Canada Markets open in 4 hrs 47 mins

Arrow Electronics Reports Second-Quarter 2022 Results

·14 min read

-- Record Sales, Gross Profit, Operating Income, and Earnings Per Share --

-- Second-Quarter Earnings Per Share of $5.54; Non-GAAP Earnings Per Share of $5.78 --

CENTENNIAL, Colo., August 04, 2022--(BUSINESS WIRE)--Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2022 sales of $9.46 billion, an increase of 10 percent from sales of $8.56 billion in the second quarter of 2021. Second-quarter net income was $370 million, or $5.54 per share on a diluted basis, compared with net income of $241 million, or $3.23 per share on a diluted basis, in the second quarter of 2021. Non-GAAP net income1 was $386 million, or $5.78 per share on a diluted basis, in the second quarter of 2022, compared with non-GAAP net income of $249 million, or $3.34 per share on a diluted basis, in the second quarter of 2021. In the second quarter of 2022, changes in foreign currencies had negative impacts on growth of approximately $291 million on sales and $0.17 on earnings per share on a diluted basis compared to the second quarter of 2021.

"We’ve continued to build and deliver on our record performance for the past several quarters. While market conditions are challenging, they also provide ample opportunities to demonstrate Arrow's commitment to the success of our customers and suppliers," said Sean Kerins, president, and chief executive officer. "Thanks to the dedication and focused execution of our team, we delivered all-time record quarterly sales, gross profit, operating income, and earnings per share while in the face of ongoing supply and demand imbalance."

Global components second-quarter sales of $7.46 billion reflected an increase of 13 percent year over year and non-GAAP sales increased 16 percent year over year. Asia-Pacific components second-quarter sales increased 1 percent year over year. Americas components second-quarter sales increased 26 percent year over year. Europe components second-quarter sales increased 21 percent year over year and non-GAAP sales in the region increased 37 percent year over year. Global components second-quarter operating income was $524 million, and second-quarter non-GAAP operating income was $531 million.

"Demand for electronic components and associated design, engineering and supply chain services remained strong. Past investments to enhance our capabilities, especially in the areas of engineering and supply chain capabilities, have led to advancements in profit performance. This is proof positive that we are uniquely positioned to help our customers navigate today’s challenges," said Mr. Kerins.

Global enterprise computing solutions second-quarter sales of $2.00 billion reflected an increase of 2 percent year over year and non-GAAP sales increased 8 percent year over year. Europe enterprise computing solutions second-quarter sales increased 7 percent year over year and non-GAAP sales in the region increased 21 percent year over year. Americas enterprise computing solutions second-quarter sales decreased 1 percent year over year. Global enterprise computing solutions second-quarter operating income was $84 million, and second-quarter non-GAAP operating income was $86 million.

"Global demand for more complex, enterprise IT content was healthy, and while supply constraints represented a headwind to hardware sales, we saw strength in our software and cloud portfolios. We continue to see strength in cloud, software and enterprise solutions and are well positioned for the transition to IT-as-a-Service," said Mr. Kerins.

"Our return on invested capital remains favorable, and our leverage ratios are near their lowest levels in ten years," said Rick Seidlitz, vice president and interim principal financial officer. "Our strong profitability and the effective management of our balance sheet enabled us to deliver on our commitment to return cash to shareholders through the repurchase of approximately $225 million of shares in the second quarter of 2022. Our current repurchase authorization stands at approximately $288 million."

1

A reconciliation of non-GAAP financial measures, including sales, gross profit, operating income, net income attributable to shareholders, and net income per share, to GAAP financial measures is presented in the reconciliation tables included herein.

THIRD-QUARTER 2022 OUTLOOK

  • Consolidated sales of $8.92 billion to $9.52 billion, with global components sales of $7.17 billion to $7.47 billion, and global enterprise computing solutions sales of $1.75 billion to $2.05 billion

  • Net income per share on a diluted basis of $5.11 to $5.27, and non-GAAP net income per share on a diluted basis of $5.27 to $5.43

  • Average tax rate of approximately 23.5 percent compared to the long-term range of 23 to 25 percent

  • Average diluted shares outstanding of 65 million

  • Interest expense of approximately $46 million

  • Expecting average USD-to-Euro exchange rate of $1.02 to €1; changes in foreign currencies to decrease sales by approximately $350 million, and earnings per share on a diluted basis by $.25 compared to the second quarter of 2021

Third-Quarter 2022 Outlook

Reported GAAP
measure

Intangible amortization
expense

Restructuring &
integration charges

Non-GAAP measure

Net income per diluted share

$5.11 to $5.27

$.10

$.06

$5.27 to $5.43

Please refer to the CFO commentary, which can be found at investor.arrow.com, as a supplement to the company’s earnings release. The company uses its website as a tool to disclose important information about the company and comply with its disclosure obligations under Regulation Fair Disclosure.

Arrow Electronics guides innovation forward for over 220,000 leading technology manufacturers and service providers. With 2021 sales of $34 billion, Arrow develops technology solutions that improve business and daily life. Learn more at fiveyearsout.com.

Information Relating to Forward-Looking Statements

This press release includes "forward-looking" statements, as the term is defined under the federal securities laws, including but not limited to statements regarding: Arrow’s future financial performance, including its outlook on financial results for the third quarter of fiscal 2022 such as sales, net income per diluted share, non-GAAP net income per diluted share, average tax rate, average diluted shares outstanding, interest expense, average USD-to-Euro exchange rate, impact to sales due to changes in foreign currencies, intangible amortization expense per diluted share, restructuring & integration charges per diluted share, and expectation regarding market demand. These forward-looking statements 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: disruptions or inefficiencies in the supply chain, including any potential adverse effects of the ongoing global COVID-19 pandemic, impacts of the conflict in Ukraine, industry conditions, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and the global enterprise computing solutions ("ECS") markets, economic conditions, including changes in inflation rates, tax rates, or the availability of capital, changes in relationships with key suppliers, increased profit margin pressure, changes in legal and regulatory matters, non-compliance with certain regulations, such as export, antitrust, and anti-corruption laws, foreign tax and other loss contingencies, and the company's ability to generate cash flow. For a further discussion of these and other factors that could cause the company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the company's most recent Quarterly Report on Form 10-Q and the company's most recent Annual Report on Form 10-K, as well as in other filings the company makes with the Securities and Exchange Commission. 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.

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. The company provides non-GAAP sales, gross profit, operating income, income before income taxes, provision for income taxes, net income, noncontrolling interests, net income attributable to shareholders, effective tax rate and net income per share on a diluted basis, which are non-GAAP measures adjusted for the impact of changes in foreign currencies (referred to as "changes in foreign currencies") by re-translating prior-period results at current period foreign exchange rates, identifiable intangible asset amortization, restructuring, integration, and other charges, pension settlement loss and net gains and losses on investments. Management believes that providing this additional information is useful to the reader to better assess and understand the company’s operating performance, especially when comparing results with previous periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. However, analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, and not as a substitute for data presented in accordance with GAAP. A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the tables below.

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

Quarter Ended

Six Months Ended

July 2, 2022

July 3, 2021

July 2, 2022

July 3, 2021

Sales

$

9,460,842

$

8,562,631

$

18,534,967

$

16,948,550

Cost of sales

8,224,628

7,562,526

16,091,249

15,018,335

Gross profit

1,236,214

1,000,105

2,443,718

1,930,215

Operating expenses:

Selling, general, and administrative expenses

653,640

602,084

1,297,565

1,176,651

Depreciation and amortization

47,252

48,539

95,557

98,870

Restructuring, integration, and other charges

2,494

8,960

7,392

14,669

703,386

659,583

1,400,514

1,290,190

Operating income

532,828

340,522

1,043,204

640,025

Equity in earnings of affiliated companies

2,165

190

3,008

1,034

Gain (loss) on investments, net

(9,744

)

6,726

(7,733

)

9,519

Employee benefit plan expense, net

(835

)

(1,438

)

(1,724

)

(2,668

)

Interest and other financing expense, net

(38,506

)

(30,685

)

(72,491

)

(64,341

)

Income before income taxes

485,908

315,315

964,264

583,569

Provision for income taxes

114,413

74,113

226,773

135,139

Consolidated net income

371,495

241,202

737,491

448,430

Noncontrolling interests

1,161

561

2,408

1,468

Net income attributable to shareholders

$

370,334

$

240,641

$

735,083

$

446,962

Net income per share:

Basic

$

5.60

$

3.27

$

10.98

$

6.02

Diluted

$

5.54

$

3.23

$

10.84

$

5.94

Weighted-average shares outstanding:

Basic

66,078

73,693

66,964

74,294

Diluted

66,851

74,611

67,797

75,197

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)

(Unaudited)

July 2, 2022

December 31, 2021

ASSETS

Current assets:

Cash and cash equivalents

$

225,596

$

222,194

Accounts receivable, net

10,851,466

11,123,946

Inventories

4,886,562

4,201,965

Other current assets

460,808

345,218

Total current assets

16,424,432

15,893,323

Property, plant, and equipment, at cost:

Land

5,691

5,736

Buildings and improvements

184,677

186,097

Machinery and equipment

1,528,875

1,523,919

1,719,243

1,715,752

Less: Accumulated depreciation and amortization

(1,093,656

)

(1,032,941

)

Property, plant, and equipment, net

625,587

682,811

Investments in affiliated companies

65,732

63,695

Intangible assets, net

175,854

195,029

Goodwill

2,020,574

2,080,371

Other assets

582,271

620,311

Total assets

$

19,894,450

$

19,535,540

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

9,162,534

$

9,617,084

Accrued expenses

1,244,505

1,326,386

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

626,048

382,619

Total current liabilities

11,033,087

11,326,089

Long-term debt

2,856,490

2,244,443

Other liabilities

606,590

624,162

Equity:

Shareholders’ equity:

Common stock, par value $1:

Authorized - 160,000 shares in both 2022 and 2021

Issued - 125,424 shares in both 2022 and 2021

125,424

125,424

Capital in excess of par value

1,198,530

1,189,845

Treasury stock (60,821 and 57,358 shares in 2022 and 2021, respectively), at cost

(4,080,505

)

(3,629,265

)

Retained earnings

8,523,031

7,787,948

Accumulated other comprehensive loss

(426,014

)

(191,657

)

Total shareholders’ equity

5,340,466

5,282,295

Noncontrolling interests

57,817

58,551

Total equity

5,398,283

5,340,846

Total liabilities and equity

$

19,894,450

$

19,535,540

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Quarter Ended

July 2, 2022

July 3, 2021

Cash flows from operating activities:

Consolidated net income

$

371,495

$

241,202

Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:

Depreciation and amortization

47,252

48,539

Amortization of stock-based compensation

13,885

8,744

Equity in earnings of affiliated companies

(2,165

)

(190

)

Deferred income taxes

(8,036

)

(1,594

)

Loss (gain) on investments, net

9,744

(6,726

)

Other

1,680

4,759

Change in assets and liabilities:

Accounts receivable, net

(464,917

)

(313,735

)

Inventories

(294,990

)

(357,065

)

Accounts payable

162,366

562,461

Accrued expenses

103,764

79,459

Other assets and liabilities

(22,660

)

15,526

Net cash provided by (used for) operating activities

(82,582

)

281,380

Cash flows from investing activities:

Acquisition of property, plant, and equipment

(16,974

)

(20,929

)

Other

373

Net cash used for investing activities

(16,601

)

(20,929

)

Cash flows from financing activities:

Change in short-term and other borrowings

310,315

(2,379

)

Proceeds (payments) from long-term bank borrowings, net

65,000

(20,433

)

Proceeds from exercise of stock options

4,370

15,226

Repurchases of common stock

(219,532

)

(250,708

)

Other

(137

)

(159

)

Net cash provided by (used for) financing activities

160,016

(258,453

)

Effect of exchange rate changes on cash

(78,028

)

14,371

Net increase (decrease) in cash and cash equivalents

(17,195

)

16,369

Cash and cash equivalents at beginning of period

242,791

227,701

Cash and cash equivalents at end of period

$

225,596

$

244,070

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended

July 2, 2022

July 3, 2021

Cash flows from operating activities:

Consolidated net income

$

737,491

$

448,430

Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:

Depreciation and amortization

95,557

98,870

Amortization of stock-based compensation

31,236

21,967

Equity in earnings of affiliated companies

(3,008

)

(1,034

)

Deferred income taxes

(6,684

)

12,069

Loss (gain) on investments, net

7,733

(9,519

)

Other

2,366

6,133

Change in assets and liabilities:

Accounts receivable, net

(34,207

)

283,042

Inventories

(755,892

)

(370,212

)

Accounts payable

(315,459

)

(277,663

)

Accrued expenses

60,123

83,102

Other assets and liabilities

(102,086

)

(18,341

)

Net cash provided by (used for) operating activities

(282,830

)

276,844

Cash flows from investing activities:

Acquisition of property, plant, and equipment

(36,244

)

(41,109

)

Proceeds from sale of property, plant, and equipment

22,171

Proceeds from collections of notes receivable

20,542

Net cash used for investing activities

(15,702

)

(18,938

)

Cash flows from financing activities:

Change in short-term and other borrowings

296,022

(14,831

)

Proceeds from long-term bank borrowings, net

910,000

134,241

Redemption of notes

(350,000

)

(130,860

)

Proceeds from exercise of stock options

15,672

41,317

Repurchases of common stock

(483,963

)

(411,327

)

Other

(137

)

(159

)

Net cash provided by (used for) financing activities

387,594

(381,619

)

Effect of exchange rate changes on cash

(85,660

)

(5,832

)

Net increase (decrease) in cash and cash equivalents

3,402

(129,545

)

Cash and cash equivalents at beginning of period

222,194

373,615

Cash and cash equivalents at end of period

$

225,596

$

244,070

ARROW ELECTRONICS, INC.

NON-GAAP SALES RECONCILIATION

(In thousands)

(Unaudited)

Quarter Ended

July 2, 2022

July 3, 2021

% Change

Consolidated sales, as reported

$

9,460,842

$

8,562,631

10.5

%

Impact of changes in foreign currencies

(290,517

)

Non-GAAP consolidated sales

$

9,460,842

$

8,272,114

14.4

%

Global components sales, as reported

$

7,461,552

$

6,610,761

12.9

%

Impact of changes in foreign currencies

(191,715

)

Non-GAAP global components sales

$

7,461,552

$

6,419,046

16.2

%

Americas components sales, as reported

$

2,479,362

$

1,970,756

25.8

%

Impact of changes in foreign currencies

(1,950

)

Non-GAAP Americas components sales

$

2,479,362

$

1,968,806

25.9

%

Asia components sales, as reported

$

3,173,786

$

3,149,343

0.8

%

Impact of changes in foreign currencies

(23,348

)

Non-GAAP Asia components sales

$

3,173,786

$

3,125,995

1.5

%

Europe components sales, as reported

$

1,808,404

$

1,490,662

21.3

%

Impact of changes in foreign currencies

(166,417

)