Arrow Electronics (ARW) Misses on Q4 Earnings and Revenues

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.

Quarter Detail

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.

Share Price

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.

Our Take

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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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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