It has been about a month since the last earnings report for Arrow Electronics, Inc. (NYSE:ARW) . Shares have added about 2.4% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is ARW 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 catalysts.
Arrow Electronics Q4 Earnings & Revenues Top Estimates
Arrow Electronics reported impressive fourth-quarter 2017 results. The company’s quarterly revenues and earnings recorded year-over-year improvement, and also came above the guided range.
Arrow’s non-GAAP earnings of $2.51 per share came ahead of the Zacks Consensus Estimate of $2.30 per share. It also exceeded the guided range of $2.21-$2.37 (mid-point $2.29 per share). Moreover, earnings increased from $2.00 per share reported in the year-ago quarter.
Quarter in Detail
Arrow’s revenues, both on a reported and adjusted basis (excluding the impact of changes in foreign currencies and acquisitions), were $7.634 billion. On a reported basis, the figure was up 18.5% and on an adjusted basis it was up 15.1% from the year-ago quarter. Quarterly revenues also surpassed the Zacks Consensus Estimate of $7.446 billion and came above the guided range of $7.2 billion and $7.6 billion (mid-point $7.4 billion).
On a reported basis, revenues from Global components increased 23.8% to $4.945 billion. On an adjusted basis, the figure grew 20.7%. Geographically, adjusted Global components revenues from Asia climbed 14.4%. On a reported basis, the figure increased 15.5%. Global components contribution from Europe rose approximately 23.6% on an adjusted basis and 34.5% on a reported basis from the year-ago quarter.
Revenues at Global Enterprise Computing Solutions (ECS) came in at $2.689 billion, up 9.9% on a reported basis from the year-ago quarter. On an adjusted basis, revenues increased 6%. Adjusted ECS revenues from the Americas were up 4.9% while reported revenues were up 5.5% on a year over year basis. Reported ECS revenues from Europe increased 18.6% while adjusted revenues increased 7.9% from the year-ago period.
Gross margin contracted 310 basis points (bps) year over year and came in at 12.2%, primarily due to a higher mix of low margin supply chain activity compared to engineering design activity. The company reported that on a year-over-year basis, operating expenses increased 9% and as a percentage of revenues decreased 70 basis points. The increase in expenses was primarily attributed to strategic growth related initiatives of the company.
Arrow reported non-GAAP operating margin of 4.4%, up 20 bps. Moreover operating income, in dollar terms, increased 21% year over year to $339.6 million.
The company’s non-GAAP net income was $223.7 million compared with $181.7 million in the year-ago quarter.
Arrow exited the quarter with cash and cash equivalents of $730.1 million compared with $584.3 million reported in the previous quarter. Long-term debt (including current portion) was $2.93 billion compared with $3.18 billion at the end of the previous quarter. During the quarter, the company’s operating cash flow was $122.8 million. Further, the company repurchased shares worth $25 million during the quarter.
Impact of Tax Rate
Management noted that its effective tax rate was 310 bps lower than the previously anticipated range of 27-29%, pertaining to certain “favorable tax rulings” which were not certain at the beginning of the quarter. The company enjoyed a benefit of $9 million in non-GAAP net income due to this change.
Management noted that per the new tax reforms, it will pay “approximately $196 million on taxes on our more than $3 billion of unremitted foreign earnings and increasing installments over the next eight years”. The positive impact of the new reforms will be recognized after eight years.
Full-Year Results
Arrow generated adjusted consolidated sales of $26.812 billion in 2017, reflecting an increase of 11.6% from the prior year.
Non-GAAP net income per share increased 13.6% from the previous year to $7.56.
Guidance
For the first quarter of 2018, sales are expected between $6.4 billion and $6.8 billion (mid-point $6.6 billion). Global components sales are projected in the range of $4.7-$4.9 billion. Global enterprise computing solutions sales are estimated to be in the range of $1.7-$1.9 billion.
The company projects non-GAAP earnings per share in the range of $1.74-$1.86 (mid-point $1.80 per share).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been three moves up in the last two months.
Arrow Electronics, Inc. Price and Consensus
Arrow Electronics, Inc. Price and Consensus | Arrow Electronics, Inc. Quote
VGM Scores
At this time, ARW has an average Growth Score of C. However, its Momentum is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for momentum and to a lesser degree growth.
Outlook
Estimates have been trending upward for the stock and the magnitude of this revision looks promising. Notably, ARW has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Arrow Electronics, Inc. (ARW): Free Stock Analysis Report
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