Arrow Easily Beats

Arrow Electronics (ARW - Analyst Report) posted a net income (excluding loss on prepayment of debt and restructuring, integration, and other charges) of $157.3 million or $1.38 per share in the fourth quarter of 2011 compared with a net income of $151.6 million or $1.29 per share in the year-ago quarter.

The results beat the Zacks Consensus Estimate of $1.29. Including the above mentioned items, net income came in at $174.1 million or $1.53 per diluted share compared to a net income of $1.53 per diluted share or $1.34 per diluted share in the year-ago quarter.

Revenues

Arrow reported sales of $5.44 billion in the quarter, up 3.8% year over year and up 4.6% sequentially.

On a segmental basis, Global component sales of $3.44 billion increased 3% year over year, as growth in the Americas was offset by some weakness in Europe and Asia. Management believes that this segment will benefit from the next wave of IT spending in 2012 to build out the data center of the future.

Revenues from Global enterprise computing solutions (ECS) increased 5% year over year to $2.0 billion, driven by growth in Europe.

For 2011, sales increased 14% to $21.4 billion driven by the addition of recent acquisitions and growth in both segments. Net income jumped 24.8% year over year to $598.8 million.

Margins

Gross margin came in at 13.7%, an increase of 70 basis points year over year. Excluding the impact of acquisitions, gross margin was up 10 basis points year over year.

Operating margin (excluding restructuring, integration, and other charges) came in at 4.5%, roughly flat on a year over year basis and up from 4% in the previous quarter.

Balance Sheet and Cash Flows

Arrow ended the quarter with cash and cash equivalents of $396.9 million, down from $545 million, at the end of the previous quarter. As of December 31, 2011, long-term debt was $1.9 billion, down from $1.79 billion in the previous quarter.

During the quarter, the company generated $147 million of cash from operating activities and used $25.7 million for capital expenditure.

In 2011, Arrow repurchased 5.1 million shares for $182 million and the company currently has $150 million remaining in its current buyback program.

Guidance

Going forward, management expects sales in the first quarter of 2012 to come between $4.67 billion and $5.07 billion.

Global components sales are projected between $3.35 billion and $3.55 billion. Global enterprise computing solutions sales are estimated between $1.32 billion and $1.52 billion. Earnings per share (excluding any one-time charges) are projected around $1.01 to $1.13 per share.

Arrow, which competes with Avnet, Inc. (AVT - Analyst Report), completed a series of acquisitions in the last twelve months which it believes will enable the company to enter new markets, products and geographies.

We continue to maintain a Neutral recommendation on Arrow. In the short-run, however, we have a Zacks #4 Rank on the stock which translates into a short-term rating of Sell.

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