Arrow Electronics Reports First-Quarter 2019 Results
Summary
“The demand environment changed in the first quarter with customers in all regions adjusting their inventories by purchasing fewer high-value components, and more tightly managing their working capital and cash.” We expect to adjust our working capital investments to current market conditions and drive further improvements to cash flow and in returns in the coming quarters,” said Chris Stansbury, senior vice president and chief financial officer. 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 companys 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. These charges, credits, gains, and losses arise out of the company’s efficiency enhancement initiatives, acquisitions/dispositions (including intangible assets amortization expense), and financing activities. ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited) Quarter Ended March 30, 2019 March 31, 2018 Sales $ 7,155,991 $ 6,875,613 Cost of sales 6,294,303 6,006,669 Gross profit 861,688 868,944 Operating expenses: Selling, general, and administrative expenses 556,076 562,969 Depreciation and amortization 47,526 47,247 Loss on disposition of businesses, net 866 1,562 Restructuring, integration, and other charges 11,660 21,171 616,128 632,949 Operating income 245,560 235,995 Equity in losses of affiliated companies (1,467 ) (673 ) Gain (loss) on investments, net 5,348 (2,452 ) Employee benefit plan expense 1,139 1,231 Interest and other financing expense, net 51,981 45,179 Income before income taxes 196,321 186,460 Provision for income taxes 53,907 46,590 Consolidated net income 142,414 139,870 Noncontrolling interests 1,679 776 Net income attributable to shareholders $ 140,735 $ 139,094 Net income per share: Basic $ 1.65 $ 1.58 Diluted $ 1.63 $ 1.56 Weighted-average shares outstanding: Basic 85,400 87,955 Diluted 86,319 89,035 ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value) (Unaudited) March 30, 2019 December 31, 2018 ASSETS Current assets: Cash and cash equivalents $ 351,899 $ 509,327 Accounts receivable, net 7,902,516 8,945,463 Inventories 3,734,905 3,878,678 Other current assets 264,564 274,832 Total current assets 12,253,884 13,608,300 Property, plant, and equipment, at cost: Land 7,845 7,882 Buildings and improvements 157,326 158,712 Machinery and equipment 1,428,758 1,425,933 1,593,929 1,592,527 Less: Accumulated depreciation and amortization (774,325 ) (767,827 ) Property, plant, and equipment, net 819,604 824,700 Investments in affiliated companies 85,296 83,693 Intangible assets, net 369,291 372,644 Goodwill 2,632,451 2,624,690 Other assets 670,226 270,418 Total assets $ 16,830,752 $ 17,784,445 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 6,034,457 $ 7,631,879 Accrued expenses 860,982 912,292 Short-term borrowings, including current portion of long-term debt 138,686 246,257 Total current liabilities 7,034,125 8,790,428 Long-term debt 3,575,891 3,239,115 Other liabilities 719,326 378,536 Commitments and contingencies Equity: Shareholders equity: Common stock, par value $1: Authorized - 160,000 shares in both 2019 and 2018, respectively Issued - 125,424 shares in both 2019 and 2018, respectively 125,424 125,424 Capital in excess of par value 1,128,757 1,135,934 Treasury stock (40,251 and 40,233 shares in 2019 and 2018, respectively), at cost (1,992,981 ) (1,972,254 ) Retained earnings 6,476,070 6,335,335 Accumulated other comprehensive loss (288,267 ) (299,449 ) Total shareholders equity 5,449,003 5,324,990 Noncontrolling interests 52,407 51,376 Total equity 5,501,410 5,376,366 Total liabilities and equity $ 16,830,752 $ 17,784,445 ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Quarter Ended March 30, 2019 March 31, 2018 Cash flows from operating activities: Consolidated net income $ 142,414 $ 139,870 Adjustments to reconcile consolidated net income to net cash used by operations: Depreciation and amortization 47,526 47,247 Amortization of stock-based compensation 19,090 13,043 Equity in losses of affiliated companies 1,467 673 Deferred income taxes 6,968 (2,818 ) (Gain) loss on investments, net (5,348 ) 2,452 Other 5,575 3,465 Change in assets and liabilities, net of effects of acquired and disposed businesses: Accounts receivable 949,989 789,843 Inventories 134,402 (260,620 ) Accounts payable (1,540,008 ) (691,818 ) Accrued expenses (50,292 ) (22,087 ) Other assets and liabilities (40,782 ) (94,327 ) Net cash used for operating activities (328,999 ) (75,077 ) Cash flows from investing activities: Cash consideration paid for acquired businesses, net of cash acquired — (331,467 ) Proceeds from disposition of businesses — 34,291 Acquisition of property, plant, and equipment (33,815 ) (34,735 ) Other 2,940 (4,500 ) Net cash used for investing activities (30,875 ) (336,411 ) Cash flows from financing activities: Change in short-term and other borrowings (107,244 ) (18,387 ) Repayment of long-term bank borrowings, net 335,023 601,386 Redemption of notes — (300,000 ) Proceeds from exercise of stock options 6,931 4,997 Repurchases of common stock (53,925 ) (52,513 ) Net cash provided by financing activities 180,785 235,483 Effect of exchange rate changes on cash 21,661 (5,434 ) Net decrease in cash and cash equivalents (157,428 ) (181,439 ) Cash and cash equivalents at beginning of period 509,327 730,083 Cash and cash equivalents at end of period $ 351,899 $ 548,644 ARROW ELECTRONICS, INC. NON-GAAP SALES RECONCILIATION (In thousands) (Unaudited) Quarter Ended March 30, 2019 March 31, 2018 % Change Consolidated sales, as reported $ 7,155,991 $ 6,875,613 4.1 % Impact of changes in foreign currencies — (196,829 ) Impact of dispositions (11,141 ) (40,751 ) Consolidated sales, as adjusted $ 7,144,850 $ 6,638,033 7.6 % Global components sales, as reported $ 5,191,927 $ 4,929,932 5.3 % Impact of changes in foreign currencies — (129,719 ) Global components sales, as adjusted $ 5,191,927 $ 4,800,213 8.2 % Americas Components sales, as reported $ 1,907,029 $ 1,796,698 6.1 % Impact of changes in foreign currencies — (2,528 ) Americas Components sales, as adjusted $ 1,907,029 $ 1,794,170 6.3 % Europe components sales, as reported $ 1,503,366 $ 1,478,386 1.7 % Impact of changes in foreign currencies — (114,386 ) Europe components sales, as adjusted $ 1,503,366 $ 1,364,000 10.2 % Asia components sales, as reported $ 1,781,532 $ 1,654,848 7.7 % Impact of changes in foreign currencies — (12,805 ) Asia components sales, as adjusted $ 1,781,532 $ 1,642,043 8.5 % Global ECS sales, as reported $ 1,964,064 $ 1,945,681 0.9 % Impact of changes in foreign currencies — (67,110 ) Impact of dispositions (11,141 ) (40,751 ) Global ECS sales, as adjusted $ 1,952,923 $ 1,837,820 6.3 % Europe ECS sales, as reported $ 763,157 $ 750,270 1.7 % Impact of changes in foreign currencies — (55,716 ) Impact of dispositions (11,141 ) (13,258 ) Europe ECS sales, as adjusted $ 752,016 $ 681,296 10.4 % Americas ECS sales, as reported $ 1,200,907 $ 1,195,411 0.5 % Impact of changes in foreign currencies — (11,394 ) Impact of dispositions — (27,493 ) Americas ECS sales, as adjusted $ 1,200,907 $ 1,156,524 3.8 % ARROW ELECTRONICS, INC. NON-GAAP EARNINGS RECONCILIATION (In thousands except per share data) (Unaudited) Three months ended March 30, 2019 ReportedGAAPmeasure Intangibleamortizationexpense Restructuring& Integrationcharges Other* Non-GAAPmeasure Operating income $ 245,560 $ 11,930 $ 11,660 $ 866 $ 270,016 Income before income taxes 196,321 11,930 11,660 (4,482 ) 215,429 Provision for income taxes 53,907 3,207 2,852 (4,821 ) 55,145 Consolidated net income 142,414 8,723 8,808 339 160,284 Noncontrolling interests 1,679 142 — — 1,821 Net income attributable to shareholders $ 140,735 $ 8,581 $ 8,808 $ 339 $ 158,463 Net income per diluted share*** $ 1.63 $ 0.10 $ 0.10 $ — $ 1.84 Effective tax rate 27.5 % 25.6 % Three months ended March 31, 2018 ReportedGAAPmeasure Intangibleamortizationexpense Restructuring& Integrationcharges Other** Non-GAAPmeasure Operating income $ 235,995 $ 13,520 $ 21,171 $ 1,562 $ 272,248 Income before income taxes 186,460 13,520 21,171 4,014 225,165 Provision for income taxes 46,590 3,604 5,535 782 56,511 Consolidated net income 139,870 9,916 15,636 3,232 168,654 Noncontrolling interests 776 153 — — 929 Net income attributable to shareholders $ 139,094 9,763 15,636 3,232 167,725 Net income per diluted share*** $ 1.56 $ 0.11 $ 0.18 $ 0.04 $ 1.88 Effective tax rate 25.0 % 25.1 % * Other includes loss on disposition of businesses, net and gain (loss) on investments, net and impact of Tax Act.