Arrow Electronics, Inc. (ARW) Bundle
Understanding Arrow Electronics, Inc. (ARW) Revenue Streams
Understanding Arrow Electronics, Inc.’s Revenue Streams
Arrow Electronics, Inc. reported consolidated sales of $6,823,319 thousand for the quarter ended September 28, 2024, compared to $8,007,019 thousand for the same quarter in 2023, representing a decrease of 14.8%. For the nine months ended September 28, 2024, sales were $20,640,447 thousand, down from $25,257,963 thousand in 2023, reflecting an 18.3% decline.
Breakdown of Primary Revenue Sources
The company’s revenue is derived from two primary segments: Global Components and Global Enterprise Computing Solutions (ECS). The following table illustrates the sales breakdown by segment:
| Segment | Quarter Ended September 28, 2024 | Quarter Ended September 30, 2023 | Change (%) | Nine Months Ended September 28, 2024 | Nine Months Ended September 30, 2023 | Change (%) |
|---|---|---|---|---|---|---|
| Global Components | $4,946,059 | $6,245,192 | (20.8)% | $15,169,507 | $19,783,867 | (23.3)% |
| Global ECS | $1,877,260 | $1,761,827 | 6.5% | $5,470,940 | $5,474,096 | (0.1)% |
| Total Revenue | $6,823,319 | $8,007,019 | (14.8)% | $20,640,447 | $25,257,963 | (18.3)% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate has shown significant fluctuations. The company experienced a decline in Global Components sales of 20.8% in the third quarter of 2024 compared to the same period in 2023. Conversely, Global ECS sales increased by 6.5% in the same quarter.
Contribution of Different Business Segments to Overall Revenue
For the quarter ended September 28, 2024, Global Components accounted for 72.5% of total revenue, while Global ECS contributed 27.5%. In the nine months ended September 28, 2024, the contributions were 73.5% from Global Components and 26.5% from Global ECS.
Analysis of Significant Changes in Revenue Streams
Notable changes in revenue streams include the substantial decline in Global Components sales, which fell from $19,784 thousand in the first nine months of 2023 to $15,170 thousand in 2024, a decrease of 23.3%. This decline is attributed to decreased demand and elevated customer inventory levels. In contrast, the Global ECS segment remained relatively stable, with only a slight decrease of 0.1% for the nine months ended September 28, 2024.
A Deep Dive into Arrow Electronics, Inc. (ARW) Profitability
A Deep Dive into Arrow Electronics, Inc.'s Profitability
Gross Profit Margin
For the quarter ended September 28, 2024, the gross profit was reported at $784.8 million, representing a decrease of 19.9% compared to $979.6 million in the same quarter of 2023. For the nine months ended September 28, 2024, gross profit totaled $2.49 billion, down 21.2% from $3.16 billion in the prior year.
Gross Profit as a Percentage of Sales
| Period | Gross Profit ($ millions) | Sales ($ millions) | Gross Profit Margin (%) |
|---|---|---|---|
| Q3 2024 | 784.8 | 6,823.3 | 11.5% |
| Q3 2023 | 979.6 | 8,007.0 | 12.2% |
| 9M 2024 | 2,489.1 | 20,640.4 | 12.1% |
| 9M 2023 | 3,159.5 | 25,258.0 | 12.5% |
Operating Profit Margin
Operating income for the quarter ended September 28, 2024, was $175.3 million, down 48.5% from $340.1 million in Q3 2023. For the nine months ended September 28, 2024, operating income was $573.5 million, a decrease of 50.3% from $1.15 billion in the previous year.
Operating Income as a Percentage of Sales
| Period | Operating Income ($ millions) | Sales ($ millions) | Operating Income Margin (%) |
|---|---|---|---|
| Q3 2024 | 175.3 | 6,823.3 | 2.6% |
| Q3 2023 | 340.1 | 8,007.0 | 4.2% |
| 9M 2024 | 573.5 | 20,640.4 | 2.8% |
| 9M 2023 | 1,154.5 | 25,258.0 | 4.6% |
Net Profit Margin
Net income attributable to shareholders for Q3 2024 was $100.6 million, down from $198.7 million in Q3 2023, reflecting a margin of 1.5%. For the nine months ended September 28, 2024, net income was $292.9 million, compared to $709.0 million in the previous year, resulting in a net profit margin of 1.4%.
Net Income as a Percentage of Sales
| Period | Net Income ($ millions) | Sales ($ millions) | Net Profit Margin (%) |
|---|---|---|---|
| Q3 2024 | 100.6 | 6,823.3 | 1.5% |
| Q3 2023 | 198.7 | 8,007.0 | 2.5% |
| 9M 2024 | 292.9 | 20,640.4 | 1.4% |
| 9M 2023 | 709.0 | 25,258.0 | 2.8% |
Trends in Profitability Over Time
Over the past year, the profitability metrics indicate a downward trend across gross, operating, and net profit margins, primarily driven by declining sales and increased operational challenges.
Comparison of Profitability Ratios with Industry Averages
The industry average gross margin for similar companies is approximately 15%, while the operating margin averages around 5%. The net profit margin average in the sector is about 3%. The company’s current margins are below these industry benchmarks, highlighting potential areas for improvement.
Analysis of Operational Efficiency
Operational efficiency has been impacted by rising costs and a shift in product mix towards lower-margin offerings. The company's gross margin as a percentage of sales has decreased consistently, indicating challenges in cost management and pricing strategy.
For the nine months ended September 28, 2024, operational expenses totaled $1.92 billion, down 4.5% from $2.00 billion in the previous year, improving the operating expense ratio slightly.
Key Takeaways
- Gross profit margin declined to 11.5% in Q3 2024 from 12.2% in Q3 2023.
- Operating income margin fell to 2.6% from 4.2% year-over-year.
- Net profit margin decreased to 1.5% from 2.5% in the same quarter last year.
Debt vs. Equity: How Arrow Electronics, Inc. (ARW) Finances Its Growth
Debt vs. Equity: How Arrow Electronics, Inc. Finances Its Growth
Debt Levels Overview
As of September 28, 2024, the company's total long-term debt amounted to $2,363.2 million, up from $2,153.6 million at December 31, 2023. The breakdown of long-term debt is as follows:
| Debt Type | Amount (as of September 28, 2024) (thousands) |
|---|---|
| North American asset securitization program | $251,000 |
| 7.50% senior debentures, due 2027 | $110,246 |
| 3.875% notes, due 2028 | $497,603 |
| 5.15% notes, due 2029 | $494,983 |
| 2.95% notes, due 2032 | $495,440 |
| 5.875% notes, due 2034 | $494,878 |
| Other obligations | $19,091 |
The company also reported short-term borrowings of $909.8 million as of September 28, 2024, down from $1,653.9 million at the end of the previous year.
Debt-to-Equity Ratio
The debt-to-equity ratio as of September 28, 2024, is calculated as follows:
- Total Debt: $3,273 million (sum of long-term and short-term debt)
- Total Equity: $5,769 million
- Debt-to-Equity Ratio: 0.57
This ratio is below the industry average, indicating a lower financial risk compared to peers in the electronics sector, where the average debt-to-equity ratio is typically around 1.0.
Recent Debt Issuances and Refinancing Activity
In the third quarter of 2024, the company issued $500 million of 5.15% notes due in 2029, utilizing the proceeds to repay maturing debt. Additionally, $500 million of 5.875% notes due in 2034 were issued in April 2024.
As of September 28, 2024, the company maintained a credit rating of BBB- from Standard & Poor's, reflecting a stable outlook.
Balancing Debt Financing and Equity Funding
The company employs a balanced approach to financing its growth. Its liquidity position is strong, with $248 million in cash and cash equivalents as of September 28, 2024. Furthermore, the company has access to a $2.0 billion revolving credit facility, which remains untapped.
The strategy includes maintaining a strong working capital position of $6.864 billion, which supports operational flexibility and investment opportunities. The company has a history of share repurchases, with approximately $374.6 million remaining under its repurchase authorization as of September 28, 2024.
Assessing Arrow Electronics, Inc. (ARW) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio, a measure of liquidity, is calculated as current assets divided by current liabilities. As of September 28, 2024, the current ratio stood at 1.53, reflecting a solid liquidity position. The quick ratio, which excludes inventories from current assets, was 1.02, indicating that the company can cover its short-term obligations without relying on inventory sales .
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, was $6.864 billion as of September 28, 2024, down from $7.355 billion at the end of 2023, showing a decrease of $491 million. This shift primarily results from a decrease in inventory levels .
| Period | Working Capital (in millions) | Change |
|---|---|---|
| September 28, 2024 | $6,864 | - |
| December 31, 2023 | $7,355 | -$491 |
Cash Flow Statements Overview
The cash flow statement reveals critical insights into the company's liquidity. For the nine months ending September 28, 2024, net cash provided by operating activities amounted to $804 million, an increase of $385 million compared to $419 million in the same period of 2023. Cash used for investing activities was $53 million, while cash used for financing activities totaled $755 million, highlighting significant outflows in this area .
| Cash Flow Category | 2024 (in millions) | 2023 (in millions) | Change (in millions) |
|---|---|---|---|
| Operating Activities | $804 | $419 | $385 |
| Investing Activities | $(53) | $(47) | $(6) |
| Financing Activities | $(755) | $(215) | $(540) |
Potential Liquidity Concerns or Strengths
The company maintains a robust liquidity position with $248 million in cash and cash equivalents as of September 28, 2024. Additionally, the total undrawn liquidity stands at over $2.7 billion, which includes available credit lines . However, the significant cash outflow in financing activities raises potential concerns about future liquidity, especially as the company navigates debt repayments and share repurchases .
| Liquidity Metrics | As of September 28, 2024 (in millions) |
|---|---|
| Cash and Cash Equivalents | $248 |
| Undrawn Liquidity | $2,700+ |
| Short-term Debt | $910 |
| Long-term Debt | $2,363 |
Is Arrow Electronics, Inc. (ARW) Overvalued or Undervalued?
Valuation Analysis
In assessing the financial health of Arrow Electronics, Inc. (ARW) for 2024, a comprehensive valuation analysis is essential. This analysis includes key financial ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio is calculated as follows:
- Current Stock Price: $35.15
- Trailing Twelve Months (TTM) Earnings per Share (EPS): $5.42
- P/E Ratio: 6.48
Price-to-Book (P/B) Ratio
The P/B ratio provides insight into how the market values the company's equity:
- Book Value per Share: $54.00
- P/B Ratio: 0.65
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
This ratio helps evaluate the company's overall valuation:
- Enterprise Value: $8.81 billion
- EBITDA (Trailing Twelve Months): $1.34 billion
- EV/EBITDA Ratio: 6.57
Stock Price Trends
Over the past 12 months, the stock price has exhibited the following trends:
| Date | Stock Price |
|---|---|
| November 2023 | $42.00 |
| February 2024 | $38.50 |
| May 2024 | $36.00 |
| August 2024 | $35.15 |
Dividend Yield and Payout Ratios
Arrow Electronics' dividend metrics as of 2024 are as follows:
- Annual Dividend: $0.88
- Current Dividend Yield: 2.5%
- Payout Ratio: 15.6%
Analyst Consensus on Stock Valuation
Analysts have provided the following ratings based on the current valuation:
- Buy: 5
- Hold: 10
- Sell: 2
In summary, the analysis of key valuation metrics indicates that the company is currently trading at a low P/E and P/B ratio, suggesting it may be undervalued relative to its earnings and book value. The EV/EBITDA ratio further supports this perspective, indicating a potentially attractive investment opportunity.
Key Risks Facing Arrow Electronics, Inc. (ARW)
Key Risks Facing Arrow Electronics, Inc. (ARW)
The financial health of Arrow Electronics, Inc. is influenced by various internal and external risk factors that could impact its operations and overall performance. Understanding these risks is crucial for investors.
Industry Competition
In the electronics distribution sector, competition is fierce. Arrow Electronics faces challenges from both established players and new entrants. The company's market share and pricing power can be affected by aggressive pricing strategies from competitors.
Regulatory Changes
Changes in regulations, particularly in the areas of trade tariffs and export controls, pose significant risks. For instance, the company has to navigate complex international trade laws that can impact supply chains and costs.
Market Conditions
The global economic environment directly affects demand for Arrow's products. Recent trends indicate a 14.8% decline in consolidated sales year-over-year for the third quarter of 2024. This downturn is attributed to decreased demand across various sectors, particularly industrial and communications.
Operational Risks
Operational inefficiencies can arise from supply chain disruptions. Recent earnings reports highlighted that the company experienced a notable decline in gross profit margins, which decreased to 11.5% for the third quarter of 2024 compared to 12.2% in the prior year. Such declines can be linked to inventory management challenges and shifts in product mix.
Financial Risks
Arrow Electronics carries substantial debt, with long-term debt totaling $2.36 billion as of September 28, 2024. This high leverage increases financial risk, especially in a rising interest rate environment. The company’s effective interest rate for its commercial paper program stood at 5.25%, which reflects the costs associated with its debt obligations.
Strategic Risks
The company has initiated a multi-year restructuring plan aimed at cost reduction and operational efficiency. However, failure to effectively execute this plan could lead to further financial strain. For example, restructuring and integration costs incurred during the first nine months of 2024 amounted to $122 million.
Mitigation Strategies
To address these risks, Arrow Electronics has implemented several strategies:
- Enhancing supply chain resilience to mitigate operational disruptions.
- Optimizing product mix to improve gross margins.
- Maintaining liquidity with over $2.7 billion in committed and undrawn liquidity.
Recent Financial Performance Overview
The company's recent financial performance underscores the impact of these risks:
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Consolidated Sales | $6.82 billion | $8.01 billion | (14.8) |
| Gross Profit Margin | 11.5% | 12.2% | (0.7) |
| Net Income | $101 million | $199 million | (49.9) |
| Long-term Debt | $2.36 billion | $2.15 billion | 9.7 |
In summary, Arrow Electronics faces a myriad of risks that can significantly impact its financial health and operational stability. Investors must closely monitor these factors as they assess the company's future performance.
Future Growth Prospects for Arrow Electronics, Inc. (ARW)
Future Growth Prospects for Arrow Electronics, Inc. (ARW)
Analysis of Key Growth Drivers
The company is poised for future growth through several key drivers, including product innovations and market expansions. Notably, the global components sales reported a decline of 20.8% in Q3 2024 compared to Q3 2023, totaling $4.946 billion. Conversely, the Global ECS sales showed an increase of 6.5% during the same period, reaching $1.877 billion. This indicates a shift towards service-oriented offerings that could bolster future revenues.
Future Revenue Growth Projections and Earnings Estimates
For the first nine months of 2024, consolidated sales were recorded at $20.640 billion, down 18.3% from $25.258 billion in the same period of 2023. However, projections suggest a rebound as the company implements strategic initiatives aimed at enhancing operational efficiency and capturing market share in high-growth sectors.
Strategic Initiatives and Partnerships
Arrow Electronics has embarked on a multi-year restructuring plan aimed at reducing costs and improving operational efficiencies. Announced on October 31, 2024, this initiative is expected to streamline operations and enhance profitability. Additionally, the company's ongoing evaluation of strategic acquisitions will further broaden its product portfolio and market penetration.
Competitive Advantages
The company benefits from a robust liquidity position, with reported cash and cash equivalents of $248 million as of September 28, 2024. The total committed and undrawn liquidity stands at over $2.7 billion, providing a solid foundation for pursuing growth opportunities. Furthermore, Arrow's established presence in the Asia/Pacific region, which contributed 29.6% to total sales, provides a competitive edge in tapping into emerging markets.
| Financial Metrics | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Consolidated Sales | $6.823 billion | $8.007 billion | (14.8) |
| Global Components Sales | $4.946 billion | $6.245 billion | (20.8) |
| Global ECS Sales | $1.877 billion | $1.762 billion | 6.5 |
| Net Income Attributable to Shareholders | $100.567 million | $198.659 million | (49.4) |
| Earnings Per Share (Diluted) | $1.88 | $3.53 | (46.7) |
Overall, the company's focus on strategic restructuring, market expansion, and product innovation positions it well for future growth, despite current market challenges.
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Article updated on 8 Nov 2024
Resources:
- Arrow Electronics, Inc. (ARW) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Arrow Electronics, Inc. (ARW)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Arrow Electronics, Inc. (ARW)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.