Arrow Electronics, Inc.
) posted an adjusted net income (excluding restructuring,
integration, and other charges) of $1.02 per share in the third
quarter of 2012, in line with the Zacks Consensus Estimate but
toward the lower end of management's expectations. The quarterly
result was down from $1.11 per share in the previous quarter and
$1.20 per share in the year-ago quarter.
Reported net income came in at $103.6 million or 94 cents per
share during the quarter compared to a net income of $114.4
million or $1.02 per share in the previous quarter and a net
income of $156.2 million or $1.33 per share in the third quarter
Arrow reported sales of $4.96 billion, down 4.0% year over
year and 3.7% sequentially. Excluding the impact of acquisitions
and foreign currency, sales were flat year over year.
During the quarter, Arrow revised its presentation of sales
related to certain fulfilment contracts on an agency basis as net
fees compared to presenting gross sales and costs of sales in the
prior periods. Consequently, these contracts would have
contributed approximately $176.5 million, or 3.4% to the
company's top line in the third quarter of 2012 on a gross
Nevertheless, this revised presentation had no impact on the
company's overall margins.
On a segmental basis, Global component sales were $3.37
billion, down 8.0% year over year. Asia Pacific posted a 10%
increase on a year-over-year basis, driven by the core business
and a rebound in the company's Ultra Source business. In America,
the company's business was down 1% year over year due to a weaker
overall markets and caution exerted by customers. Sales from
Europe were down 14% year over year owing to the macroeconomic
Revenues from Global enterprise computing solutions (ECS) came
in at $1.59 billion, up 3.0% year over year. Arrow posted
solid double-digit year-over-year growth in services, storage and
software, which was partially offset by a decline in servers.
Americas posted solid performance as sales in the core
value-added distribution business was at par with expectations in
a seasonally slow quarter. Europe was also strong even amid the
weak market conditions due to the company's matrix
Gross margin was down 40 basis points year over year at 13.4%
due to the ongoing pricing pressure and a change in mix of
products. Operating margin came in at 3.3% compared with 4.0% in
the year-ago quarter and 3.7% in the previous quarter.
Balance Sheet and Cash Flows
Arrow ended the quarter with cash and cash equivalents of
$358.5 million, up from $325.8 million at the end of the previous
quarter. As of September 29, 2012, long-term debt was $1.56, down
from $1.96 billion at the end of the previous quarter.
During the quarter, the company generated $176.3 million in
cash from operating activities and incurred $26.7 million in
capital expenditure. The company has generated more than $630
million of cash from operating activities in the last twelve
months, exceeding its targeted level.
Arrow repurchased shares worth $76 million in the third
quarter, thereby bringing the total amount spent on share
repurchase to nearly $780 million over the last 5 years.
Arrow still has $124 million remaining in its existing
share repurchase program.
Going forward, Arrow expects sales in the fourth quarter of
2012 to range between $5.1 billion and $5.5 billion. Arrow, which
competes fiercely with
), believes that business will be under pressure due to the weak
Global components sales are projected between $3.0 billion and
$3.2 billion. Global enterprise computing solutions sales are
estimated between $2.1 billion and $2.3 billion. Assuming an
average Euro to USD exchange rate of 1.29 to 1, earnings per
share (excluding any one-time charges) are projected around $1.01
Hence, we continue to maintain our long-term Neutral
recommendation on Arrow. Our recommendation is supported by a
Zacks #3 Rank, which translates into a short-term Hold rating.
The results led to a 1.97% increase in its share price in regular
trading to close at $35.23.
ARROW ELECTRONI (ARW): Free Stock Analysis
AVNET (AVT): Free Stock Analysis Report
To read this article on Zacks.com click here.