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Arrow (ARW) Q2 Earnings & Revenues Top Estimates, Guides Well

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Arrow Electronics Inc. (ARW - Free Report) reported strong second-quarter 2017 results. The company’s quarterly revenues and earnings not only marked a year-over-year improvement, but also surpassed the respective Zacks Consensus Estimate. The figures also came above the mid-point of the company’s guidance ranges.

Arrow’s non-GAAP earnings of $1.78 per share beat the Zacks Consensus Estimate by a penny and came above the mid-point of its guidance range of $1.70–$1.82 (mid-point $1.76 per share). Moreover, earnings increased from $1.65 per share reported in the year-ago quarter.

Quarter Detail

Arrow’s revenues, on a reported basis, were $6.465 billion, up 8% from the year-ago quarter. Quarterly revenues also surpassed the Zacks Consensus Estimate of $6.192 billion as well as came above the mid-point of the company’s guidance range of $5.975 billion and $6.375 billion (mid-point $6.175 billion).

On a reported basis, revenues from Global components increased 16.4% to $4.462 billion. On an adjusted basis (excluding the impact of changes in foreign currencies and acquisitions), the figure grew 17.2%. Geographically, revenues from America and the Asia Pacific climbed 15% and 21%, respectively. Sales from Europe rose approximately 13% on a year-over-year basis.

Revenues at Global Enterprise Computing Solutions (ECS) came in at $2.003 billion, down 6.4% on a year-over-year basis. On an adjusted basis, revenues decreased 5.1%, primarily due to foreign currency fluctuations. Revenues from the Americas were down 4% year over year, while revenues from Europe decreased 7.3%.

Gross margin contracted 70 basis points (bps) year over year and came in at 12.7%. Also, Arrow reported non-GAAP operating margin of 4.1%, down 20 bps. However, operating income in dollar terms, increased 4.9% year over year to $266.6 million.

The company’s non-GAAP net income was $159.9 million or $1.78 per share compared with $152.7 million or $1.65 per share last year.

Arrow exited the quarter with cash and cash equivalents of $521.6 million compared with $419.9 million at the end of fourth-quarter 2016. Long-term debt (including current portion) was $3.07 billion compared with $2.46 billion at the end of the previous quarter. During the quarter, the company had negative operating cash flow of $112.2 million. Further, it spent $54.8 million for share repurchases during the quarter.

Guidance

Buoyed by the splendid second-quarter performance, Arrow provided a strong revenue and earnings guidance for the third quarter which is well ahead of our expectations.

For the third quarter, sales are expected between $6.325 billion and $6.725 billion (mid-point $6.525 billion). The Zacks Consensus Estimate is pegged at $6.22 billion. Global components sales are projected in a range of $4.4–$4.6 billion. Global enterprise computing solutions sales are estimated to be in the range of $1.925–$2.125 billion.

The company projects non-GAAP earnings per share in a range of $1.74–$1.86 (mid-point $1.8 per share). The Zacks Consensus Estimate is pegged at $1.72 per share.

Our Take

The company reported impressive second-quarter performance and provided an optimistic guidance for the third quarter.

Notably, Arrow’s share price movement has been much impressive since the beginning of this year. Year to date, the company’s shares have gained 12.7%, while the industry incurred a loss of 6.1%.

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 are anticipated to prove conducive to growth in the quarters ahead.

Meanwhile, incremental sales from strategic acquisitions, such as Computerlinks, are anticipated to boost the top line. However, uncertain economic conditions, a high debt burden and competition from the likes of Avnet (AVT - Free Report) remain concerns.

Currently, Arrow carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Applied Optoelectronics, Inc. (AAOI - Free Report) and Symantec Corporation (SYMC - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected EPS growth rate for Applied Optoelectronics and Symantec are 18.75% and 10.25%, respectively.

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