Arrow Electronics Reports Third-Quarter Non-GAAP Earnings Per Share of $1.40

Arrow Electronics, Inc. (NYSE:ARW) today reported third-quarter 2014 net income of $146.9 million, or $1.47 per share on a diluted basis, compared with net income of $96.8 million, or $.95 per share on a diluted basis in the third quarter of 2013. Excluding certain items1 in the third quarters of both 2014 and 2013, net income would have been $140.2 million, or $1.40 per share on a diluted basis, in the third quarter of 2014 compared with net income of $119.9 million, or $1.18 per share on a diluted basis, in the third quarter of 2013. Third-quarter sales of $5.61 billion increased 11 percent from sales of $5.05 billion in the prior year. Sales, as adjusted, increased 6 percent year over year.

“In the third quarter we again produced outstanding results and invested in our long-term strategic sales-related initiatives. Earnings per share of $1.40 were above our expectations, with sales of $5.6 billion at the high end of our guidance. Both of our global components and enterprise computing solutions segments delivered sales and operating income growth. The stable, slow-growth demand environment for global components matched our expectations. Our focus on the higher value portion of the datacenter has aligned our enterprise computing solutions business with the faster growth areas of IT spending,” said Michael J. Long, chairman, president, and chief executive officer.

Global components third-quarter sales of $3.73 billion increased 8 percent year over year. Sales, as adjusted, grew 5 percent year over year. Americas components sales increased 2 percent year over year. Europe components sales grew 4 percent year over year, and the region grew year over year for the sixth consecutive quarter on an as-adjusted basis. Components sales in the Asia-Pacific region increased 18 percent year over year.

Global enterprise computing solutions third-quarter sales of $1.88 billion grew 19 percent year over year. Sales, as adjusted, grew 7 percent year over year with growth in both Americas and Europe. Both regions continued to experience very strong growth in software and services, while storage and networking also delivered growth.

“Returns advanced over the prior year for the fourth consecutive quarter. Cash flow from operations on a trailing 12-month basis was $431 million as we continue to exceed our cash flow target,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. “The strong management of our balance sheet and cash flow provided us with the opportunity to return approximately $50 million to shareholders through our stock repurchase program in the third quarter, approximately $55 million, thus far, in the fourth quarter, and approximately $230 million on a trailing 12-month basis.”

NINE-MONTH RESULTS

Arrow’s net income for the first nine months of 2014 was $381.9 million, or $3.80 per share on a diluted basis, compared with net income of $264.6 million, or $2.53 per share on a diluted basis in the first nine months of 2013. Excluding certain items1 in both the first nine months of 2014 and 2013, net income would have been $408.6 million, or $4.06 per share on a diluted basis, in the first nine months of 2014 compared with net income of $347.0 million, or $3.32 per share on a diluted basis, in the first nine months of 2013. In the first nine months of 2014, sales of $16.4 billion increased 8 percent from sales of $15.2 billion in the first nine months of 2013. Sales in the first nine months of 2014, as adjusted, increased 2 percent year over year.

GUIDANCE

“As we look to the fourth quarter, order patterns are unchanged and the supply chain remains well managed. We expect normal seasonality for our global components and enterprise computing solutions businesses. We believe that total sales will be between $6.1 billion and $6.5 billion, with global components sales between $3.4 billion and $3.6 billion and global enterprise computing solutions sales between $2.7 billion and $2.9 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 $1.75 to $1.87 per share. Our guidance assumes an average tax rate in the range of 27 to 29 percent, average diluted shares outstanding are expected to be 99 million, and the average USD to Euro exchange rate for the fourth quarter is 1.25 to 1. At the midpoints of our fourth-quarter guidance ranges, full-year 2014 sales and earnings per share, on a diluted basis, excluding any charges would grow 6 percent and 17 percent, respectively, compared to full-year 2013, with returns increasing year over year, and cash flow from operations of approximately $450 million,” said 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 58 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 Form 10-Q for the quarterly period ended September 27, 2014, as well as the company’s Annual Report on Form 10-K for the year ended December 31, 2013.

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 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), sale of investment, prepayment of debt, and adjustments related to certain tax matters. 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.

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.

ARROW ELECTRONICS, INC.

(In thousands except per share data)

(Unaudited)

NON-GAAP SALES RECONCILIATION

Quarter Ended

September 27,

2014

September 28,

2013

% Change

Consolidated sales, as reported $ 5,613,216 $ 5,048,211 11.2 %
Impact of changes in foreign currencies - (2,798 )
Impact of acquisitions 14,748 273,612
Consolidated sales, as adjusted $ 5,627,964 $ 5,319,025 5.8 %
Global components sales, as reported $ 3,731,289 $ 3,467,285 7.6 %
Impact of changes in foreign currencies - 2,784
Impact of acquisitions 11,289 81,348
Global components sales, as adjusted $ 3,742,578 $ 3,551,417 5.4 %
Europe components sales, as reported $ 949,232 $ 915,086 3.7 %
Impact of changes in foreign currencies - 3,074
Impact of acquisitions - 7,199
Europe components sales, as adjusted $ 949,232 $ 925,359 2.6 %
Global ECS sales, as reported $ 1,881,927 $ 1,580,926 19.0 %
Impact of changes in foreign currencies - (5,582 )
Impact of acquisitions 3,459 192,264
Global ECS sales, as adjusted $ 1,885,386 $ 1,767,608 6.7 %
Europe ECS sales, as reported $ 619,045 $ 440,065 40.7 %
Impact of changes in foreign currencies - (1,515 )
Impact of acquisitions - 139,337
Europe ECS sales, as adjusted $ 619,045 $ 577,887 7.1 %

Nine Months Ended

September 27,

2014

September 28,

2013

% Change

Consolidated sales, as reported $ 16,371,795 $ 15,203,925 7.7 %
Impact of changes in foreign currencies - 105,039
Impact of acquisitions 98,790 868,818
Consolidated sales, as adjusted $ 16,470,585 $ 16,177,782 1.8 %
Global components sales, as reported $ 10,721,814 $ 10,058,555 6.6 %
Impact of changes in foreign currencies - 73,098
Impact of acquisitions 62,887 241,052
Global components sales, as adjusted $ 10,784,701 $ 10,372,705 4.0 %
Europe components sales, as reported $ 2,923,093 $ 2,703,471 8.1 %
Impact of changes in foreign currencies - 78,761
Impact of acquisitions - 24,238
Europe components sales, as adjusted $ 2,923,093 $ 2,806,470 4.2 %
Global ECS sales, as reported $ 5,649,981 $ 5,145,370 9.8 %
Impact of changes in foreign currencies - 31,941
Impact of acquisitions 35,903 627,766
Global ECS sales, as adjusted $ 5,685,884 $ 5,805,077 (2.1 )%

Europe ECS sales, as reported

$ 2,061,057 $ 1,583,975 30.1 %
Impact of changes in foreign currencies - 50,450
Impact of acquisitions - 475,747
Europe ECS sales, as adjusted $ 2,061,057 $ 2,110,172 (2.3 )%

ARROW ELECTRONICS, INC.

(In thousands except per share data)

(Unaudited)

NON-GAAP EARNINGS RECONCILIATION

Quarter Ended Nine Months Ended
September 27,

2014

September 28,

2013

September 27,

2014

September 28,

2013

Operating income, as reported $ 199,816 $ 162,736 $ 585,825 $ 456,163
Intangible assets amortization expense 11,108 8,936 32,925 26,762
Restructuring, integration, and other charges 3,935 22,568 25,181 74,402
Operating income, as adjusted $ 214,859 $ 194,240 $ 643,931 $ 557,327
Net income attributable to shareholders, as reported $ 146,864 $ 96,779 $ 381,868 $ 264,589
Intangible assets amortization expense 9,086 7,074 26,860 21,219
Restructuring, integration, and other charges 2,556 16,077 18,102 52,260
Gain on sale of investment (18,269 ) - (18,269 ) -
Loss on prepayment of debt - - - 2,627
Settlement of tax matters:
Income taxes - - - 5,362
Interest (net of taxes) - - - 939
Net income attributable to shareholders, as adjusted $ 140,237 $ 119,930 $ 408,561 $ 346,996
Net income per basic share, as reported $ 1.49 $ .96 $ 3.84 $ 2.56
Intangible assets amortization expense .09 .07 .27 .21
Restructuring, integration, and other charges .03 .16 .18 .51
Gain on sale of investment (.19 ) - (.18 ) -
Loss on prepayment of debt - - - .03
Settlement of tax matters:
Income taxes - - - .05
Interest (net of taxes) - - - .01
Net income per basic share, as adjusted $ 1.42 $ 1.19 $ 4.11 $ 3.36
Net income per diluted share, as reported $ 1.47 $ .95 $ 3.80 $ 2.53
Intangible assets amortization expense .09 .07 .27 .20
Restructuring, integration, and other charges .03 .16 .18 .50
Gain on sale of investment (.18 ) - (.18 ) -
Loss on prepayment of debt - - - .03
Settlement of tax matters:
Income taxes - - - .05
Interest (net of taxes) - - - .01
Net income per diluted share, as adjusted $ 1.40 $ 1.18 $ 4.06 $ 3.32

The sum of the components for basic and diluted net income per share, as adjusted, may not agree to totals, as presented, due to rounding.

ARROW ELECTRONICS, INC.

(In thousands except per share data)

(Unaudited)

SEGMENT INFORMATION

Quarter Ended

Nine Months Ended

September 27,

2014

September 28,

2013

September 27,

2014

September 28,

2013

Sales:
Global components $ 3,731,289 $ 3,467,285 $ 10,721,814 $ 10,058,555
Global ECS 1,881,927 1,580,926 5,649,981 5,145,370
Consolidated $ 5,613,216 $ 5,048,211 $ 16,371,795 $ 15,203,925
Operating income (loss):
Global components $ 179,451 $ 164,096 $ 500,239 $ 432,534
Global ECS 69,172 59,757 229,320 202,070
Corporate (a) (48,807 ) (61,117 ) (143,734 ) (178,441 )
Consolidated $ 199,816 $ 162,736 $ 585,825 $ 456,163
(a) Includes restructuring, integration, and other charges of $3.9 million and $25.2 million for the third quarter and first nine months of 2014 and $22.6 million and $74.4 million for the third quarter and first nine months of 2013, respectively.

NON-GAAP SEGMENT RECONCILIATION

Quarter Ended

Nine Months Ended

September 27,

2014

September 28,

2013

September 27,

2014

September 28,

2013

Global components operating income, as reported $ 179,451 $ 164,096 $ 500,239 $ 432,534
Intangible assets amortization expense 5,493 4,993 16,499 14,948
Global components operating income, as adjusted $ 184,944 $ 169,089 $ 516,738 $ 447,482
Global ECS operating income, as reported $ 69,172 $ 59,757 $ 229,320 $ 202,070
Intangible assets amortization expense 5,615 3,943 16,426 11,814
Global ECS operating income, as adjusted $ 74,787 $ 63,700 $ 245,746 $ 213,884

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

Quarter Ended Nine Months Ended
September 27,

2014

September 28,

2013

September 27,

2014

September 28,

2013

Sales $ 5,613,216 $ 5,048,211 $ 16,371,795 $ 15,203,925
Costs and expenses:
Cost of sales 4,884,529 4,376,551 14,191,759 13,200,621
Selling, general, and administrative expenses 485,864 453,920 1,453,675 1,376,199
Depreciation and amortization 39,072 32,436 115,355 96,540
Restructuring, integration, and other charges 3,935 22,568 25,181 74,402
5,413,400 4,885,475 15,785,970 14,747,762
Operating income 199,816 162,736 585,825 456,163
Equity in earnings of affiliated companies 2,192 1,884 4,790 5,227
Gain on sale of investment 29,743 - 29,743 -
Loss on prepayment of debt - - - 4,277
Interest and other financing expense, net 27,522 27,167 86,079 86,896
Income before income taxes 204,229 137,453 534,279 370,217
Provision for income taxes 57,377 40,490 152,175 105,260
Consolidated net income 146,852 96,963 382,104 264,957
Noncontrolling interests (12 ) 184 236 368
Net income attributable to shareholders $ 146,864 $ 96,779 $ 381,868 $ 264,589
Net income per share:
Basic $ 1.49 $ .96 $ 3.84 $ 2.56
Diluted $ 1.47 $ .95 $ 3.80 $ 2.53
Weighted average shares outstanding:
Basic 98,631 100,750 99,336 103,269
Diluted 99,866 101,669 100,609 104,426

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

September 27,

2014

December 31,

2013

(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 258,233 $ 390,602

Accounts receivable, net

5,060,959 5,769,759
Inventories 2,242,774 2,167,287
Other current assets 267,732 258,122
Total current assets 7,829,698 8,585,770
Property, plant, and equipment, at cost:
Land 23,867 24,051
Buildings and improvements 143,837 142,583
Machinery and equipment 1,127,650 1,113,987
1,295,354 1,280,621
Less: Accumulated depreciation and amortization (660,643 ) (648,232 )
Property, plant, and equipment, net 634,711 632,389
Investments in affiliated companies 68,056 67,229
Intangible assets, net 421,710 426,069
Cost in excess of net assets of companies acquired 2,076,692 2,039,293
Other assets 280,659 310,133
Total assets $ 11,311,526 $ 12,060,883
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 3,806,702 $ 4,503,200
Accrued expenses 650,779 774,868

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

17,473 23,878
Total current liabilities 4,474,954 5,301,946
Long-term debt 2,211,037 2,226,132
Other liabilities 374,507 347,977
Equity:
Shareholders' equity:
Common stock, par value $1:
Authorized – 160,000 shares in both 2014 and 2013
Issued – 125,424 shares in both 2014 and 2013 125,424 125,424
Capital in excess of par value 1,076,124 1,071,075

Treasury stock (27,375 and 25,488 shares in 2014 and 2013, respectively), at cost

(1,055,827 ) (920,528 )
Retained earnings 4,060,577 3,678,709
Accumulated other comprehensive income 39,898 225,552
Total shareholders' equity 4,246,196 4,180,232
Noncontrolling interests 4,832 4,596
Total equity 4,251,028 4,184,828
Total liabilities and equity $ 11,311,526 $ 12,060,883

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Quarter Ended

September 27,

2014

September 28,

2013

Cash flows from operating activities:
Consolidated net income $ 146,852 $ 96,963
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization 39,072 32,436
Amortization of stock-based compensation 11,116 11,465
Equity in earnings of affiliated companies (2,192 ) (1,884 )
Deferred income taxes (4,611 ) (4,237 )
Restructuring, integration, and other charges 2,556 16,077
Gain on sale of investment (18,269 ) -
Excess tax benefits from stock-based compensation arrangements (729 ) (320 )
Other 657 559
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable (41,481 ) 225,379
Inventories 32,740 (34,314 )
Accounts payable (222,128 ) (237,258 )
Accrued expenses (42,228 ) (30,161 )
Other assets and liabilities 31,421 6,427
Net cash provided by (used for) operating activities (67,224 ) 81,132
Cash flows from investing activities:
Cash consideration paid for acquired businesses (69,298 ) (34,010 )
Acquisition of property, plant, and equipment (25,878 ) (31,904 )
Proceeds from sale of investment 40,542 -
Net cash used for investing activities (54,634 ) (65,914 )
Cash flows from financing activities:
Change in short-term and other borrowings 661 5,457
Proceeds from (repayment of) long-term bank borrowings, net 109,800 (157,600 )
Proceeds from exercise of stock options 2,692 18,073
Excess tax benefits from stock-based compensation arrangements 729 320
Repurchases of common stock (50,600 ) (303 )
Net cash provided by (used for) financing activities 63,282 (134,053 )
Effect of exchange rate changes on cash 7,873 24,734
Net decrease in cash and cash equivalents (50,703 ) (94,101 )
Cash and cash equivalents at beginning of period 308,936 345,891
Cash and cash equivalents at end of period $ 258,233 $ 251,790

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended

September 27,

2014

September 28,

2013

Cash flows from operating activities:
Consolidated net income $ 382,104 $ 264,957
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization 115,355 96,540
Amortization of stock-based compensation 31,283 24,247
Equity in earnings of affiliated companies (4,790 ) (5,227 )
Deferred income taxes 11,368 15,311
Restructuring, integration, and other charges 18,102 52,260
Gain on sale of investment (18,269 ) -
Excess tax benefits from stock-based compensation arrangements (6,977 ) (6,937 )
Other 2,029 2,809
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable 556,445 386,542
Inventories (97,929 ) (94,180 )
Accounts payable (632,191 ) (361,349 )
Accrued expenses (150,165 ) (204,013 )
Other assets and liabilities 9,883 64,685
Net cash provided by operating activities 216,248 235,645
Cash flows from investing activities:
Cash consideration paid for acquired businesses (129,522 ) (43,392 )
Acquisition of property, plant, and equipment (87,881 ) (85,465 )
Proceeds from sale of investment 40,542 -
Other - (3,000 )
Net cash used for investing activities (176,861 ) (131,857 )
Cash flows from financing activities:
Change in short-term and other borrowings (9,243 ) (22,282 )
Repayment of long-term bank borrowings, net (10,200 ) (242,900 )
Net proceeds from note offering - 591,156
Redemption of senior notes - (338,184 )
Proceeds from exercise of stock options 21,013 30,368
Excess tax benefits from stock-based compensation arrangements 6,977 6,937
Repurchases of common stock (189,411 ) (312,613 )
Net cash used for financing activities (180,864 ) (287,518 )
Effect of exchange rate changes on cash 9,108 25,836
Net decrease in cash and cash equivalents (132,369 ) (157,894 )
Cash and cash equivalents at beginning of period 390,602 409,684
Cash and cash equivalents at end of period $ 258,233 $ 251,790

Contacts:

Arrow Electronics, Inc.
Steven O’Brien
Director, Investor Relations
303-824-4544
or
Paul J. Reilly
Executive Vice President, Finance and Operations, and
Chief Financial Officer
631-847-1872
or
Media Contact: John Hourigan
Vice President, Global Communications
303-824-4586

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