Arrow Electronics Inc. ARW posted mixed first-quarter 2015 results wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same. The company’s adjusted earnings of $1.32 per share came a penny ahead of the Zacks Consensus Estimate. Moreover, adjusted earnings registered a year-over-year increase of 8% primarily driven by better cost management and lower share counts.
Quarter Detail
Arrow’s revenues, on a reported basis, came in at $5.002 billion, down 1.6% from the year-ago quarter. Quarterly revenues also fell short of the Zacks Consensus Estimate of $5.096 billion. However, on an adjusted basis, revenues increased 3.4% year over year. The company’s book-to-bill ratio was 1.02.
On a segmental basis, revenues from Global components decreased 2.2% on a year-over-year basis to $3.347 billion. However, on an adjusted basis, Global components revenues increased 1.8%. Revenues from America and Asia-Pacific remained flat year over year, while adjusted European revenues increased 10%.
Revenues from Global enterprise computing solutions (ECS) came in at $1.655 billion, almost flat with the year-ago quarter. However, adjusted revenues increased 6.9% from the year-ago quarter primarily due to increased demand for storage, network and industry standard servers. Revenues from America increased 8%. Moreover, adjusted ECS revenues from Europe grew 8%.
Gross margin came in at 13.7% compared with 13.8% in the year-ago quarter. Arrow reported adjusted operating margin of 4%, up 20 basis points (bps) from the year-ago quarter, while in dollar terms, operating income increased 2.2% to $199.0 million.
Arrow’s adjusted net income (excluding the effect of restructuring, gain on sale of investment and amortization) came in at $127.7 million or $1.32 per share compared with $124.1 million or $1.22 in the year-ago quarter.
Arrow exited the quarter with cash and cash equivalents of $305.3 million compared with $400.4 million at the end of the previous quarter. Long-term debt (including current portion) was $2.47 billion compared with $2.08 billion at the end of the last quarter. During the first quarter, the company used $241.6 million cash for operational activities and repurchased shares worth $78.6 million.
Guidance
For the second quarter of 2015, Arrow expects sales between $5.45 billion and $5.85 billion (mid-point $5.65 billion). The Zacks Consensus Estimate is pegged at $5.730 billion. Global components sales are projected between $3.45 billion and $3.65 billion. Global enterprise computing solutions sales are estimated within $2.0 to $2.2 billion.
The company expects non-GAAP earnings to range within $1.43 to $1.55 per share (mid-point $1.49), while the Zacks Consensus Estimate is pegged higher at $1.50.
Our Take
The electronic component distributor posted mixed first-quarter results and the year-over-year bottom-line comparisons were favorable. Also, the company had a better book-to-bill ratio and issued encouraging second-quarter guidance.
Moreover, 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 Avnet AVT and Ingram Micro IM remain the concerns, going ahead.
Currently, Arrow has a Zacks Rank #3 (Hold). Investors may also consider Cirrus Logic Inc. CRUS sporting a Zacks Rank #1 (Strong Buy).
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