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Arrow Electronics (ARW) Beats Q4 Earnings, Revenues

Arrow Electronics Inc.ARW concluded 2015 on a strong note with better-than-expected results for the fourth quarter which also marked year-over-year improvement.

Arrow's adjusted earnings of $1.94 per share came ahead of the Zacks Consensus Estimate of $1.82 and increased 3% from the year-ago tally of $1.88. On a GAAP basis, earnings were $1.69 compared with $1.18 reported a year ago.

The robust bottom-line performance was mainly driven by strong top-line growth along with stringent cost management and lower share count.

Quarter Detail

Arrow's revenues, on a reported basis, were $6.751 billion, up 5.5% from the year-ago quarter. Moreover, quarterly revenues surpassed the Zacks Consensus Estimate of $6.350 billion.

On a reported basis, revenues from Global components increased 2.2% year over year to $3.669 billion, but declined 0.1% on an adjusted basis. Reported revenues from the Europe and Asia Pacific increased 8.5% and 5.5%, respectively, while revenues from Americas decreased approximately 4%.

Revenues from Global enterprise computing solutions (ECS) came in at $3.083 billion, up 9.9% from the year-ago quarter. Adjusted revenues increased 10.1% year over year primarily backed by higher demand for security software, storage, network and industry standard servers. Revenues from the Americas and Europe jumped 11.3% and 7.2%, respectively.

Gross margin contracted 40 basis points (bps) year over year to 12.4%. However, Arrow reported adjusted operating margin of 4.2%, up 40 bps year over year, while in dollar terms, operating income increased 16% to $283.7 million.

Arrow's adjusted net income (excluding the effect of restructuring, gain on sale of investment and amortization) was $182.1 million or $1.94 per share compared with $184.4 million or $1.88 per share last year.

Arrow exited the quarter with cash and cash equivalents of $273.1 million compared with $336.7 million at the end of the third quarter. Long-term debt (including current portion) was $2.42 billion compared with $2.83 billion at the end of the last quarter. During the year, the company generated $655.1 million of cash from operational activities and repurchased shares worth $356.4 million.

Guidance

Arrow provided outlook for the first quarter of 2016. Sales are expected between $5.25 billion and $5.65 billion (mid-point $5.45 billion), while the Zacks Consensus Estimate is pegged at $5.333 billion. Global components sales are projected within $3.55 billion to $3.75 billion. Global enterprise computing solutions sales are estimated within $1.7-$1.9 billion.

The company expects non-GAAP earnings per share within $1.34 to $1.46 (mid-point $1.40). The Zacks Consensus Estimate is pegged at $1.37.

Our Take

The electronic component distributor's fourth-quarter 2015 results beat our estimates on both the counts and improved year over year. Buoyed by strong performance, the company issued encouraging first-quarter 2016 outlook which was higher than the Zacks Consensus Estimate for both earnings and revenues.

Moreover, the company had a good book-to-bill ratio. Notably, original equipment manufacturers, contract manufacturers and commercial customers are selecting Arrow's strong distribution channels for marketing their products. The company's core strength in providing best-in-class services and easy-to-acquire technologies should drive growth.

Moreover, incremental sales from strategic acquisitions, such as Computerlinks, are expected to boost the top line, going forward. However, uncertain economic conditions, high debt burden and competition from Avnet AVT and Ingram Micro IM remain the concerns.

Currently, Arrow has a Zacks Rank #3 (Hold). A better-ranked stock in the broader technology sector is Integrated Device Technology, Inc. IDTI sporting a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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