Arrow Electronics (ARW)

Q1 2011 Earnings Call

April 27, 2011 1:00 pm ET

Executives

Michael Long - Chairman, Chief Executive Officer and President

Andrew Bryant - President of Enterprise Computing Solutions Business Segment

Greer Aviv - Investor Relations

Paul Reilly - Chief Financial Officer and Executive Vice President of Finance & Operations

Analysts

Louis Miscioscia - Collins Stewart LLC

Brian Alexander - Raymond James & Associates, Inc.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc.

Shawn Harrison

Jim Suva - Citigroup Inc

Amitabh Passi - UBS Investment Bank

Sherri Scribner - Deutsche Bank AG

Ananda Baruah - Brean Murray, Carret & Co., LLC

Scott Craig

William Stein - Crédit Suisse AG

Craig Hettenbach - Goldman Sachs Group Inc.

TheStreet Recommends

Brendan Furlong - Miller Tabak + Co., LLC

Presentation

Operator

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» Arrow Electronics Q1 2010 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the Arrow Electronics, Inc. First Quarter Earnings Conference Call. My name is Francine, and I'm your operator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today, Ms. Greer Aviv. Ma'am, you may proceed.

Greer Aviv

Thank you, Francine. Good afternoon, everyone, and welcome to the Arrow Electronics' first quarter conference call. I'm Greer Aviv, Manager of Arrow's Investor Relations program, and I will be serving as the moderator on today's call. If you would like to access today's call via webcast, please visit our Investor Relations website at www.arrow.com/investor and click on the webcast icon. With us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Paul Reilly, Executive Vice President, Finance and Operations, and Chief Financial Officer; Andy Bryant, President, Global ECS; and Peter Kong, President, Global Components.

By now you should have all received a copy of our earnings release. If not, you can access our release on the Investor Relations section of our website. I would also like to point out that we issued a CFO commentary that has been posted to the Investor Relations section of our website, that should be used as a complement to the earnings release. You can access the copy of our earnings reconciliation for the first quarter in our press release or on the Investor Relations section of our website.

Before we get started, I would like to review Arrow's Safe Harbor statement. Some of the comments to be made on today's call may include forward-looking statements, including statements addressing future financial results. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons. Detailed information about these risks is included in Arrow's SEC filings.

We will begin with a few minutes of prepared remarks, which will then be followed by a question-and-answer period. As a reminder to members of the press, you are in a listen-only mode on this call, but please feel free to contact us after today's call with any questions you may have.

At this time, I would like to introduce our Chairman, President and CEO, Mike Long.

Michael Long

Thank you, Greer, and thanks to all of you for taking the time to join us today. Our growth strategy and the related momentum we built throughout the second half of 2009 and 2010 have carried over into the first quarter of 2011, with the Arrow team generating the strongest first quarter result in our history.

Revenue and earnings per share came in well ahead of our expectation, driven by strength in both of our business segments and in each region around the globe. We're focused on accelerating the growth in our core business, which can be seen in the impressive pro forma growth rate of 12% in Q1. This terrific growth was driven by contributions from all regions and businesses and underscores the importance of our role in the supply chain as an industry leader.

Our margins continue to rebound with gross margin showing substantial year-over-year improvement, while operating income growth once again substantially outpaced the growth in sales. Importantly, our returns this quarter demonstrate our unwavering commitment to creating shareholder value. Return on working capital increased 240 basis points year-over-year to almost 32%, and return on invested capital increased 190 basis points to 14%.

In Global Components, we saw an exceptional performance in all of our regions. With our core business showing very robust growth trends well ahead of normal seasonality. Our recent acquisitions have complimented the quarter and are also driving growth in new markets and product sets. We're excited about the opportunities that lay ahead for Global Components and would expect to continue to outgrow the market with a strong start we've had so far in 2011.

Our ECS segment also had a strong quarter, with sales in line with the high end of normal seasonality. We saw exceptional year-over-year growth in industry-standard servers, storage and services. And we're very optimistic about the outlook for the ECS business. As we've diversified into a number of faster growing markets such as security, networking, virtualization and unified communications. And we're well positioned to capitalize on the next wave of IT spending growth.

We have built tremendous strength in both the Global Components and Global ECS businesses, and we expect our strategy to continue to drive exceptional growth in momentum in these core businesses. At the same time, our strategy is transforming Arrow through 10 strategic acquisitions over the past year. We have greatly expanded our geographic reach, product portfolio and service capabilities.

As a result of our recent acquisition activity, Arrow's building a comprehensive products and services portfolio that complements and accelerates growth within our core business and spans the full technology lifecycle. Over time, these offerings should add tremendous value for our customers and truly set us apart from the competition. I look forward to sharing more about our strategic transformation with you at our upcoming Investor Day in New York City on May 25.

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