Arrow Electronics Inc. (ARW) posted a net income (excluding loss on prepayment of debt and restructuring, integration, and other charges) of $159.8 million or $1.36 per share in the second quarter of fiscal 2011 compared with a net income of $121.3 million or $1.01 per share in the year earlier quarter.
The results were in line with management’s guidance range of $1.30 to $1.40 and the Zacks Consensus Estimate.
Revenues
Arrow reported sales of $5.5 billion in the quarter, up 20% year over year and up 6% sequentially.
On a segmental basis, Global component sales of $3.88 billion increased 19% year over year led by growth in the core business and product sets. On a sequential basis, sales met normal seasonality, but were below management’s expectation of above seasonal growth.
Revenues from Global enterprise computing solutions (ECS) soared 23% year over year to $1.66 billion, attributable to growth across all product lines, including proprietary servers, industry-standard servers and software. On a sequential basis, ECS sales were ahead of normal seasonality, based on Arrow’s broad strength across products and regions.
Margins
Gross margin came in at 13.9%, up 110 basis points year over year, driven by improved pricing, a favorable mix toward higher profit margin products and acquisitions providing higher margins.
Operating margin improved 40 basis points year over year to 4.5%, on the back of increased margins across both the segments.
Balance Sheet and Cash Flows
Arrow ended the quarter with cash and cash equivalents of $531 million, up $9.7 million from the end of the previous quarter. As of July 2, 2011, long-term debt remained static at $1.56 billion from the previous quarter end.
During the quarter, the company generated $34.9 million of cash from operating activities and used $42.2 million for capital expenditure.
Arrow completed its $50 million buyback authorization. Additionally, the company's Board of Directors approved an additional repurchase of $100 million.
Acquisition
During the quarter, the company signed an agreement to acquire all of the assets and operations of the distribution business of Seed International Ltd. in a move to strengthen its presence in China.
Arrow completed the acquisition of Cross Telecom, a leading North American service provider of Converged and Internet Protocol technologies. Additionally, Pansystem, a distributor of high-performance wire, cable and interconnect products was also acquired by the company.
The company has benefited from its endeavor to expand into high-margin, high-growth product sets and services, which help in creating value for customers.
Guidance
Going forward, management expects sales in the third quarter of 2011 to come between $5.15 billion and $5.55 billion.
Global components sales are projected between $3.76 billion and $3.96 billion. Global enterprise computing solutions sales are estimated between $1.39 billion and $1.59 billion. Earnings per share (excluding any one-time charges) are projected around $1.17 to $1.29 per share.
By 2013, management expects that Arrow will be a $26 billion-plus premier electronics company.
New York based Arrow Electronics Inc., is a distributor of electronic components and enterprise computing products. The company competes directly with Avnet Inc. (AVT).
We continue to have a long-term Outperform recommendation on the stock. However, the stock carries a Zacks #3 Rank, which translates into a short-term rating of Hold.
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