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arrow electronics Presentation 2008 2nd Presentation Transcript

  • 1. Second Quarter 2008 Earnings Call July 23, 2008
  • 2. WELCOME Sabrina Weaver Director, Investor Relations
  • 3. 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 including, but not limited to: industry conditions, the company’s implementation of its new global financial system and the company’s planned implementation of its new enterprise resource planning system, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and global ECS markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, the company’s ability to generate additional cash flow and the other risks described from time to time in the company’s reports to the Securities and Exchange Commission (including the company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q). Forward- looking statements are those statements, which are not statements of historical fact. These forward-looking statements can be identified by forward-looking words such as quot;expects,quot; quot;anticipates,quot; quot;intends,quot; quot;plans,quot; quot;may,quot; quot;will,quot; quot;believes,quot; quot;seeks,quot; quot;estimates,quot; and similar expressions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any of the forward-looking statements. Second Quarter Earnings July 23, 2008 Page 3
  • 4. BUSINESS OVERVIEW Bill Mitchell Chairman & CEO
  • 5. OVERVIEW Impressive results in a challenging environment… Sales and EPS exceeded expectations Strong performance in both Global Components and Global ECS Near record levels of performance across the board Macro conditions remain challenging, but we continue to run our business for consistent performance Global Enterprise Computing Solutions Sales above expectations and operating margin at industry leading level Major ERP milestone achieved with successful transition of North American Sun group Second Quarter Earnings July 23, 2008 Page 5
  • 6. OVERVIEW Impressive results in a challenging environment… Global Components Performance above expectations + Above-seasonal growth in Asia Pacific - Significantly outgrew the market + North America stable + Europe soft Market has continued to be relatively stable, yet cautious Moving forward with efficiency initiatives and vertical market objectives Second Quarter Earnings July 23, 2008 Page 6
  • 7. IN SUMMARY… Continue to invest in the long-term future of Arrow Strategic priorities are clear Pursue growth opportunities across products, markets and geographies Leverage efficiencies of scale and build best-in-class capabilities Build world class systems and processes to enable strategic initiatives and change value proposition Continue to manage the company in a prudent, fiscally disciplined manner Increase profitability Maintain positive cash flow Continue to strengthen balance sheet Second Quarter Earnings July 23, 2008 Page 7
  • 8. FINANCIAL OVERVIEW Paul Reilly Senior Vice President & CFO
  • 9. CONSOLIDATED SALES ($ in millions) Sales $4.3Bn $4,347 +8% Y/Y and Q/Q $4,038 +6%Y/Y and Q/Q excluding $3,437 LOGIX $2,768 +1% Y/Y and +5% Q/Q excluding LOGIX and FX Q2-05 Q2-06 Q2-07 Q2-08 Second Quarter Earnings July 23, 2008 Page 9
  • 10. GLOBAL ENTERPRISE COMPUTING SOLUTIONS ($ in millions) Sales $1.4Bn $1,389 +9% Y/Y, +26% Q/Q $1,269 +4%Y/Y and +19% Q/Q excluding LOGIX 18th consecutive quarter of Y/Y growth $625 $528 Increased operating margin 160 bps Q/Q to 4.4% Grew earnings 4x faster than sales Q/Q Q2-05 Q2-06 Q2-07 Q2-08 ROWC increased more than 50% Q/Q Second Quarter Earnings July 23, 2008 Page 10
  • 11. GLOBAL COMPONENTS ($ in millions) Sales $3.0Bn $2,958 $2,812 +7% Y/Y, +1% Q/Q $2,769 +2% Y/Y, Flat Q/Q $2,239 excluding FX Decreased operating expense/sales 40 bps Y/Y Operating margin pressure due to softness in Europe and geographic mix Q2-05 Q2-06 Q2-07 Q2-08 Second Quarter Earnings July 23, 2008 Page 11
  • 12. ASIA PAC COMPONENTS ($ in millions) Sales $743MM +32% Y/Y, 14% Q/Q Increased operating income $743 more than 40% Y/Y $569 $562 Grew earnings 5x faster than sales Q/Q $325 Improved ROWC by almost 700 bps Q/Q 2x normal seasonal increase Q2-05 Q2-06 Q2-07 Q2-08 Second Quarter Earnings July 23, 2008 Page 12
  • 13. NORTH AMERICAN COMPONENTS ($ in millions) Sales $1.1Bn $1,255 -4% Y/Y, -3% Q/Q $1,165 $1,125 $1,076 Continued focus on efficiency initiatives Increased operating margin 30 bps Y/Y Q2-05 Q2-06 Q2-07 Q2-08 Second Quarter Earnings July 23, 2008 Page 13
  • 14. EUROPE COMPONENTS ($ in millions) Sales $1.1Bn +5% Y/Y, -2% Q/Q $1,090 $1,041 $988 -8% Y/Y, -5% Q/Q $838 excluding FX Market conditions remain soft, in line with expectations Focused on initiatives to drive profitability Q2-05 Q2-06 Q2-07 Q2-08 Second Quarter Earnings July 23, 2008 Page 14
  • 15. P&L HIGHLIGHTS ($ in millions, except per share data, may reflect rounding) 2Q08 Q/Q Y/Y Change Change Sales $4,347 +8% +8% Gross Profit Margin 14.1% -50bps -30bps Operating Exp*/Sales 10.1% -40bps +10bps Operating Income* $173.2 +6% -2% Operating Margin* 4.0% -10bps -40bps Net Income* $102.1 +4% +1% Diluted EPS* $0.84 +6% +4% •Represents GAAP measure adjusted to exclude the impact of restructuring and integration and other items affecting comparability. Includes amortization of intangible assets of $.02. See “Earnings Reconciliation” for a reconciliation between GAAP and “Adjusted” results. Second Quarter Earnings July 23, 2008 Page 15
  • 16. STRONG FINANCIAL POSITION Cash flow of $101MM in Q2 7th consecutive quarter of positive cash flow generation Financial Stability Strong balance sheet Conservative debt levels Debt to capital near record low level Focused management of working capital Maintained near record low level of working capital to sales ROIC* exceeded cost of capital for the 18th consecutive quarter *ROIC = Annualized, tax effected op. income and equity in earnings of affiliates excluding restructuring and other charges - annualized minority interest /( Avg Debt + Avg Equity – Avg Cash over $150MM). Second Quarter Earnings July 23, 2008 Page 16
  • 17. BUSINESS UNIT REVIEW Mike Long President & COO
  • 18. ENTERPRISE COMPUTING SOLUTIONS Excellent results exceeding expectations… Need for complex solutions remains strong Double-digit Y/Y increases in storage, software, and services; and growth in proprietary servers Sequential growth in all segments + Significant gains in proprietary servers Performance demonstrates leverage we have created in model Grew earnings at almost 4x sales > 90% of incremental gross profit dollars fell to bottom line Second Quarter Earnings July 23, 2008 Page 18
  • 19. ENTERPRISE COMPUTING SOLUTIONS Excellent results exceeding expectations… We will continue to build scope and efficiency level in Europe LOGIX acquisition closed on June 2 + Almost doubles size of our European operations; now in the top 3 economies in Europe + Adds talented management and strong relationships with key vendors ERP implementation on track Technology will create the infrastructure to provide best-in-class services to our partners Sun transition exceeded expectations Second Quarter Earnings July 23, 2008 Page 19
  • 20. Arrow ECS Seasonality Q/Q Revenue Growth Pre LOGIX* Q/Q Revenue Growth Post LOGIX* Q1 vs. Q4 -30% to -35% Q1 vs. Q4 -25% to -30% Q2 vs. Q1 +15% to +20% Q2 vs. Q1 +15% to +20% Q3 vs. Q2 -5% to -10% Q3 vs. Q2 -5% to -15% Q4 vs. Q3 +30% to +35% Q4 vs. Q3 +35% to +45% *Based on historical seasonality pro forma for acquisitions and anticipated seasonality in 2008. Represents current mix of business, which could materially change with future acquisitions or changes in customer or supplier mix. Second Quarter Earnings July 23, 2008 Page 20
  • 21. GLOBAL COMPONENTS REGIONAL PERFORMANCE Solid quarter with sales above expected range… Asia Pacific Stronger than seasonal growth driven by China, Taiwan, Australia/NZ, and ASEAN region Significantly outgrew the market Investments paying off with consistent gains in profitability Announced closing of Achieva acquisition on July 7th North America Stable market with book-to-bill higher than second quarter of last year Y/Y weakness driven by transportation end market Strong double-digit growth in defense and aerospace segment Continued to focus on operational excellence Europe Performance in line with expectations + Weak macro conditions and less competitive export market Broaden existing customer base and increase productivity Second Quarter Earnings July 23, 2008 Page 21
  • 22. GLOBAL COMPONENTS LEADING INDICATORS Lead times stable and within normal range of 8 to 12 weeks Cancellation rates within normal levels Book-to-bill near parity Decreased Q/Q in line with normal seasonal trends Europe flat NA above one and stronger than Q207 despite macro weakness Asia Pac declined slightly Quarterly customer survey in North America Inventory well positioned heading into Q3 Outlook for purchase requirements modestly softened for second consecutive quarter Market continues to be relatively stable, yet cautious Second Quarter Earnings July 23, 2008 Page 22
  • 23. CLOSING COMMENTS Bill Mitchell Chairman & CEO
  • 24. IN CLOSING… Results exceeded our expectations Strong performance in a cautious marketplace Raising the bar at ECS; returned to industry-leading level Continue to manage company conservatively and prudently Maintain flexibility to take advantage of opportunities Repositioned Arrow Strong balance sheet Stable earnings Consistent cash flow generation Diverse revenue stream Numerous growth opportunities Perform consistently regardless of market conditions Second Quarter Earnings July 23, 2008 Page 24
  • 25. THIRD QUARTER 2008 GUIDANCE Consolidated Sales $4.10Bn to $4.40Bn Global Components $2.85Bn to $3.05Bn Global ECS $1.25Bn to $1.35Bn Diluted EPS* $0.73 to $0.78 *Excluding charges, including $.02 to $.03 estimated amortization of intangible assets. Second Quarter Earnings July 23, 2008 Page 25
  • 26. ARROW’S VALUE PROPOSITION Occupy a unique, value-added space in the supply chain with growth opportunities across every customer segment, end market, geography, and technology Connect suppliers and customers with value-added services that can't be done any other way “Arrow puts together demand generation, leads, customer seminars, education programs…to be able to go out and create that reach, that's real value” - Key Supplier at Arrow Investor Day 2008 We will continue to create value for our business partners and shareholders Second Quarter Earnings July 23, 2008 Page 26
  • 27. QUESTIONS & ANSWERS
  • 28. EARNINGS RECONCILIATION $ in thousands, except per share data Q208 Q108 Q207 Operating income, as Reported $164,958 $144,143 $173,154 Restructuring and integration charges 8,196 6,478 3,425 Preference claim from 2001 -- 12,491 -- Operating income, as Adjusted $173,154 $163,562 $176,579 Net income, as Reported $96,215 $85,871 $99,211 Restructuring and integration charges 5,929 4,159 2,286 Preference claim from 2001 -- 7,822 -- Net income, as Adjusted $102,144 $97,852 $101,497 Diluted EPS, as Reported $.79 $.69 $.79 Restructuring and integration charges .05 .03 .02 Preference claim from 2001 -- .06 -- Diluted EPS, as Adjusted $.84 $.79 $.81 The sum of the components for net income per share, as Adjusted, may not agree to totals, as presented, due to rounding. Second Quarter Earnings July 23, 2008 Page 28
  • 29. EARNINGS RECONCILIATION References to restructuring and other charges refer to the following incremental charges taken in the quarters indicated: Q2-08 Restructuring and Integration Charges: During the second quarter of 2008, the company recorded a restructuring and integration charge of $8.2 million ($5.9 million net of related taxes or $.05 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies. Q1-08 Restructuring and Integration Charges: During the first quarter of 2008, the company recorded a restructuring and integration charge of $6.5 million ($4.2 million net of related taxes or $.03 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies. Q1-08 Legal Settlement: As previously disclosed, during the first quarter of 2008, the company recorded a charge, including legal fees, related to a preference claim from 2001 of $12.9 million ($7.8 million net of related taxes or $.06 per share on both a basis and diluted basis). Q2-07 Restructuring and integration Charges: During the second quarter of 2007, the company recorded a restructuring and integration charge of $3.4 million ($2.3 million net of related taxes or $.02 per share on both a basic and diluted basis), primarily related to initiatives taken by the company to improve operating efficiencies and the acquisition of KeyLink. Second Quarter Earnings July 23, 2008 Page 29
  • 30. Second Quarter 2008 Earnings Call July 23, 2008