Arrow Electronics Inc.
) posted first quarter 2013 adjusted earnings per share (EPS) of
89 cents, surpassing the Zacks Consensus Estimate of 86 cents.
The quarterly result came within management's expectations but
was down from $1.05 per share in the year-ago quarter.
Arrow reported revenues of $4.85 billion, down 0.8% year over
year but slightly above the Zacks Consensus Estimate of $4.80
billion. Excluding the impact of acquisitions and foreign
currency, sales declined roughly 1.0% year over year.
On a segmental basis, Global component sales were $3.19 billion,
down 4.7% year over year. Asia Pacific posted an 11.0%
year-over-year increase due to strong performances in core
businesses. Revenues from America dropped 5.0% year over year due
to overall macro uncertainty and a tight spending environment.
Sales from Europe were down 16.0% owing to Euro concerns and
change in accounting policy to record revenues from certain
Revenues from Global enterprise computing solutions (ECS) came in
at $1.66 billion, up 7.6% year over year. Arrow posted solid
double-digit year-over-year growth in services, storage and
software and servers. Americas posted solid performance as sales
in the core value-added distribution business was at par with
expectations in a seasonally slow quarter. But revenues from
Europe lacked luster to reflect continuing weak market
Gross margin was down 70 basis points year over year to 13.2% due
to the ongoing pricing pressure and a change in mix of products.
Operating margin came in at 2.8%, down from 3.8% in the year-ago
quarter, mainly due to acquisition-related costs.
Reported net income came in at $77.9 million or 72 cents per
share during the quarter compared with $113.6 million or $1.00
per share in the year-ago quarter. Excluding the effect of
restructuring cost and legal settlement, adjusted net income was
$96.0 million or 89 cents per share compared with $119.8 million
or $1.05 per share in the year-ago quarter.
Balance Sheet and Cash Flows
Arrow ended the quarter with cash and cash equivalents of $364.2
million, down from $409.7 million at the end of the previous
quarter. Long-term debt was $2.20, up from $1.59 billion at the
end of the previous quarter.
During the quarter, the company used $179.4 million cash from
operations as against $187.8 million cash generated from
operating activities in the prior quarter. Arrow incurred $26.8
million in capital expenditure compared with $36.7 million in the
Arrow repurchased shares worth $113.5 million in the first
Anticipating economic uncertainty, Arrow expects its second
quarter results to be at par with the first quarter. It also
expects normal seasonality across its businesses.
For the second quarter of 2013, Arrow expects sales to range
between $4.90 billion and $5.30 billion, reflecting a sequential
growth of 1.0%-9.3%. Global components sales are projected
between $3.15 billion and $3.35 billion. Global enterprise
computing solutions sales are estimated between $1.75 billion and
$1.95 billion. Assuming an average Euro to USD exchange rate of
1.30 to 1, earnings per share (excluding any one-time charges)
are projected around 95 cents to $1.07 for the second quarter of
Tax rate is expected between 27.0% and 29.0% and share
outstanding is likely to be roughly 107.1 million.
During the fourth quarter of 2012, management mentioned that it
will initiate a productivity enhancement program including an
annual cost saving program of about $40.0 million. Currently, it
mentioned that the company will be able to exceed its commitment
of saving $40.0 million of expenses and can actually reduce costs
by $75.0 million. The company is optimistic about selective
investments into long-term opportunities.
Electronic component distributor Arrow posted
better-than-expected first quarter results with its earnings and
revenues surpassing the Zacks Consensus Estimates. Like the
previous quarter, revenues witnessed a year-over-year decline.
Second quarter guidance was disappointing reflecting macro
concerns. But the company's positive commentary about enhanced
productivity, annual cost savings and successful ERP
implementation across Europe is encouraging. We believe that
Arrow could get better contribution from Europe as soon as the
ERP program becomes operational.
Last week, its archrival
) posted decent third quarter 2013 results and provided a modest
fourth quarter guidance.
Currently, Arrow has a Zacks Rank #3 (Hold). You can also
consider other technology stocks that are performing better.
Ingram Micro Inc.
) both have a Zacks Rank #2 (Buy) and are worth buying.
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