ARW Arrow Electronics Inc

-- Record Third-Quarter Sales of $5.94 billion --

-- Earnings Per Share of $1.28; Non-GAAP Earnings Per Share of $1.56 --

Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2016 net income of $118 million, or $1.28 per share on a diluted basis, compared with net income of $109 million, or $1.15 per share on a diluted basis, in the third quarter of 2015. Excluding certain items1, net income would have been $143 million, or $1.56 per share on a diluted basis, in the third quarter of 2016, compared with net income of $133 million, or $1.40 per share on a diluted basis, in the third quarter of 2015. Third-quarter sales of $5.94 billion increased 4 percent from sales of $5.7 billion in the prior year.

“Our strong execution drove record third-quarter sales for both our global components and global enterprise computing solutions businesses,” said Michael J. Long, chairman, president, and chief executive officer. “Our results this quarter continue to show our leadership position at the forefront of innovation for digital commerce, cloud, and IoT.”

Global components third-quarter sales of $3.9 billion grew 6 percent year over year. Americas components sales were flat year over year. Asia-Pacific components sales grew 16 percent year over year. Europe components sales grew 2 percent year over year. “Our investments in customer-facing sales and engineering resources over the last two years contributed to our strong growth in the Asia-Pacific region during the third quarter,” said Mr. Long.

Global enterprise computing solutions third-quarter sales of $2.03 billion grew 1 percent year over year. Sales, as adjusted, declined 1 percent year over year. Americas sales grew 6 percent year over year. Sales in the region, as adjusted, grew 1 percent year over year. Europe sales declined 10 percent year over year. Sales in the region, as adjusted, declined 6 percent year over year. “Enterprise computing solutions operating income grew 13 percent year over year, and we believe our profit growth shows the increasing value we are delivering to customers and suppliers,” added Mr. Long.

“Cash flow from operations was $24 million in the third quarter and $680 million over the last 12 months as we continue to exceed our cash flow target,” said Chris Stansbury, senior vice president and chief financial officer. “During the quarter, we returned approximately $117 million to shareholders through our stock repurchase program. We had approximately $169 million of remaining authorization under our share repurchase program at the end of the third quarter.”

NINE-MONTH RESULTS

Arrow’s net income for the first nine months of 2016 was $358 million, or $3.87 per share on a diluted basis, compared with net income of $339 million, or $3.52 per share on a diluted basis in the first nine months of 2015. Excluding certain items1, net income would have been $428 million, or $4.63 per share on a diluted basis, in the first nine months of 2016 compared with net income of $410 million, or $4.26 per share on a diluted basis, in the first nine months of 2015. In the first nine months of 2016, sales of $17.38 billion increased 5 percent from sales of $16.53 billion in the first nine months of 2015.

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 fourth quarter, we believe that total sales will be between $6.3 billion and $6.7 billion, with global components sales between $3.7 billion and $3.9 billion, and global enterprise computing solutions sales between $2.6 billion and $2.8 billion. As a result of this outlook, we expect earnings per share on a diluted basis, to be in the range of $1.68 to $1.84, and earnings per share on a diluted basis, excluding any charges, to be in the range of $1.92 to $2.08 per share. Our guidance assumes an average tax rate in the range of 25 to 27 percent and average diluted shares outstanding are expected to be 91 million. Due to timing of some discreet items, we anticipate our fourth-quarter average tax rate will be below our usual 27 to 29 percent range, but full-year 2016 average tax rate will be within the 27 to 29 percent range. We are expecting the average USD-to-Euro exchange rate for the fourth quarter to be approximately $1.11 to €1. At the midpoints of our fourth-quarter guidance ranges, full-year 2016 earnings per share, on a diluted basis, excluding certain items1, would total approximately $6.62 and grow 7 percent compared to full-year 2015. Full-year 2016 sales would total approximately $23.88 billion and would grow 3 percent compared to full-year 2015,” said Mr. Stansbury.

Please refer to the CFO commentary, which can be found at investor.arrow.com, 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 serving over 85 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, 2015.

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 operating results for businesses acquired, including the amortization expense related to acquired intangible assets, 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), loss on prepayment of debt, and (gain)/loss on investments. 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. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited)     Quarter Ended   Nine Months Ended

Oct. 1,2016

 

Sep. 26,2015

Oct. 1,2016

 

Sep. 26,2015

  Sales $ 5,936,092 $ 5,698,304 $ 17,382,370 $ 16,530,678 Costs and expenses: Cost of sales 5,162,930 4,955,937 15,061,519 14,334,394 Selling, general, and administrative expenses 510,017 497,876 1,534,534 1,457,160 Depreciation and amortization 40,194 40,941 121,516 117,854 Restructuring, integration, and other charges   24,267   17,756   61,161   51,099   5,737,408   5,512,510   16,778,730   15,960,507 Operating income 198,684 185,794 603,640 570,171 Equity in earnings of affiliated companies 1,311 1,674 5,394 4,890 Gain on sale of investment

 

- - - 2,008 Interest and other financing expense, net 37,229 35,409 111,828 100,959 Other expense, net   -   -   -   4,443 Income before income taxes 162,766 152,059 497,206 471,667 Provision for income taxes   44,931   41,755   137,441   130,589 Consolidated net income 117,835 110,304 359,765 341,078 Noncontrolling interests   108   1,060   1,533   1,844 Net income attributable to shareholders $ 117,727 $ 109,244 $ 358,232 $ 339,234 Net income per share:

Basic

$ 1.29 $ 1.16 $ 3.92 $ 3.56 Diluted $ 1.28 $ 1.15 $ 3.87 $ 3.52 Weighted average shares outstanding: Basic 90,937 94,302 91,412 95,277 Diluted 91,938 95,363 92,487 96,302   ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value)    

Oct. 1,2016

 

Dec. 31,2015

(Unaudited) ASSETS Current assets: Cash and cash equivalents $ 384,415 $ 273,090 Accounts receivable, net 5,912,085 6,161,418 Inventories, net 2,605,408 2,466,490 Other current assets   289,356   285,473 Total current assets   9,191,264   9,186,471 Property, plant, and equipment, at cost: Land 23,864 23,547 Buildings and improvements 174,127 162,011 Machinery and equipment   1,353,862   1,250,115 1,551,853 1,435,673 Less: Accumulated depreciation and amortization   (801,340)   (735,495) Property, plant, and equipment, net   750,513   700,178 Investments in affiliated companies 89,059 73,376 Intangible assets, net 355,968 389,326 Goodwill 2,441,846 2,368,832 Other assets   309,393   303,747 Total assets $ 13,138,043 $ 13,021,930 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 4,747,227 $ 5,192,665 Accrued expenses 698,525 819,463 Short-term borrowings, including current portion of long-term debt   77,348   44,024 Total current liabilities   5,523,100   6,056,152   Long-term debt 2,704,851 2,380,575 Other liabilities 429,631 390,392 Equity: Shareholders' equity: Common stock, par value $1: Authorized – 160,000 shares in both 2016 and 2015 Issued – 125,424 shares in both 2016 and 2015 125,424 125,424 Capital in excess of par value 1,102,697 1,107,314 Treasury stock (35,838 and 34,501 shares in 2016 and 2015, respectively), at cost (1,590,818) (1,480,069) Retained earnings 5,032,712 4,674,480 Accumulated other comprehensive loss   (244,511)   (284,706) Total shareholders' equity 4,425,504 4,142,443 Noncontrolling interests   54,957   52,368 Total equity   4,480,461   4,194,811 Total liabilities and equity $ 13,138,043 $ 13,021,930   ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)     Quarter Ended

Oct. 1,2016

 

Sep. 26,2015

Cash flows from operating activities: Consolidated net income $ 117,835 $ 110,304 Adjustments to reconcile consolidated net income to net cash provided by (used for) operations: Depreciation and amortization 40,194 40,941 Amortization of stock-based compensation 10,508 11,777 Equity in earnings of affiliated companies (1,311) (1,674) Deferred income taxes 2,522 375 Excess tax benefits from stock-based compensation arrangements (14) (21) Other 1,510 1,475 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (193,791) (22,871) Inventories (95,184) 37,935 Accounts payable 93,313 (298,552) Accrued expenses 11,826 26,638 Other assets and liabilities   37,016   (14,821) Net cash provided by (used for) operating activities   24,424   (108,494)   Cash flows from investing activities: Cash consideration paid for acquired businesses (23,473) (42,236) Acquisition of property, plant, and equipment (38,005) (44,236) Other   -   - Net cash used for investing activities   (61,478)   (86,472) Cash flows from financing activities: Change in short-term and other borrowings (35,670) (252) Proceeds from long-term bank borrowings, net 87,000 204,300 Proceeds from exercise of stock options 1,842 248 Excess tax benefits from stock-based compensation arrangements 14 21 Repurchases of common stock (120,345) (50,177) Other   -   (2,831) Net cash provided by(used for)financing activities   (67,159)   151,309 Effect of exchange rate changes on cash   (7,143)   (19,320) Net decrease in cash and cash equivalents (111,356) (62,977) Cash and cash equivalents at beginning of period   495,771   399,721 Cash and cash equivalents at end of period $ 384,415 $ 336,744   ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)     Nine Months Ended

Oct. 1,2016

 

Sep. 26,2015

Cash flows from operating activities: Consolidated net income $ 359,765 $ 341,078 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 121,516 117,854 Amortization of stock-based compensation 29,783 33,783 Equity in earnings of affiliated companies (5,394) (4,890) Deferred income taxes 30,191 26,881 Gain on sale of investment - (2,008) Excess tax benefits from stock-based compensation arrangements (4,953) (5,863) Other 4,464 8,057 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 335,455 1,056,282 Inventories (117,674) (44,890) Accounts payable (513,365) (1,318,702) Accrued expenses (102,915) (72,728) Other assets and liabilities   (1,121)   (23,910) Net cash provided by operating activities   135,752   110,944   Cash flows from investing activities: Cash consideration paid for acquired businesses (68,946) (512,910) Acquisition of property, plant, and equipment (126,341) (113,056) Other   (12,000)   2,008 Net cash used for investing activities   (207,287)   (623,958) Cash flows from financing activities: Change in short-term and other borrowings 31,941 (4,069) Proceeds from long-term bank borrowings, net 320,000 238,700 Net proceeds from note offering - 688,162 Redemption of notes - (254,313) Proceeds from exercise of stock options 16,686 14,722 Excess tax benefits from stock-based compensation arrangements 4,953 5,863 Repurchases of common stock (167,178) (206,601) Other   (3,000)   (5,831) Net cash provided by financing activities   203,402   476,633 Effect of exchange rate changes on cash   (20,542)   (27,230) Net increase (decrease) in cash and cash equivalents 111,325 (63,611) Cash and cash equivalents at beginning of period   273,090   400,355 Cash and cash equivalents at end of period $ 384,415 $ 336,744   ARROW ELECTRONICS, INC. NON-GAAP SALES RECONCILIATION (In thousands) (Unaudited)     Quarter Ended  

Oct. 1,2016

 

Sep. 26,2015

% Change   Consolidated sales, as reported $ 5,936,092 $ 5,698,304 4.2% Impact of changes in foreign currencies - (32,830) Impact of acquisitions   1,387   73,098 Consolidated sales, as adjusted $ 5,937,479 $ 5,738,572 3.5%   Global components sales, as reported $ 3,904,447 $ 3,692,051 5.8% Impact of changes in foreign currencies - (8,287) Impact of acquisitions   1,387   10,532 Global components sales, as adjusted $ 3,905,834 $ 3,694,296 5.7%   Europe components sales, as reported $ 1,008,135 $ 992,623 1.6% Impact of changes in foreign currencies - (10,411) Impact of acquisitions   -   5,825 Europe components sales, as adjusted $ 1,008,135 $ 988,037 2.0%   Asia components sales, as reported $ 1,436,316 $ 1,241,190 15.7% Impact of changes in foreign currencies - 1,691 Impact of acquisitions   -   - Asia components sales, as adjusted $ 1,436,316 $ 1,242,881 15.6%   Global ECS sales, as reported $ 2,031,645 $ 2,006,253 1.3% Impact of changes in foreign currencies - (24,543) Impact of acquisitions   -   62,567 Global ECS sales, as adjusted $ 2,031,645 $ 2,044,277 (0.6%)   Europe ECS sales, as reported $ 539,932 $ 599,128 (9.9%) Impact of changes in foreign currencies - (26,725) Impact of acquisitions   -   - Europe ECS sales, as adjusted $ 539,932 $ 572,403 (5.7%)   Americas ECS sales, as reported $ 1,491,713 $ 1,407,125 6.0% Impact of changes in foreign currencies - 2,182 Impact of acquisitions   -   62,567 Americas ECS sales, as adjusted $ 1,491,713 $ 1,471,874 1.3% ARROW ELECTRONICS, INC. NON-GAAP SALES RECONCILIATION (In thousands) (Unaudited)  

 

Nine Months Ended  

Oct. 1,2016

 

Sep. 26,2015

% Change   Consolidated sales, as reported $ 17,382,370 $ 16,530,678 5.2% Impact of changes in foreign currencies - (111,315) Impact of acquisitions   48,148   614,020 Consolidated sales, as adjusted $ 17,430,518 $ 17,033,383 2.3%   Global components sales, as reported $ 11,413,348 $ 10,736,989 6.3% Impact of changes in foreign currencies - (52,310) Impact of acquisitions   9,711   333,703 Global components sales, as adjusted $ 11,423,059 $ 11,018,382 3.7%   Europe components sales, as reported $ 3,123,258 $ 2,902,619 7.6% Impact of changes in foreign currencies - (23,407) Impact of acquisitions   -   104,491 Europe components sales, as adjusted $ 3,123,258 $ 2,983,703 4.7%   Asia components sales, as reported $ 3,912,613 $ 3,504,969 11.6% Impact of changes in foreign currencies - (24,297) Impact of acquisitions   -   211,745 Asia components sales, as adjusted $ 3,912,613 $ 3,692,417 6.0%   Global ECS sales, as reported $ 5,969,022 $ 5,793,689 3.0% Impact of changes in foreign currencies - (59,006) Impact of acquisitions   38,437   280,317 Global ECS sales, as adjusted $ 6,007,459 $ 6,015,000 (0.1%)   Europe ECS sales, as reported $ 1,867,715 $ 1,859,069 0.5% Impact of changes in foreign currencies - (41,268) Impact of acquisitions   -   - Europe ECS sales, as adjusted $ 1,867,715 $ 1,817,801 2.7%   Americas ECS sales, as reported $ 4,101,307 $ 3,934,620 4.2% Impact of changes in foreign currencies - (17,737) Impact of acquisitions   38,437   280,317 Americas ECS sales, as adjusted $ 4,139,744 $ 4,197,200 (1.4%)   ARROW ELECTRONICS, INC. NON-GAAP EARNINGS RECONCILIATION (In thousands except per share data) (Unaudited)   Three months ended October 1, 2016    

ReportedGAAPmeasure

 

Intangibleamortizationexpense

 

Restructuring& Integrationcharges

  Other*  

Non-GAAPmeasure

Operating income $ 198,684 $ 13,893 $ 24,267 $ - $ 236,844 Income before income taxes 162,766 13,893 24,267 - 200,926 Provision for income taxes 44,931 4,959 7,439 - 57,329 Consolidated net income 117,835 8,934 16,828 - 143,597

Noncontrolling interests

108 347 - - 455 Net income attributable to shareholders $ 117,727 $ 8,587 $ 16,828 $ - $ 143,142 Net income per diluted share 1.28 .09 .18 - 1.56 Effective tax rate 27.6% 28.5%                                 Three months ended September 26, 2015  

ReportedGAAPmeasure

Intangibleamortizationexpense

Restructuring& Integrationcharges

Other*

Non-GAAPmeasure

Operating income $ 185,794 14,269 17,756 - 217,819 Income before income taxes 152,059 14,269 17,756 - 184,084 Provision for income taxes 41,755 2,748 5,114 - 49,617 Consolidated net income 110,304 11,521 12,642 - 134,467

Noncontrolling interests

1,060 - - - 1,060 Net income attributable to shareholders $ 109,244 11,521 12,642 - 133,407 Net income per diluted share 1.15 .12 .13 - 1.40 Effective tax rate 27.5% 27.0%                                 Nine months ended October 1, 2016  

ReportedGAAPmeasure

Intangibleamortizationexpense

Restructuring& Integrationcharges

Other*

Non-GAAPmeasure

Operating income $ 603,640 41,252 61,161 - 706,053 Income before income taxes 497,206 41,252 61,161 - 599,619 Provision for income taxes 137,441 12,357 19,242 - 169,040 Consolidated net income 359,765 28,895 41,919 - 430,579

Noncontrolling interests

1,533 940 - - 2,473 Net income attributable to shareholders $ 358,232 27,955 41,919 - 428,106 Net income per diluted share 3.87 .30 .45 - 4.63 Effective tax rate 27.6% 28.2%                                 Nine months ended September 26, 2015  

ReportedGAAPmeasure

Intangibleamortizationexpense

Restructuring& Integrationcharges

Other*

Non-GAAPmeasure

Operating income $ 570,171 39,293 51,099 - 660,563 Income before income taxes 471,667 39,293 51,099 2,435 564,494 Provision for income taxes 130,589 7,574 12,993 1,373 152,529 Consolidated net income 341,078 31,719 38,106 1,062 411,965

Noncontrolling interests

1,844 - - - 1,844 Net income attributable to shareholders $ 339,234 31,719 38,106 1,062 410,121 Net income per diluted share 3.52 .33 .40 .01 4.26 Effective tax rate 27.7% 27.0%

*Other includes gain/loss on sale of investments and loss on prepayment of debt.

  ARROW ELECTRONICS, INC. SEGMENT INFORMATION (In thousands) (Unaudited)     Quarter Ended   Nine Months Ended

Oct. 1,2016

 

Sep. 26,2015

Oct. 1,2016

 

Sep. 26,2015

Sales: Global components $ 3,904,447 $ 3,692,051 $ 11,413,348 $ 10,736,989 Global ECS   2,031,645   2,006,253   5,969,022   5,793,689 Consolidated $ 5,936,092 $ 5,698,304 $ 17,382,370 $ 16,530,678   Operating income (loss): Global components $ 175,507 $ 164,744 $ 524,662 $ 499,456 Global ECS 96,181 84,233 283,792 250,144 Corporate (a)   (73,004)   (63,183)   (204,814)   (179,429) Consolidated $ 198,684 $ 185,794 $ 603,640 $ 570,171 (a)   Includes restructuring, integration, and other charges of $24.3 million and $61.2 million for the third quarter and nine months ended 2016 and $17.8 million and $51.1 million for the third quarter and nine months ended 2015, respectively.  

NON-GAAP SEGMENT RECONCILIATION

    Quarter Ended   Nine Months Ended

Oct. 1,2016

 

Sep. 26,2015

Oct. 1,2016

 

Sep. 26,2015

Global components operating income, as reported $ 175,507 $ 164,744 $ 524,662 $ 499,456 Intangible assets amortization expense   7,679   7,540   24,124   20,468 Global components operating income, as adjusted $ 183,186 $ 172,284 $ 548,786 $ 519,924   Global ECS operating income, as reported $ 96,181 $ 84,233 $ 283,792 $ 250,144 Intangible assets amortization expense   6,214   6,729   17,128   18,825 Global ECS operating income, as adjusted $ 102,395 $ 90,962 $ 300,920 $ 268,969

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Arrow Electronics, Inc.Steven O’Brien, 303-824-4544Director, Investor RelationsorMedia Contact:John Hourigan, 303-824-4586Vice President, Global Communications