• Total Sales: $7.3 billion, surpassing the high-end of guided ranges.
• Non-GAAP Earnings Per Share: $2.97, above guided range.
• Global Component Sales: $4.8 billion, down 3% versus prior quarter.
• Enterprise Computing Solutions Sales: $2.5 billion, 12% higher versus prior year.
• Non-GAAP Gross Margin: 11.7%, down 90 basis points year-over-year.
• Global Components Gross Margin: 11.4% (non-GAAP).
• Enterprise Computing Solutions Gross Margin: 12.4% (non-GAAP).
• Non-GAAP Operating Income: $274 million, 3.8% of sales.
• Interest and Other Expense: $60 million.
• Non-GAAP Effective Tax Rate: 24.9%.
• Cash Flow from Operations: $326 million in Q4, $1.1 billion for the full year.
• Inventory: $4.7 billion, reduced by $1.1 billion from peak levels.
• Gross Balance Sheet Debt: $3.1 billion.
• Share Repurchase: $50 million in Q4, $250 million for the full year.
• Q1 Sales Guidance: $5.98 billion to $6.58 billion.
• Q1 Non-GAAP Diluted EPS Guidance: $1.30 to $1.50.

• Warning! GuruFocus has detected 3 Warning Sign with ARW.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Arrow Electronics Inc (NYSE:ARW) exceeded its fourth-quarter sales expectations, generating $7.3 billion in total sales.
• The company achieved a non-GAAP earnings per share of $2.97, surpassing the high-end of its guided range.
• Arrow Electronics Inc (NYSE:ARW) saw sequential improvement in its industrial markets, particularly in Asia and the Americas.
• The enterprise computing solutions segment delivered year-over-year growth in billings, gross profit, and operating income.
• The company successfully reduced its inventory by $1.1 billion from peak levels, indicating effective inventory management.

Negative Points

• Consolidated sales for the fourth quarter were down 7% compared to the prior year.
• Global component sales decreased by 3% versus the prior quarter.
• The company faced softness in consumer, compute, and communications segments in Asia.
• The automotive sector in the Americas experienced softness, impacting overall performance.
• Arrow Electronics Inc (NYSE:ARW) anticipates a challenging macro environment in Europe, with sub-seasonal outlooks.

Q & A Highlights

Q: Did Arrow Electronics see any pull-ins in the December quarter due to potential tariff activity or annual price increases? A: Sean Kerins, President and CEO, stated that there were no material pull-ins in Q4 sales numbers due to those factors.

Q: Are you expecting a return to a more normalized pricing environment with low single-digit annual price concessions? A: Sean Kerins mentioned that gross margins were stable from Q3 to Q4 in the global component segment, and they assume the same stability for Q1.

Q: How should we think about the inter-quarter turns demand that drove upside in Q4 and the assumption for Q1? A: Sean Kerins explained that the turns business was relatively stable from Q3 to Q4 and is expected to remain stable in Q1. The broader market recovery is still uncertain.

Q: Can you explain the OpEx dynamics embedded in the Q1 guidance and the impact of cost savings from restructuring? A: Rajesh Agrawal, CFO, noted that they have reduced annual costs by $200 million since mid-2023, with further savings expected. The starting point for Q1 OpEx is around $600 million.

Q: What gives Arrow Electronics confidence that the inventory correction is in the late innings? A: Sean Kerins indicated that inventory levels are slowly declining, and they have a good handle on Q1. They expect improvement throughout the year, driven by inventory reductions and business development efforts.

Q: Are there specific components still in excess in the supply chain? A: Sean Kerins stated there are no significant pockets of excess in any particular component type. Inventory management is effective, with no long-term obsolescence challenges.

Q: How should we think about margin progression between Q4 and Q1 for both segments? A: Rajesh Agrawal mentioned that gross margins are expected to remain stable from Q4 to Q1. Seasonal patterns affect ECS, with Q1 being the smallest quarter, impacting overall corporate results.

Q: What is Arrow Electronics' target level for inventory, and how does it relate to customer inventories? A: Sean Kerins explained that they focus on inventory turns and working capital as a percentage of sales. Customer inventories are broadly creeping down, which should eventually normalize order patterns and improve visibility.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.