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Arrow Electronics Inc. Reports Operating Results (10-Q)

July 30, 2012 | About:
Tarn P Crowe

10qk

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Arrow Electronics Inc. (ARW) filed Quarterly Report for the period ended 2012-06-30.

Arrow Electronics, Inc. has a market cap of $3.9 billion; its shares were traded at around $34.86 with a P/E ratio of 6.99 and P/S ratio of 0.18. Arrow Electronics, Inc. had an annual average earning growth of 8.8% over the past 10 years. GuruFocus rated Arrow Electronics, Inc. the business predictability rank of 3-star.

Highlight of Business Operations:

Consolidated sales for the second quarter and first six months of 2012 decreased by $389.4 million, or 7.0%, and $722.8 million, or 6.7%, respectively, compared with the year-earlier periods. The decrease for the second quarter and first six months of 2012 was driven by a decrease in the global components business segment sales of $421.6 million, or 10.9%, and $958.7 million, or 12.4%, respectively, offset, in part, by an increase in the global ECS business segment sales of $32.3 million, or 1.9%, and $235.8 million, or 7.9%, respectively, compared with the year-earlier periods. The translation of the company's international financial statements into U.S. dollars resulted in a decrease in consolidated sales of $199.9 million and $277.1 million for the second quarter and first six months of 2012, respectively, compared with the year-earlier periods, due to a stronger U.S. dollar. Pro forma for acquisitions and excluding the impact of foreign currency, the company's consolidated sales decreased by 4.9% and 6.2%, for the second quarter and first six months of 2012, respectively, principally due to weaker overall market conditions.

The company recorded gross profit of $687.1 million and $1.37 billion in the second quarter and first six months of 2012, respectively, compared with $770.1 million and $1.49 billion in the year-earlier periods. The decrease in gross profit was primarily due to the aforementioned 7.0% and 6.7% decrease in sales during the second quarter and first six months of 2012, respectively. Gross profit margins for the second quarter and first six months of 2012 decreased by approximately 60 and 20 basis points, respectively, compared with the year-earlier periods, due to increased competitive pricing pressure in both the company's business segments, as well as a change in mix of products and customers. Pro forma for acquisitions and excluding the impact of foreign currency, gross profit margins decreased by approximately 80 and 50 basis points, respectively, for the second quarter and first six months of 2012.

decrease of 6.7%, compared with the first six months of 2011. Selling, general and administrative expenses, as a percentage of sales was 8.9% and 9.1% for the second quarter and first six months of 2012, respectively, compared with 8.9% in both the year-earlier periods. The dollar decrease in selling, general and administrative expenses was primarily due to the company's efforts to streamline and simplify processes and to reduce expenses in response to the decline in sales. This was offset, in part, by selling, general and administrative expenses for certain recent acquisitions which have a higher operating cost structure relative to the company's other businesses which is offset by higher gross profit margins for those businesses. The effect of acquisitions on selling, general and administrative expenses for the second quarter and first six months of 2012 was an increase of approximately $10 million and $40 million, respectively.

The company recorded operating income of $188.7 million, or 3.7% of sales, and $376.1 million, or 3.7% of sales, in the second quarter and first six months of 2012, respectively, as compared with operating income of $248.3 million, or 4.5% of sales, and $467.5 million, or 4.3% of sales, in the year-earlier periods. Included in operating income for the second quarter and first six months of 2012 were the previously discussed restructuring, integration, and other charges of $13.3 million and $21.6 million, respectively. Included in operating income for the second quarter and first six months of 2011 were the previously discussed restructuring, integration, and other charges of $5.2 million and $14.8 million, respectively. Also included in operating income for the first six months of 2011 was the previously discussed charge of $5.9 million related to the settlement of a legal matter.

the year-earlier periods. Included in net income attributable to shareholders for the second quarter and first six months of 2012 were the previously discussed restructuring, integration, and other charges of $9.7 million and $15.8 million, respectively. Included in net income attributable to shareholders for the second quarter and first six months of 2011 were the previously discussed restructuring, integration, and other charges of $3.6 million and $10.8 million, respectively. Also included in net income attributable to shareholders for the first six months of 2011 was the previously discussed charge of $3.6 million related to the settlement of a legal matter and a gain on bargain purchase of $1.1 million. Excluding the aforementioned items, the decrease in net income attributable to shareholders for the second quarter and first six months of 2012 was primarily the result of a decrease in sales and a corresponding decrease in gross profit. Additionally, gross profit margins were negatively impacted due to increased competitive pricing pressure in both the company's business segments, as well as a change in mix of products and customers. These decreases were offset, in part, by a reduction in selling, general and administrative expenses due to the company's efforts to streamline and simplify processes and to reduce expenses in response to the decline in sales.

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