ARW Arrow Electronics Inc

-- Operating Margins Expand Over Prior Year --

Arrow Electronics, Inc. (NYSE:ARW) today reported first-quarter 2015 net income of $106.1 million, or $1.09 per share on a diluted basis, compared with net income of $107.1 million, or $1.06 per share on a diluted basis, in the first quarter of 2014. Excluding certain items1 in the first quarters of 2015 and 2014, net income would have been $127.8 million, or $1.32 per share on a diluted basis, in the first quarter of 2015, compared with net income of $124.0 million, or $1.22 per share on a diluted basis, in the first quarter of 2014. First-quarter sales, adjusted for the impact of acquisitions and changes in foreign currencies, increased 3 percent year over year. First-quarter sales of $5 billion, as reported, decreased 2 percent from sales of $5.08 billion in the prior year. In the first quarter of 2015, changes in foreign currencies had a negative impact of $322 million on sales and a negative impact of $.10 or 9 percent on earnings per share on a diluted basis compared to the first quarter of 2014.

“In the first quarter, our global components and enterprise computing solutions segments both delivered operating income growth and operating margin expansion. Our global components business experienced strong demand in Europe. Our focus on the higher value portion of the datacenter resulted in record first-quarter operating income and operating margins for our enterprise computing solutions business,” said Michael J. Long, chairman, president, and chief executive officer.

Global components first-quarter sales, as adjusted, grew 2 percent year over year. First-quarter sales of $3.35 billion, as reported, decreased 2 percent year over year. Global components had one fewer shipping day in the first quarter of 2015 compared to the first quarter of 2014 and this negatively impacted the rate of sales growth by approximately 1.5 percentage points. Americas components sales were flat year over year. Europe components sales grew 10 percent year over year on an as-adjusted basis. Sales in the region, as reported, declined 7 percent year over year. Components sales in the Asia-Pacific were flat year over year. Core components sales in Asia-Pacific grew 6 percent year over year.

Global enterprise computing solutions first-quarter sales of $1.66 billion grew 7 percent year over year, as adjusted. Sales, as reported, were flat year over year. Americas sales grew 8 percent year over year. Europe sales grew 8 percent on an as-adjusted basis. Sales in the region, as reported, declined 13 percent year over year. Both Americas and Europe experienced growth across the entirety of the solutions portfolio.

“First-quarter cash flow from operations was a negative $242 million. First-quarter cash flow would be a negative $92 million after adjusting for approximately $150 million of previously disclosed timing-related benefits to operating cash flow in 2014’s fourth quarter. In addition, in the first quarter of 2015 we made selected investments in inventory to support seasonally higher global components sales in the second quarter. Trailing 12-month cash flow from operations was $308 million,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. “Our strong balance sheet and accumulated cash flow provided us with the opportunity to both deploy capital toward our strategic initiatives and return approximately $64 million to shareholders through our stock repurchase program.

1 A reconciliation of non-GAAP adjusted financial measures, including sales, as adjusted, operating income, as adjusted, net income attributable to shareholders, as adjusted, and net income per share, as adjusted, to GAAP financial measures is presented in the reconciliation tables included herein.

GUIDANCE

“As we look to the second quarter, we believe that total sales will be between $5.45 billion and $5.85 billion, with global components sales between $3.45 billion and $3.65 billion, and global enterprise computing solutions sales between $2 billion and $2.2 billion. As a result of this outlook, we expect earnings per share on a diluted basis, excluding any charges, to be in the range of $1.43 to $1.55 per share. Our guidance assumes an average tax rate in the range of 27 to 29 percent and average diluted shares outstanding are expected to be 97 million. We are expecting the average USD to Euro exchange rate for the second quarter to be approximately $1.08 to €1. Based on this assumption, the weaker Euro will have a negative impact of $350 million or 6 percent on sales and $.12 or 8 percent on earnings per share on a diluted basis, respectively, when compared with the second quarter of 2014, and a negative impact of $50 million or 1 percent on sales and $.02 or 2 percent on earnings per share on a diluted basis, respectively, when compared with the first quarter of 2015. We expect to be cash flow positive in the second quarter of 2015 and for full-year 2015,” said Mr. Reilly.

“Included in our guidance for the second quarter 2015 are $200 million of sales and $.04 of earnings per share on a diluted basis when compared with the second quarter of 2014, and $125 million of sales and no additional contribution to earnings per share on a diluted basis when compared with the first quarter of 2015, related to our closed acquisitions,” added Mr. Reilly.

Please refer to the CFO commentary, which can be found at www.arrow.com/investor, as a supplement to the company’s earnings release.

Arrow Electronics (www.arrow.com) is a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. Arrow serves as a supply channel partner for more than 100,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 460 locations in 56 countries.

Information Relating to Forward-Looking Statements

This press release includes forward-looking statements that are subject to numerous assumptions, risks, and uncertainties, which could cause actual results or facts to differ materially from such statements for a variety of reasons, including, but not limited to: industry conditions, the company's implementation of its new enterprise resource planning system, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and global enterprise computing solutions markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, risks related to the integration of acquired businesses, changes in legal and regulatory matters, and the company’s ability to generate additional cash flow. Forward-looking statements are those statements which are not statements of historical fact. These forward-looking statements can be identified by forward-looking words such as "expects," "anticipates," "intends," "plans," "may," "will," "believes," "seeks," "estimates," and similar expressions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any of the forward-looking statements.

For a further discussion of factors to consider in connection with these forward-looking statements, investors should refer to Item 1A Risk Factors of the company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Certain Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States (“GAAP”), the company also provides certain non-GAAP financial information relating to sales, operating income, net income attributable to shareholders, and net income per basic and diluted share. The company provides sales on a non-GAAP basis adjusted for the impact of changes in foreign currencies and the impact of acquisitions by adjusting the company's prior periods to include the sales of businesses acquired as if the acquisitions had occurred at the beginning of the earliest period presented (referred to as "impact of acquisitions"). Operating income, net income attributable to shareholders, and net income per basic and diluted share are adjusted for certain charges, credits, gains, and losses that the company believes impact the comparability of its results of operations. These charges, credits, gains, and losses arise out of the company’s efficiency enhancement initiatives, acquisitions (including intangible assets amortization expense), prepayment of debt, and gain on sale of investment. A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the tables below.

The company believes that such non-GAAP financial information is useful to investors to assist in assessing and understanding the company’s operating performance and underlying trends in the company’s business because management considers these items referred to above to be outside the company’s core operating results. This non-GAAP financial information is among the primary indicators management uses as a basis for evaluating the company’s financial and operating performance. In addition, the company’s Board of Directors may use this non-GAAP financial information in evaluating management performance and setting management compensation.

The presentation of this additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for, or alternative to, sales, operating income, net income and net income per basic and diluted share determined in accordance with GAAP. Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

 

ARROW ELECTRONICS, INC. (In thousands except per share data)(Unaudited)

  NON-GAAP SALES RECONCILIATION         Quarter Ended

March 28,2015

 

March 29,2014

  % Change   Consolidated sales, as reported $ 5,002,385 $ 5,082,040 (1.6)% Impact of changes in foreign currencies - (322,138 ) Impact of acquisitions   9,702   85,649   Consolidated sales, as adjusted $ 5,012,087 $ 4,845,551   3.4%   Global components sales, as reported $ 3,346,763 $ 3,421,181 (2.2)% Impact of changes in foreign currencies - (183,830 ) Impact of acquisitions   9,702   59,295   Global components sales, as adjusted $ 3,356,465 $ 3,296,646   1.8%   Europe components sales, as reported $ 923,261 $ 988,933 (6.6)% Impact of changes in foreign currencies - (172,342 ) Impact of acquisitions   6,356   29,744   Europe components sales, as adjusted $ 929,617 $ 846,335   9.8%   Global ECS sales, as reported $ 1,655,622 $ 1,660,859 flat Impact of changes in foreign currencies - (138,308 ) Impact of acquisitions   -   26,354   Global ECS sales, as adjusted $ 1,655,622 $ 1,548,905   6.9%   Europe ECS sales, as reported $ 581,662 $ 664,978 (12.5)% Impact of changes in foreign currencies - (124,724 ) Impact of acquisitions   -   -   Europe ECS sales, as adjusted $ 581,662 $ 540,254   7.7%  

NON-GAAP EARNINGS RECONCILIATION

        Quarter Ended

March 28,2015

   

March 29,2014

  Operating income, as reported $ 177,434 $ 177,740 Intangible assets amortization expense 11,107 10,947 Restructuring, integration, and other charges   16,196     11,614 Operating income, as adjusted $ 204,737   $ 200,301   Net income attributable to shareholders, as reported $ 106,058 $ 107,120 Intangible assets amortization expense 9,029 8,907 Restructuring, integration, and other charges 12,569 8,020 Loss on prepayment of debt 1,808 - Gain on sale of investment   (1,667 )   - Net income attributable to shareholders, as adjusted $ 127,797   $ 124,047   Net income per basic share, as reported $ 1.11 $ 1.07 Intangible assets amortization expense .09 .09 Restructuring, integration, and other charges .13 .08 Loss on prepayment of debt .02 - Gain on sale of investment   (.02 )   - Net income per basic share, as adjusted $ 1.33   $ 1.24   Net income per diluted share, as reported $ 1.09 $ 1.06 Intangible assets amortization expense .09 .09 Restructuring, integration, and other charges .13 .08 Loss on prepayment of debt .02 - Gain on sale of investment   (.02 )   - Net income per diluted share, as adjusted $ 1.32   $ 1.22  

ARROW ELECTRONICS, INC.(In thousands except per share data)(Unaudited)

 

SEGMENT INFORMATION

          Quarter Ended

March 28,2015

       

March 29,2014

  Sales: Global components $ 3,346,763 $ 3,421,181 Global ECS   1,655,622     1,660,859   Consolidated $ 5,002,385   $ 5,082,040     Operating income (loss): Global components $ 164,895 $ 161,146 Global ECS 67,517 64,158 Corporate (a)   (54,978 )

 

  (47,564 ) Consolidated $ 177,434   $ 177,740   (a)   Includes restructuring, integration, and other charges of $16.2 million and $11.6 million for the first quarters of 2015 and 2014, respectively.    

NON-GAAP SEGMENT RECONCILIATION

  Quarter Ended

March 28,2015

 

March 29,2014

  Global components operating income, as reported $ 164,895 $ 161,146 Intangible assets amortization expense   5,782   5,548 Global components operating income, as adjusted $ 170,677 $ 166,694     Global ECS operating income, as reported $ 67,517 $ 64,158 Intangible assets amortization expense   5,325   5,399 Global ECS operating income, as adjusted $ 72,842 $ 69,557  

ARROW ELECTRONICS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands except per share data)(Unaudited)

  Quarter Ended

March 28,2015

 

March 29,2014

  Sales $ 5,002,385 $ 5,082,040 Costs and expenses: Cost of sales 4,317,063 4,378,212 Selling, general, and administrative expenses 454,530 477,903 Depreciation and amortization 37,162 36,571 Restructuring, integration, and other charges   16,196   11,614   4,824,951   4,904,300 Operating income 177,434 177,740 Equity in earnings of affiliated companies 1,313 1,417 Interest and other financing expense, net 30,854 29,637 Other   935   - Income before income taxes 146,958 149,520 Provision for income taxes   40,867   42,328 Consolidated net income 106,091 107,192 Noncontrolling interests   33   72 Net income attributable to shareholders $ 106,058 $ 107,120 Net income per share: Basic $ 1.11 $ 1.07 Diluted $ 1.09 $ 1.06 Weighted-average shares outstanding: Basic 95,920 99,948 Diluted 97,125 101,399  

ARROW ELECTRONICS, INC.CONSOLIDATED BALANCE SHEETS(In thousands except par value)

   

March 28,2015

December 31,2014

(Unaudited)

ASSETS

Current assets: Cash and cash equivalents $ 305,293 $ 400,355 Accounts receivable, net 4,874,484 6,043,850 Inventories 2,255,167 2,335,257 Other current assets   266,362   253,145 Total current assets   7,701,306   9,032,607 Property, plant, and equipment, at cost: Land 23,539 23,770 Buildings and improvements 148,144 144,530 Machinery and equipment   1,156,984   1,146,045 1,328,667 1,314,345 Less: Accumulated depreciation and amortization   (686,035 )   (678,046 ) Property, plant, and equipment, net   642,632   636,299 Investments in affiliated companies 72,603 69,124

 

Intangible assets, net 341,587 335,711 Cost in excess of net assets of companies acquired 2,102,192 2,069,209 Other assets   284,168   292,351 Total assets $ 11,144,488 $ 12,435,301 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 3,627,252 $ 5,027,103 Accrued expenses 646,559 797,464

Short-term borrowings, including current portion of long-term debt

  13,642   13,454 Total current liabilities   4,287,453   5,838,021   Long-term debt 2,456,575 2,067,898 Other liabilities 382,171 370,471 Equity: Shareholders' equity: Common stock, par value $1: Authorized – 160,000 shares in both 2015 and 2014 Issued – 125,424 shares in both 2015 and 2014, respectively 125,424 125,424 Capital in excess of par value 1,071,893 1,086,082

Treasury stock (29,753 and 29,529 shares in 2015 and 2014, respectively), at cost

(1,205,699 ) (1,169,673 ) Retained earnings 4,282,812 4,176,754 Accumulated other comprehensive loss   (261,115 )   (64,617 ) Total shareholders' equity 4,013,315 4,153,970 Noncontrolling interests   4,974   4,941 Total equity   4,018,289   4,158,911 Total liabilities and equity $ 11,144,488 $ 12,435,301  

ARROW ELECTRONICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)

    Quarter Ended

March 28,2015

 

March 29,2014

Cash flows from operating activities: Consolidated net income $ 106,091 $ 107,192

Adjustments to reconcile consolidated net income to net cash     provided by (used for) operations:

Depreciation and amortization 37,162 36,571 Amortization of stock-based compensation 9,920 9,796 Equity in earnings of affiliated companies (1,313 ) (1,417 ) Deferred income taxes 12,391 10,641 Restructuring, integration, and other charges 12,569 8,020 Excess tax benefits from stock-based compensation arrangements (5,657 ) (5,862 ) Other 1,730 1,492

Change in assets and liabilities, net of effects of acquired businesses:

Accounts receivable 935,271 904,719 Inventories 48,574 72,001 Accounts payable (1,279,437 ) (859,288 ) Accrued expenses (121,725 ) (127,226 ) Other assets and liabilities   2,828     (32,602 ) Net cash provided by (used for) operating activities   (241,596 )   124,037   Cash flows from investing activities: Cash consideration paid for acquired businesses (133,089 ) (60,224 ) Acquisition of property, plant, and equipment (31,150 ) (32,843 ) Other   2,008     -   Net cash used for investing activities   (162,231 )   (93,067 ) Cash flows from financing activities: Change in short-term and other borrowings 1,234 (7,338 ) Repayment of long-term bank borrowings, net (48,400 ) (85,000 ) Net proceeds from note offering 688,162 - Redemption of notes (254,313 ) - Proceeds from exercise of stock options 12,576 16,142

Excess tax benefits from stock-based compensation arrangements

5,657 5,862 Repurchases of common stock (78,561 ) (88,501 ) Other   (3,000 )     Net cash provided by (used for) financing activities   323,355     (158,835 ) Effect of exchange rate changes on cash   (14,590 )   (4,454 ) Net decrease in cash and cash equivalents (95,062 ) (132,319 ) Cash and cash equivalents at beginning of period   400,355     390,602   Cash and cash equivalents at end of period $ 305,293   $ 258,283    

Arrow Electronics, Inc.Contact:Steven O’Brien, 303-824-4544Director, Investor RelationsorPaul J. Reilly, 631-847-1872Executive Vice President, Finance and Operations, andChief Financial OfficerorMedia Contact:John Hourigan, 303-824-4586Vice President, Global Communications