Arrow Beats on Q1 Earnings, Misses Rev - Analyst Blog
May 07 2014 - 9:00AM
Zacks
Arrow Electronics
Inc. (ARW) reported first-quarter 2014 adjusted earnings
(excluding the effect of restructuring and amortization) per share
of $1.22, which beat the Zacks Consensus Estimate by a penny. On a
year-over-year basis, earnings increased 27.9%, primarily due to
growth across its business segments. Reported earnings also came
within management’s guided range of $1.14 and $1.26 per share.
Quarter Details
Arrow’s revenues on a reported basis came in at $5.08 billion,
which increased 4.8% from the year-ago quarter. On an adjusted
basis, revenues decreased 1.4% from the year-ago quarter and also
came in at $5.08 billion, which missed the Zacks Consensus Estimate
of $5.32 billion. The company’s book-to-bill ratio was 1.04.
On a segmental basis, revenues from Global components increased
7.2% on a year-over-year basis to $3.42 billion. Adjusted revenues
increased 4.4% from the year-ago quarter and also came in at $3.42
billion. Revenues from America increased 1.0% while Asia-Pacific
revenues increased 12.0%, primarily due to strong growth in China.
European revenues, on an adjusted basis, increased 7.0% on a
year-over-year basis, which boosted segment revenues.
Revenues from Global enterprise computing solutions (ECS) came in
at $1.66 billion, up a marginal 0.2% on a year-over-year basis,
primarily due to increased demand for software and security-related
solutions, partially offset by a tepid hardware business. Adjusted
revenues decreased 11.4% from the year-ago-quarter. Revenues were
impacted by low demand in Arrow’s storage and servers business
globally. Revenues from America declined 10.0% while revenues from
Europe declined 11.0% on an adjusted basis. However, sales from
Europe on a reported basis were up 15.0% year over year, primarily
due to the Computerlinks acquisition.
Arrow reported adjusted operating margin of 3.9%, which was up 47
basis points (bps) from the year-ago quarter primarily due to
growth across its businesses. Adjusted operating expenses increased
6.2% from the year-ago quarter to $503.5 million and were up 14 bps
as a percentage of revenues for the same period of time.
Arrow’s adjusted net income (excluding the effect of restructuring
and amortization) came in at $124.0 million or $1.22 per share
compared with $103.1 million or 96 cents in the year-ago
quarter.
Arrow ended the quarter with cash and cash equivalents of $258.3
million, down from $390.6 million at the end of the previous
quarter. Long-term debt was $2.14 billion, down from $2.23 billion
at the end of the previous quarter. During the quarter, the company
generated $124.0 million in cash from operations. During the
quarter, Arrow repurchased shares worth $70.0 million.
Guidance
For the second quarter of 2014, Arrow expects sales to range
between $5.45 billion and $5.85 billion (mid pint $5.65 billion),
reflecting a sequential increase in revenues. The Zacks Consensus
Estimate is pegged at $5.72 billion.
Global components sales are projected between $3.45 billion and
$3.65 billion. Global enterprise computing solutions sales are
estimated between $2.0 billion and $2.2 billion. The company
expects non-GAAP earnings to range between $1.35 and $1.47, up
sequentially. The Zacks Consensus Estimate of $1.41 per share is
line with the mid-point of the guided range.
Management expects its enterprise computing solutions business to
boost revenues. Moreover, the company expects its global components
business to remain at par on a sequential basis in the second
quarter.
Our Take
Electronic component distributor Arrow posted mixed first-quarter
results, with the bottom line surpassing the Zacks Consensus
Estimate but revenues missing the same. Year-over-year comparisons
were modestly up and Arrow had a favorable book to bill ratio.
Moreover, positive commentary about enhanced productivity, annual
cost savings, and continued higher contributions from Europe are
encouraging. Moreover, incremental sales from strategic
acquisitions such as that of Computerlinks are expected to boost
Arrow’s top line going forward.
We believe that Arrow’s core strength of providing best-in-class
services and easy-to-acquire technologies are expected to bolster
its growth in the future.
However, uncertain economic conditions and competition from
Avnet (AVT) and Ingram Micro (IM)
are concerns, going forward.
Currently, Arrow has a Zacks Rank #2 (Buy). Investors can also
consider Rambus Inc. (RMBS) which has a Zacks Rank
#1 (Strong Buy) and is worth buying.
ARROW ELECTRONI (ARW): Free Stock Analysis Report
AVNET (AVT): Free Stock Analysis Report
INGRAM MICRO (IM): Free Stock Analysis Report
RAMBUS INC (RMBS): Free Stock Analysis Report
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