Arrow Electronics CEO Discusses Q3 2010 Results – Earnings Call Transcript

Arrow Electronics CEO Discusses Q3 2010 Results â¿¿ Earnings Call Transcript
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Arrow Electronics, Inc. (

ARW

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Q3 2010 Earnings Call Transcript

October 27, 2010 1:00 pm ET

Executives

Greer Aviv – Manager, IR

Mike Long – Chairman, President and CEO

Paul Reilly – EVP, Finance and Operations and CFO

Analysts

Craig Hettenbach – Goldman Sachs

Brian Alexander – Raymond James

Matt Sheerin – Stifel Nicolaus

Amitabh Passi – UBS

Samuel Meehan – Citi

William Stein – Credit Suisse

Steven Fox – CLSA

Brendan Furlong – Miller Tabak

Sherri Scribner – Deutsche Bank

Shawn Harrison – Longbow Research

Ananda Baruah – Brean Murray

Presentation

Operator

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» Arrow Electronics Inc. Q2 2010 Earnings Call Transcript
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» Arrow Electronics, Inc. Q3 2009 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the Arrow Electronics Third Quarter Earnings Conference Call. My name is Fab and I’ll be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today’s conference. (Operator instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Greer Aviv. Please proceed.

Greer Aviv

Good afternoon, everyone, and welcome to the Arrow Electronics third quarter conference call. I am Greer Aviv, Manager of Arrow’s Investor Relations program, and I will be serving as moderator on today’s conference call.

If you would like to access today’s call via webcast, please visit our Investor Relations Web site, 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 all should have received a copy of our earnings release. If not, you can access our release on the Investor Relations section of our Web site.

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 several 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.

As reflected in our earnings release, there are number of items that impact the comparability of our results with those in the trailing quarter and the third quarter of last year. Any discussion of our results during this call will exclude these items to give you a better sense of our operating results.

As always, the operating information we provide to you should be used as a complement to GAAP numbers. For a complete reconciliation between our GAAP and non-GAAP results, please refer to our earnings release or the earnings reconciliation slide at the end of the webcast presentation.

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

Mike Long

Thank you, Greer, and thanks to all of you for taking the time to join us today. The positive momentum we’ve seen in our business during the first half of the year has continued with another quarter of terrific performance.

Our consolidated was at the high end of our expectations, driven by strong performance from both Global Components and Global ECS. Earnings per share came in well ahead of our expectation and almost tripled year-over-year to a record third quarter level, marking the eighth consecutive quarter of exceeding Street estimates for Arrow.

Our strategy to grow sales and gain market share is paying off, and again, demonstrating the significance of earning power inherent in our business. Equally important to earnings growth being well ahead of the market, our returns are advancing strongly and continue to reflect our accomplishment, with return on working capital and return on invested capital almost two times greater than the year ago level.

I’m pleased to say that we’ve made meaningful progress against our strategic initiatives, starting with profitable market share growth. The strategic shift to an organization of sales excellence is reaping its just rewards. We have been investing in areas of our industry with attractive growth rates and in adjacent industries to expand our addressable market. We have done this organically and through recent M&A activity, which I will discuss in more detail in a few minutes.

Second, we’ve seen a strong rebound in our gross margin, which has increased to 160 basis points from the third quarter of 2009. Our teams on both sides of the business have worked hard to win back margin and our efforts are bearing fruit.

Additionally, our decision to increase our portfolio of value-added services has been accretive to gross margin, and we would expect this to continue as we achieve greater scale with our services businesses.

In Global Components and Global ECS, this is an exciting opportunity to increase our presence in the fast-growing, high-margin sector and become a leading player in what is currently a very fragmented marketplace.

Third, when you look at operational excellence, our cost structure is about as lean as it ever has been and we work diligently to simply the business and increase efficiency across the entire organization. In fact, if you look at our operating expense to sales ratio, it has declined 100 basis points from when we entered the downturn in Q3 2008.

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