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Arrow Electronics Reports Second-Quarter 2018 Results

August 2, 2018

CENTENNIAL, Colo.--(BUSINESS WIRE)--Aug 2, 2018--Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2018 sales of $7.39 billion, an increase of 15 percent from sales of $6.42 billion in the second quarter of 2017. Second-quarter net income of $170 million, or $1.92 per share on a diluted basis, compared with net income of $100 million, or $1.11 per share on a diluted basis, in the second quarter of 2017. Excluding certain items 1, net income would have been $195 million, or $2.20 per share on a diluted basis, in the second quarter of 2018, compared with net income of $159 million, or $1.77 per share on a diluted basis, in the second quarter of 2017. Excluding certain items 1, net income increased 23 percent year over year, and earnings per share on a diluted basis increased 24 percent year over year.

“We are providing more economic value to our customers and suppliers by expanding our design and engineering capabilities,” said Michael J. Long, chairman, president, and chief executive officer. “Customers increasingly want to purchase solutions, not just components or IT.”

Global components second-quarter sales of $5.28 billion increased 18 percent year over year. Second-quarter sales, as adjusted, increased 16 percent year over year. Americas components sales increased 14 percent year over year. Asia-Pacific components sales increased 21 percent year over year. Europe components sales increased 21 percent year over year. Sales in the region, as adjusted, increased 14 percent year over year. Global components second-quarter operating income increased 29 percent year over year.

“Demand conditions are favorable, and point to normal, sustained growth for the future,” said Mr. Long.

Global enterprise computing solutions second-quarter sales of $2.11 billion increased 8 percent year over year. Americas enterprise computing solutions sales increased 6 percent year over year. Sales in the region, as adjusted, increased 11 percent year over year. Europe enterprise computing solutions sales increased 10 percent year over year. Sales in the region, as adjusted, increased 1 percent year over year. Global enterprise computing solutions second-quarter operating income increased 2 percent year over year and was flat year over year excluding amortization of intangibles expense.

“We are well-aligned to current IT spending trends, and have leadership positions in security, hybrid cloud, and software-defined architectures,” added Mr. Long.

“Return on invested capital increased year over year for the fourth straight quarter. Second quarter cash flow from operations was negative $410 million driven by the need for working capital additions to service our record levels of growth. More than $200 million of the decline was a timing issue at quarter end between inventory and receivables on a new customer engagement,” said Chris Stansbury, senior vice president and chief financial officer. “We remain committed to returning excess cash to shareholders. During the second quarter, we returned approximately $20 million to shareholders through our stock repurchase program. We had approximately $299 million of remaining authorization under our share repurchase program at the end of the second quarter.”

SIX-MONTH RESULTS

In the first six months of 2018, Arrow’s sales of $14.27 billion increased 17 percent from sales of $12.16 billion in the first six months of 2017. Net income for the first six months of 2018 was $309 million, or $3.48 per share on a diluted basis, compared with net income of $214 million, or $2.38 per share on a diluted basis in the first six months of 2017. Excluding certain items 1, net income would have been $363 million, or $4.08 per share on a diluted basis, in the first six months of 2018 compared with net income of $291 million, or $3.23 per share on a diluted basis, in the first six months of 2017.

1 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.

GUIDANCE

“As we look to the third quarter, we believe that total sales will be between $7.15 billion and $7.55 billion, with global components sales between $5.25 billion and $5.45 billion, and global enterprise computing solutions sales between $1.9 billion and $2.1 billion. As a result of this outlook, we expect earnings per share on a diluted basis to be in the range of $1.79 to $1.91, and earnings per share on a diluted basis, excluding certain items 1, to be in the range of $2.09 to $2.21 per share. Our guidance assumes an average tax rate of 23.5 percent to 25.5 percent, and average diluted shares outstanding are expected to be approximately 89 million. Guidance is based on an average USD-to-Euro exchange rate for the third quarter of approximately $1.17 to €1,” said Mr. Stansbury.

Please refer to the CFO commentary, which can be found at investor.arrow.com, as a supplement to the company’s earnings release.

Arrow Electronics guides innovation forward for over 150,000 of the world’s leading manufacturers of technology used in homes, business and daily life. With 2017 sales of $26.6 billion, Arrow aggregates electronics and enterprise computing solutions for customers and suppliers in industrial and commercial markets. The company maintains a network of more than 345 locations serving over 80 countries. Learn more at FiveYearsOut.com.

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, the 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, 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. 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 Dec. 31, 2017.

Certain Non-GAAP Financial Information

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/dispositions by adjusting the company’s operating results, including the amortization expense related to acquired/disposed intangible assets, as if the acquisitions/dispositions had occurred at the beginning of the earliest period presented (referred to as “impact of acquisitions” and “impact of dispositions”). 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, acquisitions/dispositions (including intangible assets amortization expense), and financing activities. A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the tables below.

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, sales, operating income, net income 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.

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