Arrow Electronics, Inc. (ARW) Earnings & Analysis

Latest quarter

Arrow reported third-quarter revenue of $10.72 billion, above the consensus estimate of $9.92 billion, and adjusted earnings of $6.22 per share, above the $4.98 consensus. Revenue also exceeded Arrow’s own guidance of $9.6 billion to $10.2 billion. A year earlier, Arrow reported revenue of $7.7 billion.

The company reported diluted earnings per share of $6.17, up from $2.09 a year earlier. Its operating margin rose to 4.01% from 2.32%, while gross margin remained at 10.8%.

Arrow’s filing attributed Global Components sales growth primarily to market demand and AI-related growth. The filing said Global ECS sales increased across most major technologies, including cloud solutions, security, storage and infrastructure software. CFO Raj Agrawal reported ECS sales of $2.8 billion, up 29% year over year.

Arrow reported free cash flow of −$468.3 million, compared with −$312.0 million a year earlier. Its filing said working capital increased in the first nine months, primarily because of inventory purchases to support future demand.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

Revenue came in within or above the company’s guide in 2 of the last 2 quarters it guided.

What management said on the call

Interim CEO Bill Austen said components demand extended across regions, industries and customers. He said book-to-bill ratios remained above parity and backlog was building into mid-2027, while lead times had lengthened but remained below levels associated with a pervasive shortage.

Asked about pricing, CFO Raj Agrawal said memory prices had risen and most components revenue growth in the third quarter came from price increases. He added that Arrow could have sold more if it had obtained more product. For the fourth quarter, he said the company had assumed little additional memory or other price inflation and expected components growth to come primarily from unit volume.

Agrawal said limited capacity in some component categories had lifted prices and benefited revenue and profit dollars. He also pointed to Arrow’s engineering, design, integration and supply-chain services as contributors to profitability. Global Components President Rick Marano said expanding lead times, alongside a recovering customer base, made it harder to receive inventory when Arrow wanted it.

In ECS, Agrawal attributed the quarter’s sales performance to demand and conversion of more backlog into revenue, helped by product availability and customer readiness. He said Arrow had terminated one underperforming multiyear contract and restructured another with the same partner. For the fourth quarter, he expects hardware to account for more ECS revenue, increasing the proportion of sales recorded on a gross basis; he expects margins measured against billings to remain relatively unchanged from a year earlier.

Agrawal said inventory grew sequentially by $1.4 billion to $7.3 billion, with nearly half the increase related to data-center activity in Arrow Intelligence Solutions. Austen said the service builds low-volume, high-mix appliances, including storage and compute racks, for customers.

Austen also said ECS President Eric Nowak plans to retire and that Rodney Clark will succeed him as president effective January 1, 2027.

Guidance

For the fourth quarter, Arrow expects sales of $11.55 billion to $12.15 billion, including $8.15 billion to $8.55 billion from Global Components and $3.4 billion to $3.6 billion from Global ECS. Its previous guidance covered the third quarter, when it expected total sales of $9.60 billion to $10.20 billion.

Arrow expects fourth-quarter diluted EPS of $6.25 to $6.45 on a GAAP basis and $7.00 to $7.20 on a non-GAAP basis. For the third quarter, its previous ranges were $4.72 to $4.92 and $4.83 to $5.03, respectively.