Arrow Electronics(ARW) - 2019 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter sales reached $7.16 billion, a 4% year-over-year increase, and a 7% increase when adjusted for foreign currency changes [17] - Net income was $158 million, down 1% year-over-year when adjusted for foreign currency changes, and down 6% year-over-year as reported [22] - Earnings per share were $1.84 on a diluted basis, reflecting a 2% increase year-over-year adjusted for foreign currency changes, but a 3% decrease as reported [22] - Operating cash flow was negative $329 million, greater than expected due to inventory mix and changes in collection timing [23] Business Line Data and Key Metrics Changes - Global components sales were $5.19 billion, a 5% year-over-year increase, and an 8% increase when adjusted for foreign currency changes [17] - Enterprise computing solutions sales were $1.96 billion, a 6% year-over-year increase when adjusted for foreign currency changes, and a 1% increase as reported [20] - Global components operating income increased 2% year-over-year, but operating margin decreased by 10 basis points [19] Market Data and Key Metrics Changes - In Europe, sales increased 10% year-over-year when adjusted for foreign currency changes, marking 24 consecutive quarters of year-over-year growth [17] - In the Americas, sales increased 6% year-over-year, driven by demand for lower-cost commodity parts [18] - Asia sales increased 8% year-over-year, attributed to strong volume in the lower-margin wireless device business [18] Company Strategy and Development Direction - The company launched ArrowPlus, an engineering marketplace platform aimed at transforming product design and development processes [10] - The focus remains on leveraging engineering services and expanding customer base, with a commitment to maintaining a diverse portfolio across industries [15] - The company is addressing challenges in its ancillary business that negatively impacted performance, with plans to announce changes by midyear [19] Management's Comments on Operating Environment and Future Outlook - Management noted a market change in the global components space, with lower margins and delayed cash flow expected to persist into the second quarter [6] - Despite challenges, the company delivered sales above expectations and anticipates normalization as the industry returns to balance [9] - Management expects a two-quarter event for margin pressure, with design activity still growing year-over-year [30] Other Important Information - The company repurchased approximately 0.5 million shares for $40 million during the quarter, with a total of approximately $1.2 billion repurchased over the last five years [23] - Guidance for second quarter sales is projected between $7.525 billion and $7.925 billion, with global components sales between $5.5 billion and $5.7 billion [24] Q&A Session Summary Question: Why is there a delay in experiencing weak dynamics compared to peers? - Management indicated that historical trends show a delayed weakness from suppliers, particularly due to their initial business in China, and noted that high dollar products in inventory were pushed out late in the quarter [27][28] Question: When can normalization of highly engineered demand be expected? - Management anticipates a normalization within two quarters based on current bookings and design win activity [30] Question: Is there something driving revenue above normal seasonality despite a weaker demand environment? - Management explained that faster growth in Asia and a shift in product mix contributed to the revenue increase, although returns in Asia are lower than in the U.S. and Europe [34][35] Question: How will operating income growth be affected in the second half of the year? - Management expects to correct margin declines related to an ancillary business by midyear, with improvements anticipated in the second half [42] Question: What is the outlook for cash flow and capital expenditures? - Management indicated that CapEx will focus on warehousing investments, with a tight management approach to overall expenditures [84]