Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - ARROW ELECTRONICS INC | q12017pressreleaseex991.htm |
| 8-K - 8-K - ARROW ELECTRONICS INC | q120178-kpressrelease.htm |
1 investor.arrow.com
First Quarter
2017
CFO Commentary
As reflected in our earnings release, there are a
number of items that impact the comparability of
our results with those in the trailing quarter and
prior quarter of last year. The discussion of our
results may exclude these items to give you a
better sense of our operating results. As always,
the operating information we provide to you
should be used as a complement to GAAP
numbers. For a complete reconciliation between
our GAAP and non-GAAP results, please refer to
our earnings release and the earnings
reconciliation found at the end of this document.
The following reported and adjusted information
included in this CFO commentary is unaudited
and should be read in conjunction with the
company’s Form 10-Q for the quarterly period
ended April 1, 2017, and the Annual Report on
form 10-K as filed with the Securities and
Exchange Commission.
First-quarter 2017
earnings per share of
$1.26 grew 10% year
over year; non-
GAAP earnings per
share of $1.46 grew
3% year over year.
First-Quarter 2017 CFO Commentary
2 investor.arrow.com
First-Quarter Summary
First-quarter results were toward the high end of our expectations. We
delivered record first-quarter sales, gross profit, earnings per share, and non-
GAAP earnings per share. First-quarter operating expenses were well-
managed and aligned to our business mix.
First-quarter global component sales grew 10% year over year. Global
components achieved record first-quarter sales that exceeded our expectation.
Our investments in sales and engineering resources, our digital platform, and
stronger demand conditions for our sustainable technology solutions drove our
growth. Asia sales grew 17% year over year. Americas sales grew 9% year
over year. Europe again delivered sales growth up 10% year over year
adjusted for changes in foreign currencies, the 16th straight quarter of adjusted
year-over-year growth. Global components operating income increased 1%
year over year and increased 2% year over year adjusted for acquisitions and
changes in foreign currencies.
First-quarter enterprise computing solutions sales declined 5% year over year
and were in line with our expectations. Growth in software was offset by
declines in hardware. We believe operating income is the best measure of our
enterprise computing solutions business. First-quarter enterprise computing
solutions operating income increased 4% year over year and increased 5%
year over year adjusted for acquisitions and changes in foreign currencies.
We delivered record first-
quarter sales, gross profit,
earnings per share and
non-GAAP earnings per
share.
First-Quarter 2017 CFO Commentary
3 investor.arrow.com
P&L Highlights* Q1 2017 Y/Y Change
Y/Y Change Adjusted for
Acquisitions & Currency Q/Q Change
Sales $5,760 5% 6% (11)%
Gross Profit Margin 13.2% -50bps -50bps 40bps
Operating Income $192 6% 7% (25)%
Operating Margin 3.3% flat flat -70bps
Non-GAAP Operating
Income $220 2% 3% (22)%
Non-GAAP Operating
Margin 3.8% -10bps -10bps -60bps
Net Income $114 7% 9% (31)%
Diluted EPS $1.26 10% 12% (31)%
Non-GAAP Net Income $132 flat 2% (27)%
Non-GAAP Diluted EPS $1.46 3% 4% (27)%
Consolidated Overview
First Quarter 2017
$ in millions, except per share data; may reflect rounding
• Consolidated sales were $5.76 billion
– At the high end of our prior expectation of $5.375-
$5.775 billion
• Consolidated gross profit margin was 13.2%
– Decreased 50 basis points year over year due to
business mix and a higher mix of Asia sales for
global components
– Increased 40 basis points quarter over quarter due
principally to a greater mix of global components
sales
• Operating income margin was 3.3% and non-GAAP
operating income margin was 3.8%
– Operating expenses as a percentage of sales were
9.6%, down 40 basis points year over year
– Non-GAAP operating expenses as a percentage of
sales were 9.4%, down 40 basis points year over
year
– The decline in operating expense as a percentage of
sales reflects the operational efficiencies we
achieved to align our costs to our business mix
• Interest and other expense, net was $38 million
– Increased $2 million year over year due to higher
debt balances and higher interest rates on floating-
rate debt
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First-Quarter 2017 CFO Commentary
4 investor.arrow.com
• Effective tax rate for the quarter was 25.4%, and non-
GAAP effective tax rate was 26.7%
– Effective tax rate was below our longer-term range
of 27-29% due to discrete items and higher profits
from lower tax jurisdictions
• Diluted shares outstanding were 91 million
– In line with our prior expectation
• Diluted earnings per share were $1.26
– Toward the higher end of our prior expectation of
$1.18-1.30
• Non-GAAP diluted earnings per share were $1.46
– Toward the higher end of our prior expectation of
$1.37-1.49
A reconciliation of non-GAAP adjusted financial measures,
including sales, as adjusted, operating income, as
adjusted, net income attributable to shareholders, as
adjusted, and net income per share, as adjusted, to GAAP
financial measures is presented in the reconciliation tables
included herein.
First-Quarter 2017 CFO Commentary
5 investor.arrow.com
Components
Global
• Sales increased 12% year over year adjusted for
acquisitions and changes in foreign currencies
– Increased 10% year over year as reported
• Lead times are in line with historical norms
• Backlog increased significantly year over year
• Book-to-bill was 1.14, up from 1.07 in the first quarter
of 2016
• Operating margin of 4.3% decreased 30 basis points
year over year
• Non-GAAP operating margin of 4.5% decreased 40
basis points year over year
– The operating margin decline was principally
attributable to business mix and a higher relative
contribution from the Asia region
• Return on working capital declined 380 basis points
year over year due to investments in inventory to
support growth, new supplier engagements and a
successful deployment of part of our new ERP system
in the Americas
Global components
posted record first-
quarter sales.
Non-GAAP Operating Income
($ in millions)
First-Quarter 2017 CFO Commentary
6 investor.arrow.com
Components
Americas
• Sales increased 9% year over year
– Strong growth in digital platform and sustainable
technology solutions
– Growth in core components distribution
– Growth in the communications, lighting and
transportation verticals year over year
Americas components
sales increased 9%
year over year.
Sales ($ in millions)
First-Quarter 2017 CFO Commentary
7 investor.arrow.com
Components
Europe
• Sales increased 10% year over year adjusted for the
impact of changes in foreign currencies
– Sales increased 6% year over year as reported
– Growth in the transportation and lighting verticals
year over year
Europe components
sales increased 10%
year over year adjusted
for changes in foreign
currencies.
Sales ($ in millions)
First-Quarter 2017 CFO Commentary
8 investor.arrow.com
Components
Asia
• Sales increased 17% year over year
– Strong growth in the transportation vertical year
over year
Asia components sales
increased 17% year
over year.
Sales ($ in millions)
First-Quarter 2017 CFO Commentary
9 investor.arrow.com
Enterprise Computing Solutions
Global
• Sales decreased 5% year over year
– Sales decreased 6% year over year adjusted for
acquisitions and changes in foreign currencies
• Operating margin of 4.8% increased 50 basis points
year over year
• Non-GAAP operating margin of 5.1% increased 50
basis points year over year
• Return on working capital increased year over year
for the 14th consecutive quarter
Enterprise computing
solutions posted record
first-quarter operating
income and operating
margin.
Non-GAAP Operating Income
($ in millions)
First-Quarter 2017 CFO Commentary
10 investor.arrow.com
Enterprise Computing Solutions
Americas
• Sales decreased 5% year over year
– Sales decreased 8% year over year adjusted for
acquisitions and changes in foreign currencies
– Growth in software lead by security and
infrastructure including analytics
– Hardware sales, including servers, networking
and storage declined year over year
– Operating income increased year over year
ECS Americas posted
record first-quarter
operating income.
Sales ($ in millions)
First-Quarter 2017 CFO Commentary
11 investor.arrow.com
Enterprise Computing Solutions
Europe
• Sales were flat year over year adjusted for the
impact of acquisitions and changes in foreign
currencies
– Sales decreased 7% year over year as reported
– Growth in security software adjusted for
acquisitions and changes in foreign currencies
– Growth in storage adjusted for acquisitions and
changes in foreign currencies
– Operating income increased year over year
adjusted for acquisitions and changes in foreign
currencies
ECS Europe operating
income increased year
over year adjusted for
acquisitions and
changes in foreign
currencies.
Sales ($ in millions)
First-Quarter 2017 CFO Commentary
12 investor.arrow.com
Cash Flow from Operations
Cash flow from operating activities was negative $21
million in the quarter.
Working Capital
Working capital to sales was 17.2% in the quarter, up
230 basis points year over year. Return on working
capital was 22.3% in the quarter, down 230 basis points
year over year.
Return on Invested Capital
Return on invested capital was 9.2% in the quarter,
ahead of our weighted average cost of capital.
Share Buyback
We repurchased approximately 0.8 million shares of our
stock for $56 million. Total cash returned to
shareholders over the last 12 months of approximately
$254 million.
Debt and Liquidity
Net-debt-to-last-12-months EBITDA ratio is
approximately 2.2x. Total liquidity of $2.7 billion when
including cash of $522 million.
We repurchased
approximately $56 million
of our stock in the first
quarter.
First-Quarter 2017 CFO Commentary
13 investor.arrow.com
Arrow Electronics Outlook
Guidance
We are expecting the average USD-to-Euro exchange rate for the second quarter of 2017 to be $1.07 to €1
compared to $1.13 to €1 in the second quarter of 2016. Assuming exchange rates remain unchanged for the
remainder of the quarter, we expect changes in foreign currencies will negatively impact year-over-year sales
growth by approximately $110 million, and year-over-year earnings per share growth by $.05.
Second-Quarter 2017 Guidance
Consolidated Sales $5.975 billion to $6.375 billion
Global Components $4.05 billion to $4.25 billion
Global ECS $1.925 billion to $2.125 billion
Diluted Earnings Per Share $1.50 to 1.62
Non-GAAP Diluted Earnings Per Share $1.70 to 1.82
* Assumes average diluted shares outstanding of 90 million and an average tax rate toward the higher end of our
longer term range of 27 to 29%.
First-Quarter 2017 CFO Commentary
14 investor.arrow.com
Risk Factors
The discussion of the company’s
business and operations should be
read together with the risk factors
contained in Item 1A of its 2016
Annual Report on Form 10-K, filed
with the Securities and Exchange
Commission, which describe various
risks and uncertainties to which the
company is or may become subject.
If any of the described events occur,
the company’s business, results of
operations, financial condition,
liquidity, or access to the capital
markets could be materially adversely
affected.
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, 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,
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 December 31, 2016.
First-Quarter 2017 CFO Commentary
15 investor.arrow.com
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 by
adjusting the company’s operating results for
businesses acquired, including the amortization
expense related to acquired intangible assets, as if
the acquisitions had occurred at the beginning of
the earliest 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 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 and acquisitions
(including intangible assets amortization expense).
A reconciliation of the company’s non-GAAP
financial information to GAAP is set forth in the
tables herein.
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,
operating income, net income attributable to
shareholders 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.
Certain Non-GAAP Financial Information
The company believes that
such non-GAAP financial
information is useful to
investors to assist in
assessing and understanding
the company’s operating
performance.
First-Quarter 2017 CFO Commentary
16 investor.arrow.com
Three months ended April 1, 2017
Reported
GAAP
measure
Intangible
amortization
expense
Restructuring
& Integration
charges
Non-GAAP
measure
Operating income $ 191,722 $ 12,900 $ 15,505 $ 220,127
Income before income taxes 154,574 12,900 15,505 182,979
Provision for income taxes 39,224 4,561 4,997 48,782
Consolidated net income 115,350 8,339 10,508 134,197
Noncontrolling interests 1,582 251 — 1,833
Net income attributable to shareholders $ 113,768 $ 8,088 $ 10,508 $ 132,364
Net income per diluted share 1.26 0.09 0.12 1.46
Effective tax rate 25.4 % 26.7 %
Three months ended April 2, 2016
Reported
GAAP
measure
Intangible
amortization
expense
Restructuring
& Integration
charges
Non-GAAP
measure
Operating income $ 181,364 12,913 20,788 215,065
Income before income taxes 147,645 12,913 20,788 181,346
Provision for income taxes 41,053 2,279 5,434 48,766
Consolidated net income 106,592 10,634 15,354 132,580
Noncontrolling interests 357 — — 357
Net income attributable to shareholders $ 106,235 10,634 15,354 132,223
Net income per diluted share 1.14 0.11 0.17 1.43
Effective tax rate 27.8 % 26.9 %
Three months ended December 31, 2016
Reported
GAAP
measure
Intangible
amortization
expense
Restructuring
& Integration
charges
Non-GAAP
measure
Operating income $ 254,899 13,634 12,441 280,974
Income before income taxes 218,191 13,634 12,441 244,266
Provision for income taxes 53,233 4,870 3,733 61,836
Consolidated net income 164,958 8,764 8,708 182,430
Noncontrolling interests 440 336 — 776
Net income attributable to shareholders $ 164,518 8,428 8,708 181,654
Net income per diluted share 1.81 0.09 0.10 2.00
Effective tax rate 24.4 % 25.3 %
*The sum of the components for diluted EPS, as adjusted may not agree to totals, as presented, due to rounding.
Earnings Reconciliation
($ in thousands, except per share data)