Arrow Electronics Inc. (ARW) reported sales of $4.24 billion in the first quarter of 2010, up 24% year-over-year and up 1% sequentially and beat management’s expectations.
On a segment basis, Global components sales came in at $3.13 billion, up 33% year-over-year and 21% sequentially driven by growth in all regions. In particular, growth was more robust in Asia Pacific, which recorded $1 billion of sales in the quarter.
Global enterprise computing solutions (ECS) recorded sales of $1.11 billion, up 3% year-over-year driven by double-digit growth in storage, software and services. This marks the first quarter of year-over-year growth since the fourth quarter of 2008. However, sales were down 31% sequentially.
The company saw weakness in the higher margin proprietary server segment, particularly in North America, resulting in a 12% year-over-year decline in this segment.
Management is pleased with the performance of the components business as each region achieved significant year-over-year increases in sales, profitability and returns. However, it is not satisfied with the levels of profitability in the ECS segment.
Margins
Gross margin came in at 12.7%, up from 12.6% in the year-ago quarter and 11.8% in the previous quarter, driven primarily by the components business.
Operating margin came in at 3.5%, up from 1.8% in the year-ago quarter and 3.2% in the previous quarter due to an improvement in gross margin as management continued to take steps to improve operational efficiency. Operating expenses came in at 9.1% of sales, down 100 basis points year-over-year but up 60 basis points sequentially.
Net income came in at $87.0 million or 71 cents per share compared with a net income of $26.7 million or 22 cents per share in the year-ago quarter.
Excluding restructuring charges, net income per share was 76 cents easily beating the Zacks Consensus Estimate of 60 cents.
During the quarter, Arrow used $282.2 million of cash from operations and used $27.5 million in capital expenditures. Arrow exited the quarter with cash and cash equivalents of $810.0 million, down from $1.1 billion at the end of the previous quarter.
Guidance
Going forward, management expects sales in the second quarter of 2010 to range between $4.3 billion and $4.6 billion. Global components sales are projected between $3.2 and $3.3 billion. Global enterprise computing solutions sales are estimated between $1.1 billion and $1.3 billion. Sales from the proprietary server business are expected to decline. The guidance does not include anything from the two recent acquisitions.
Inventories were up $100 million in the quarter. Arrow primarily focuses on increasing inventories in the logic area, the programmable logic area, the memory area and electromechanical products.
Earnings per share are estimated to be between 78 cents and 86 cents.
Earlier, rival Avnet Inc. (AVT) also posted strong results for the fiscal third quarter.
As demand revives and economy shows signs of recovery, Arrow should see growth in its top line, which in turn should positively impact margins.
New York-based Arrow Electronics is one of the world’s largest distributors of electronic components and computing products. The company sources products from about 800 suppliers and distributes them to over 130,000 customers (original equipment manufacturers, contract manufactures and commercial customers).
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