Arrow Electronics holds steady 10 February, 2009 By Liam Lahey

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"We were able to achieve sales and earnings in line with our guidance range in the face of deteriorating market conditions during the fourth quarter. Macro pressures intensified through the quarter and demand has continued to weaken, impacting all markets and economies around the globe," said William E. Mitchell, chairman and CEO of Melville, N.Y.-based Arrow. "We expect the marketplace to continue to be unsettled and that visibility will remain limited most likely through 2009. While we cannot control external forces, we will continue to manage our business with the discipline necessary to maintain our financial strength, which we see as a competitive advantage in these difficult times."

"The current economic conditions have forced Arrow to make difficult but necessary decisions to ensure that we maintain our leadership position," added Michael J. Long, president and COO. "We have already implemented a number of cost-saving initiatives to reduce the severity of impact that the deteriorating economic conditions will have on our business and employees. We estimate that the total impact of these actions will reduce costs by more than $175 million annually."

Michelle Warren, principal analyst, MW Consulting, said Arrow -- like most electronics/IT distributors -- is in a challenging and highly competitive market. Distributors are sandwiched between the challenges of end-user clients and solution providers. As a result, distis faced demands for lower prices, faster delivery times, etc.

"Cost cutting -- like Arrow did in Q4 -- is a necessary, albeit painful, exercise to increase financial viability in the long run," she said. "Without their taking this step/initiative, I would be worried about them.

"The comment about being hurt by the enterprise computing segment exposes their current vulnerability, which is a heavy reliance on large enterprises, largely in the U.S. -- which has slowed down its spending of late."

An estimated 50 percent of Arrow's business lies in the USA, Warren noted. "It has to expand its geographic reach to find new business opportunities over the next couple of years," she remarked.

Global enterprise computing solutions sales of $1.64 billion increased 2 percent year over year. Pro forma to include the impact of the acquisition of LOGIX, sales decreased 11 percent year over year. Global components sales of $2.45 billion decreased 13 percent year over year.

"In our global components business, sales were also in line with expectations. Overall, the components markets continue to exhibit a great deal of caution, which we would expect to persist," Long said.

Arrow's net income for 2008 was $301.4 million ($2.50 and $2.48 per share on a basic and diluted basis, respectively) on sales of $16.76 billion, compared with net income of $407.8 million ($3.31 and $3.28 per share on a basic and diluted basis, respectively) on sales of $15.98 billion in 2007. Sales in 2008 increased 5 percent year over year. Pro forma to include the impact of the acquisitions of LOGIX and KeyLink Systems Group, and exclude KeyLink sales from the related long-term procurement agreement with Agilysys for the first quarter of 2008, sales were essentially flat year over year.

Net income for 2008 includes a restructuring and integration charge of $70.1 million ($55.3 million net of related taxes or $.46 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies and a charge, including legal fees, related to a preference claim from 2001 of $10.9 million ($6.6 million net of related taxes or $.05 per share on both a basic and diluted basis). Net income for 2008 also includes a reduction of the provision for income taxes of $8.5 million ($.07 per share on both a basic and diluted basis) and an increase in interest expense of $1 million ($1 million net of related taxes or $.01 per share on both a basic and diluted basis) primarily related to the settlement of certain international income tax matters. Excluding these items, net income would have been $355.7 million ($2.95 and $2.93 per share on a basic and diluted basis, respectively) for 2008.

Net income for 2007 includes restructuring and integration charges of $11.7 million primarily related to initiatives taken by the company in the period to improve operating efficiencies and the acquisition of KeyLink, and an income tax benefit of $6 million due to a decrease in deferred income taxes as a result of a reduction in the statutory tax rate in Germany. Excluding these items, net income would have been $408.8 million ($3.32 and $3.29 per share on a basic and diluted basis, respectively) for 2007.

Looking ahead, Arrow said it expected first quarter 2009 sales to be between $3 billion and $3.6 billion, with global component sales between $2 billion and $2.4 billion and global enterprise computing solutions sales between $1 billion and $1.2 billion.