Electronic parts distributor Arrow Electronics Inc. (ARW) reported sales of $4.7 billion in the third quarter of 2010 up 27.0% year over year and up 1.0% sequentially, which surpassed the Zacks Consensus Estimate of $4.6 billion.
On a segment basis, Global components sales came in at $3.44 billion, up 35.3% year over year and 5.5% sequentially, driven by strong growth in Americas, European and core Asia-Pacific regions, which was partially offset by a slowdown in the low-end handset business in Asia-Pacific. Overall lead times are stabilizing with semiconductor products returning to more normal levels. Book-to-bill for this segment was 1.1.
Global enterprise computing solutions (ECS) recorded sales of $1.22 billion, down 10% sequentially but up 8% year over year driven by strong buying patters in the U.S., storage, software. In addition, industry standard servers grew strongly.
Arrow stated that overall IT spending rebounded and is estimated to be in the low single digits for the remainder of 2010. However, management expects that some pockets of IT are going to grow much faster than the overall IT market.
Gross margin came in at 13.1%, up from 11.5% in the year-ago quarter and 12.8% in the previous quarter, driven by solid increases in almost all its businesses in all the regions.
Operating margin came in at 4.0%, up from 1.2% in the year-ago quarter due to an improvement in gross margin as management continues to take steps to improve operational efficiency. Operating expenses (excluding restructuring charges) decreased 40 basis points year-over-year and increased 30 basis points sequentially to 8.8%.
Arrow reported a net income of $118.5 million or $1.00 per diluted share compared to a net income of $116.2 million or 96 cents per diluted share in the previous quarter and a net income of $12.6 million or 10 cents in the year-ago quarter.
Excluding loss on prepayment of debt and restructuring, integration, and other charges, net income came in at $128.0 million or $1.08, easily beating the Zacks Consensus Estimate of $1.01 and management’s estimate of $0.96–$1.06.
During the quarter, Arrow used $27 million of cash in operating activities and used $27.0 million in capital expenditures. The company repurchased $125 million of stock in the quarter, which left $75 million under the share buy-back program. Arrow also retired $70 million of debt. Arrow ended the quarter with cash and equivalents of $509.7 million, down from $576.7 million at the end of the previous quarter.
Guidance
Strong performance in the first nine months of 2010 encouraged management to provide a robust outlook for the fourth quarter. Going forward, management expects sales in the fourth quarter of 2010 to come between $5.0 billion and $5.4 billion.
Global components’ sales are projected between $3.32 and $3.52 billion. Global enterprise computing solutions sales are estimated between $1.67 billion and $1.87 billion. Earnings per share (excluding any one-time charges) are projected around $1.22–$1.32.
During the quarter, Arrow completed the acquisitions of Shared Technologies, Transim Technology Corporation and Eshel Technology Group. The company also announced agreements to acquire NuHo and the RF, Wireless and Power Division of Richardson Electronics.
Arrow expects that these acquisitions will expand its portfolio and build strategic capabilities such as value-added services to help meet the evolving needs of customers and suppliers.
Cumulatively, these acquisitions are expected to be accretive to earnings by 25 cents to 42 cents on an annual basis. In addition, acquisitions of Petsche, Converge, Verical and Sphinx are expected to boost the bottom line by 15 cents to 22 cents.
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