ARW - Arrow Electronics Reports Third-Quarter 2018 Results

Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2018 sales of $7.49 billion, an increase of 9 percent from sales of $6.86 billion in the third quarter of 2017. Third-quarter net income of $177 million, or $1.99 per share on a diluted basis, compared with net income of $134 million, or $1.50 per share on a diluted basis, in the third quarter of 2017. Excluding certain items¹, net income would have been $193 million, or $2.18 per share on a diluted basis, in the third quarter of 2018, compared with net income of $161 million, or $1.80 per share on a diluted basis, in the third quarter of 2017. Excluding certain items¹, net income increased 20 percent year over year, and earnings per share on a diluted basis increased 21 percent year over year.

“Our investments in engineering and working capital are bearing fruit as evidenced by our results,” said Michael J. Long, chairman, president, and chief executive officer. “We are ahead of pace to deliver another record year in 2018.”

Global components third-quarter sales of $5.38 billion increased 11 percent year over year. Americas components sales increased 13 percent year over year. Europe components sales increased 11 percent year over year. Sales in the region, as adjusted, increased 13 percent year over year. Asia-Pacific components sales increased 8 percent year over year. Global components third-quarter operating income increased 28 percent year over year.

“This quarter we made significant advancements toward future high-growth opportunities in the areas of smart cities, edge computing, and artificial intelligence,” said Mr. Long. “These opportunities require all our capabilities across the enterprise to provide complete lifecycle solutions.”

Global enterprise computing solutions third-quarter sales of $2.11 billion increased 6 percent year over year. Sales, as adjusted, increased 9 percent year over year. Americas enterprise computing solutions sales increased 7 percent year over year. Sales in the region, as adjusted, increased 13 percent year over year. Europe enterprise computing solutions sales increased 3 percent year over year. Sales in the region, as adjusted, increased 2 percent year over year. Global enterprise computing solutions third-quarter operating income decreased 13 percent year over year and decreased 15 percent year over year excluding amortization of intangibles expense. Global enterprise computing solutions operating expenses included $6 million of expense related to prior period sales taxes abroad.

“Return on invested capital increased year over year for the fifth straight quarter. Third-quarter cash flow from operations was $494 million as our need to support growth through working capital investments moderated,” said Chris Stansbury, senior vice president and chief financial officer. “Our strong cash flow performance allowed us to reduce leverage during the quarter. We also remain committed to returning excess cash to shareholders. During the third quarter, we returned approximately $20 million to shareholders through our stock repurchase program. We had approximately $279 million of remaining authorization under our share repurchase program at the end of the third quarter.”

NINE-MONTH RESULTS

In the first nine months of 2018, Arrow’s sales of $21.76 billion increased 14 percent from sales of $19.02 billion in the first nine months of 2017. Net income for the first nine months of 2018 was $486 million, or $5.47 per share on a diluted basis, compared with net income of $349 million, or $3.88 per share on a diluted basis in the first nine months of 2017. Excluding certain items¹, net income would have been $556 million, or $6.26 per share on a diluted basis, in the first nine months of 2018 compared with net income of $452 million, or $5.03 per share on a diluted basis, in the first nine months of 2017.

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 $7.7 billion and $8.1 billion, with global components sales between $5.175 billion and $5.375 billion, and global enterprise computing solutions sales between $2.525 billion and $2.725 billion. As a result of this outlook, we expect earnings per share on a diluted basis to be in the range of $2.21 to $2.37, and earnings per share on a diluted basis, excluding certain items¹, to be in the range of $2.46 to $2.62 per share. Our guidance assumes an average tax rate of 23.5 percent to 25.5 percent, and average diluted shares outstanding are expected to be approximately 88 million. Guidance is based on an average USD-to-Euro exchange rate for the fourth quarter of approximately $1.16 to €1. At the midpoints of our fourth-quarter guidance ranges, full-year 2018 sales would total approximately $29.66 billion, and would grow 12 percent compared to full-year 2017. Full-year 2018 earnings per share, on a diluted basis, excluding certain items¹, would total approximately $8.80 and would grow 17 percent compared to full-year 2017,” 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 guides innovation forward for over 150,000 of the world’s leading manufacturers of technology used in homes, business and daily life. With 2017 sales of $26.6 billion, Arrow aggregates electronics and enterprise computing solutions for customers and suppliers in industrial and commercial markets. The company maintains a network of more than 345 locations serving over 80 countries. Learn more at FiveYearsOut.com.

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 Dec. 31, 2017.

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, income, or expense on a non-GAAP basis adjusted for the impact of changes in foreign currencies and the impact of acquisitions/dispositions by adjusting the company's operating results, including the amortization expense related to acquired/disposed intangible assets, as if the acquisitions/dispositions had occurred at the beginning of the earliest period presented (referred to as "impact of acquisitions" and "impact of dispositions"). Operating income, net income attributable to shareholders, and net income per basic and diluted share are adjusted to exclude identifiable intangible amortization, restructuring, integration, and other charges, and 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/dispositions (including intangible assets amortization expense), and financing activities. 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.

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