December 3, 2021

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Arrow Electronics (ARW) Up 9.8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Arrow Electronics (ARW). Shares have added about 9.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Arrow Electronics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Arrow’s Q1 Earnings Miss Estimates, Revenues Beat

Arrow Electronics reported fourth-quarter 2019 adjusted earnings per share of 97 cents, down 49% on a year-over-year basis. The figure also missed the Zacks Consensus Estimate by 12.6%.

Revenues came in at $6.38 billion, down 11% from the year-ago quarter. Adjusted revenues dropped 9% year over year. The revenue figure, however, beat the consensus mark of $5.96 billion.

Demand for electronic components and IT remained low during the first quarter, as a result of the coronavirus-led economic disruptions.

However, a strong uptrend in design activity across all regions was a breather.

Segmental Details

Adjusted revenues from Global Components decreased 12% year over year to $4.55 billion. On a reported basis, revenues declined 10%.

Region-wise, the segment’s adjusted revenues from the Americas decreased 15% due to high levels of inventory with customers. Adjusted sales from the Asia Pacific declined 5% year over year. Global Components’ contribution from Europe fell 10% on an adjusted basis. Components sales in the Americas decreased 16% year over year, as adjusted.

Adjusted revenues from Global Enterprise Computing Solutions (ECS) came in at $1.83 billion, down 6% year over year. The decline in demand for servers, networking and services took a toll on revenues from this segment. Moreover, the quarter ended two days earlier on Mar 28, instead of Mar 30. This also had a negative impact on revenues.

Billings for the ECS segment were flat year over year during the first quarter.

ECS revenues from the Americas declined 6% after adjusting for foreign-currency changes. Adjusted sales from Europe fell 5% year over year.

Notably, backlog improved sequentially. However, lead times declined year over year in the first quarter. The overall book-to-bill ratio improved and came above parity at 1.12.

Strong design activity was a positive.

Margins

Arrow’s non-GAAP gross profit decreased 14.7% from the prior-year quarter to $728.4 million.

Operating income dropped 43.5% to $156.5 million.

Balance Sheet and Cash Flow

Arrow exited the first quarter with cash and cash equivalents of $201 million compared with the previous quarter’s $300.1 million.

Long-term debt was $2.22 billion compared with $2.64 billion at the end of the prior quarter.

The company’s cash flow from operations was $466.9 million.

In the first quarter, Arrow returned approximately $150 million to shareholders through the stock-repurchase program and was left with approximately $188 million of authorization.

Guidance

For the second quarter of 2020, sales are expected between $6.08 billion and $6.68 billion.

Global Components sales are projected at $4.4-$4.7 billion. Global ECS sales are estimated to be $1.68-$1.98 billion.

Interest and other expenses will presumably be about $40 million. As a result, the company projects non-GAAP earnings per share of $1.38-$1.54.
 

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 35.47% due to these changes.

VGM Scores

At this time, Arrow Electronics has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Arrow Electronics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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