Arrow Electronics(ARW) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated sales for Q1 2025 were $6.8 billion, exceeding guidance and down 2% year-over-year, or flat on a constant currency basis [16] - Global Components sales were$ 4.8 billion, above guidance and down 1% sequentially, or flat in constant currency [16] - Enterprise Computing Solutions (ECS) sales were $2 billion, above guidance and 18% higher year-over-year, or 19% higher in constant currency [16] - Non-GAAP gross margin for Q1 was 11.3%, down approximately 120 basis points year-over-year [17] - Non-GAAP diluted EPS for Q1 was$ 1.8, above the guided range due to favorable sales results [18] Business Line Data and Key Metrics Changes - Global Components experienced stronger-than-expected sales across all three regions, with notable momentum in EMEA [5][6] - ECS delivered year-over-year growth in billings, gross profit, and operating income, with a backlog growth of over 50% year-over-year [12] - Global Components gross margin was 11.6%, while ECS gross margin was 10.8%, both on a non-GAAP basis [17] Market Data and Key Metrics Changes - Book-to-bill ratios improved throughout the quarter and are now at or above parity in all three regions [9] - Customer inventory levels are trending towards replenishment, indicating a potential cyclical turning point in demand [10] Company Strategy and Development Direction - The company is focused on leveraging its global supply chain network to mitigate the impacts of tariffs and improve supply chain visibility for customers [11] - The second quarter outlook reflects continued momentum in both business segments, with expectations for year-over-year growth in billings, gross profit, and operating income [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about modestly improving demand trends and the resilience of the company's teams during a cyclical correction [14] - The company anticipates stronger trends in Asia and across the larger OEM customer base as it moves into Q2 [10] Other Important Information - The company repurchased $50 million of shares in Q1, with a remaining repurchase authorization of approximately$ 275 million [19] - The impact of recent tariffs is uncertain, but the company has not factored them into its revenue guidance [20] Q&A Session Summary Question: Clarification on tariff impact on guidance - Management explained that the 2% to 4% increase in component sales due to tariffs is not included in the baseline guidance, as it reflects potential surcharges that could arise from tariffs [24][30] Question: Customer inventory trends - Management indicated that while there are pockets of excess inventory, overall inventory levels are normalizing in line with demand signals [33][41] Question: ECS business outlook - Management confirmed that the ECS outlook does not reflect any order acceleration and that growth is steady across cloud and traditional data center segments [48] Question: Visibility into future quarters - Management noted improving visibility into Q3 and Q4, driven by improved book-to-bill ratios and backlog growth [58]