Arrow Falls on Narrowed Outlook

Arrow Electronics Narrows Q2 Outlook

Shares of Arrow Electronics (ARW - Analyst Report) fell $1.61, or 6.5% at the close of trading today at nearly 2.5 times the average volume. Earlier, the company provided an update to its Q2 guidance, essentially lowering the low-end of its revenue outlook and narrowed its EPS guidance, keeping the low-end unchanged. Translation: Business momentum is still muted and revenue growth and margin expansion are still a few quarters away.

Q2 revenue range has been cut to $3.05 - $3.65 billion compared to earlier guidance of $3.15 - $3.75 billion, while EPS guidance now stands at $0.26 - $0.31 range compared to earlier $0.26 - $0.38. Our current estimates are for revenues of $3.45 billion (consensus at $3.51 billion) and EPS of $0.35 (same as consensus). The current guidance clearly implies a significant draw-down of our current estimates even at the mid-point of the current guidance range.

New York-based Arrow Electronics, Inc. is one of the world’s largest distributors of electronic components and computing products. The company sources products from about 800 suppliers and distributes them to original equipment manufacturers, contract manufactures and commercial customers.

This is the third consecutive quarter that EPS expectation has been toned down to the low-end of the guidance range. Although the company has gone through a few rounds of successful restructuring and appears to see some signs of stability in its operating segments, the computing segment (~30% of revenues) continues to be hurt by overall business spending cuts. Furthermore, seasonal demand for this segment could weaken further due to the pending acquisition of Sun Microsystems (JAVA - Snapshot Report) by Oracle Corp. (ORCL - Snapshot Report).

We prefer to stay on the sidelines with a Hold rating till we see positive signs of growth momentum and margin expansion.