first quarter of 2020, respectively.

NON-GAAP SEGMENT RECONCILIATION

 

 

 

 

Quarter Ended

 

 

April 3, 2021

 

March 28, 2020

 

 

 

 

 

 

Global components operating income (loss), as reported

$

289,383

 

 

$

164,767

 

 

 

Intangible assets amortization expense

7,004

 

 

7,380

 

 

 

AFS notes receivable reserve (recoveries)

 

 

(920

)

 

 

Global components non-GAAP operating income

$

296,387

 

 

$

171,227

 

 

 

 

 

 

 

 

Global ECS operating income, as reported

$

77,359

 

 

$

42,433

 

 

 

Intangible assets amortization expense

2,322

 

 

2,575

 

 

 

Global ECS non-GAAP operating income

$

79,681

 

 

$

45,008