Arrow Electronics(US:ARW)2020-05-01 03:28Financial Data and Key Metrics Changes - First quarter sales were $6.38 billion, a decrease of 9% year-over-year, adjusted for divestitures and currency changes [17] - Global component sales were $4.55 billion, representing a 10% year-over-year decrease, marking five sequential quarters of decline [17][18] - Operating margin for global components was 3.8%, continuing a trend of year-over-year margin decline for four consecutive quarters [18] - Enterprise computing solutions sales were $1.83 billion, a 6% year-over-year decrease, but near the higher end of expectations [19] - Earnings per share were $0.97, including $0.41 of charges from foreign tax and other contingencies [21] Business Line Data and Key Metrics Changes - Global components experienced a 10% year-over-year sales decline, with operating margin declining for four consecutive quarters [17][18] - Enterprise computing solutions saw a shift in demand towards software for remote work, with strong sales in virtual desktop infrastructure and security software [13][19] - First quarter backlog increased from the fourth quarter, indicating a second consecutive quarter of sequential improvement [12] Market Data and Key Metrics Changes - Customer sentiment in the Americas showed an increase in appropriate inventory levels compared to last year, with no significant challenges in securing parts [13] - Book-to-bill ratio was 1.12 exiting the first quarter, above parity in all regions [12] Company Strategy and Development Direction - The company is focused on leveraging technology and supply chain capabilities to support communities during the COVID-19 crisis, including initiatives for ventilator production [14] - The company aims to emerge stronger from the current situation by increasing its services business and enhancing its engineering capabilities [54] Management's Comments on Operating Environment and Future Outlook - Management noted that while near-term business conditions remain durable, demand can change quickly, and they are prepared to adapt [12] - The company has not seen significant cancellations from customers, indicating steady backlog and order stability [50] - Management expressed cautious optimism regarding the recovery in China and the overall market outlook [27][49] Other Important Information - The company reported strong operating cash flow of $467 million, with a significant reduction in borrowings [22][23] - The effective tax rate was 29.5%, higher than expected due to foreign tax contingencies [21] Q&A Session Summary Question: Regarding the component business and guidance - Management expressed confidence in the guidance provided, noting a significant uptick in China and stable order patterns despite market challenges [27] Question: Impact of vendor rebates on ECS margins - Management clarified that margin pressures were more related to the type of software sold rather than rebate thresholds [31][32] Question: Free cash flow dynamics - A significant portion of cash flow was attributed to a European securitization program, which helped pay down debt and fund stock buybacks [35] Question: Stability of backlog and customer adjustments - Management indicated that backlog remains steady, with no significant uptick in cancellations, and customers are positioning orders to ensure product availability [49] Question: Design activity and end markets driving growth - Design activity has increased across various segments, including industrial and medical, with significant investments in Asia paying off [78]