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Arrow Electronics (ARW) Beats on Q3 Earnings & Revenues

ARW AVT IM NVDA

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Shares of Arrow Electronics Inc. (ARW - Free Report) went up more than 1% after the company reported better-than-expected results for the third quarter of 2016.

Arrow’s adjusted earnings of $1.56 per share beat the Zacks Consensus Estimate of $1.51. Also, earnings increased 11.4% from the year-ago tally of $1.40. On a GAAP basis, earnings were $1.28 compared with $1.15 reported a year ago.

 

 

Quarter Detail

Arrow’s revenues, on a reported basis, were $5.936 billion, up 4.2% from the year-ago quarter. Quarterly revenues also surpassed the Zacks Consensus Estimate of $5.854 billion.

On a reported basis, revenues from Global components increased 5.8% to $3.90 billion. On an adjusted basis (excluding the impact of changes in foreign currencies and acquisitions), the figure grew 5.7%. Geographically, revenues from Europe and Asia-Pacific increased 1.6% and 15.7%, respectively. Sales from America were flat on a year-over-year basis.

Revenues at Global Enterprise Computing Solutions (ECS) came in at $2.03 billion, up 1.3% on a year-over-year basis. On an adjusted basis, revenues decreased 0.6% primarily due to the impact of acquisition and foreign currency fluctuations. Revenues in the Americas were up 6% year over year, whereas revenues from Europe decreased 9.9%.

Gross margin was flat on a year-over-year basis and came in at 13%. Also, Arrow reported adjusted operating margin of 4%, up 20 bps, and operating income of $236.8 million in dollar terms, up 8.7%.

The company’s adjusted net income (excluding the effect of restructuring, gain on sale of investment and amortization) was $143.1 million or $1.56 per share, compared with $133.4 million or $1.40 per share last year.

Arrow exited the quarter with cash and cash equivalents of $384.4 million, compared with $495.8 million at the end of the previous quarter. Long-term debt (including current portion) was $2.78 billion compared with $2.42 billion at the end of the prior quarter. During the quarter, the company had 24.4 million in cash flow for operational activities. The company spent $117 million for share repurchases during the quarter.

Guidance

Arrow has provided an outlook for the fourth quarter of 2016. Sales are expected between $6.3 billion and $6.7 billion. Global components sales are projected in the range of $3.7 billion to $3.9 billion. Global enterprise computing solutions sales are estimated to be $2.6–$2.8 billion.

The company expects non-GAAP earnings per share in a range of $1.92 to $2.08. The Zacks Consensus Estimate is pegged at $2.01.

ARROW ELECTRONI Price, Consensus and EPS Surprise

Our Take

The electronic component distributor’s third-quarter 2016 results beat estimates on both fronts. Also, the metrics improved year over year. The company issued an encouraging fourth-quarter 2016 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, high debt burden and competition from the likes of Avnet (AVT - Free Report) and Ingram Micro (IM - Free Report) remain concerns.

Currently, Arrow has a Zacks Rank #3 (Hold). A better-ranked stock in the technology sector is NVIDIA Corporation (NVDA - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

NVIDIA has a long-term EPS growth rate of 10.30%

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