Shares of Arrow Electronics Inc. ARW went down more than 5% yesterday, after the company reported unimpressive results for the fourth quarter of 2016 and provided a not-so-encouraging guidance for the first quarter.
Arrow's adjusted earnings of $2.00 per share missed the Zacks Consensus Estimate of $2.01. However, earnings increased from $1.95 per share reported in the year-ago quarter. On a GAAP basis, earnings were $1.81 compared with $1.69 reported a year ago.
Arrow's revenues, on a reported basis, were $6.443 billion, down 4.6% from the year-ago quarter. Quarterly revenues also missed the Zacks Consensus Estimate of $6.518 billion.
On a reported basis, revenues from Global components increased 8.9% to $3.99 billion. On an adjusted basis (excluding the impact of changes in foreign currencies and acquisitions), the figure grew 9.6%. Geographically, revenues from America and Asia-Pacific increased 4% and 22.4%, respectively. Sales from Europe went down approximately 1% on a year-over-year basis.
Revenues at Global Enterprise Computing Solutions (ECS) came in at $2.45 billion, down 20.6% on a year-over-year basis. On an adjusted basis, revenues decreased 20.5%, primarily due to the impact of acquisition and foreign currency fluctuations. Revenues from the Americas were down 19.7% year over year, whereas revenues from Europe decreased 22.4%.
Gross margin increased 40 basis points (bps) on a year-over-year basis and came in at 12.8%. Also, Arrow reported adjusted operating margin of 4.4%, down 20 bps, and operating income of $280.9 million in dollar terms, down 1%.
The company's adjusted net income (excluding the effect of restructuring, gain on sale of investment and amortization) was $188.7 million or $2.00 per share, compared with $182.1 million or $1.94 per share last year.
Arrow exited the quarter with cash and cash equivalents of $534.3 million, compared with $384.4 million at the end of the previous quarter. Long-term debt (including current portion) was $2.79 billion compared with $2.78 billion at the end of the prior quarter. During the quarter, the company had 220 million in cash flow for operational activities. The company spent $49 million for share repurchases during the quarter.
Arrow provided an outlook for the first quarter of 2017. Sales are expected between $5.375 billion and $5.775 billion. The Zacks Consensus Estimate is pegged at $5.555 billion. Global components sales are projected in a range of $3.775 billion to $3.975 billion. Global enterprise computing solutions sales are estimated to be in a range of $1.6-$1.8 billion.
The company expects non-GAAP earnings per share in a range of $1.37 to $1.49 (mid-point $1.43 per share). The Zacks Consensus Estimate is pegged at $1.46, higher than the mid-point of the company guided range.
Avnet's share price movement has not been much impressive. Over the last one year, its shares have gained just 33.3%, compared with 45.1% increase recorded by the Zacks categorized Electronics Parts distributor industry.
The electronic component distributor's fourth-quarter 2016 results missed estimates. Also, revenues decreased year over year. The company issued a not-so-encouraging first-quarter 2017 outlook.
Notably, original equipment manufacturers, contract manufacturers and commercial customers are selecting Arrow's 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 further.
Meanwhile, incremental sales from strategic acquisitions, such as Computerlinks, are expected to boost the top line, going forward. However, uncertain economic conditions, a high debt burden and competition from the likes of Avnet AVT remain concerns.
Currently, Arrow has a Zacks Rank #2 (Buy). Better-ranked stocks in the technology sector include Seagate Technology plc STX and Check Point Software Technologies Ltd. CHKP , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here
Seagate and Check Point have a long-term EPS growth rate of 8.17% and 10%, respectively.
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