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ARROW ELECTRONICS, INC. (ARW)·Q2 2025 Earnings Summary

Executive Summary

  • ARW delivered a clean beat: Q2 revenue $7.58B (+10% YoY; +8% cc) and non-GAAP EPS $2.43, both above the high end of guidance; GAAP EPS was $3.59 due to a $104M gain on investments . Versus Wall Street, ARW beat revenue ($7.12B*) and EPS ($2.05*) consensus. [Values retrieved from S&P Global]
  • Global Components sales rose 5% YoY to $5.28B with broad sequential strength; ECS sales rose 23% YoY to $2.30B, with billings +15% YoY and strong EMEA momentum .
  • Non-GAAP gross margin was 11.2% (down ~110 bps YoY) on mix headwinds (APAC-led components recovery, large OEM mix) while non-GAAP operating income reached $215M (2.8% margin) .
  • Q3 guidance raised sequentially: sales $7.30–$7.90B; non-GAAP EPS $2.16–$2.36; tax 23–25%; interest ~$65M; FX tailwinds to sales/EPS; tariff billing impact assumed similar to Q2 (~1%) .
  • Catalysts: upside vs estimates, ECS mid-market/cloud momentum (ArrowSphere), signs of cyclical recovery (book-to-bill >1 across regions), improving backlog visibility and working capital metrics .

What Went Well and What Went Wrong

What Went Well

  • “We delivered both consolidated and segment revenues, as well as earnings per share, that exceeded our guidance ranges.” – CEO Sean Kerins .
  • ECS strength: sales +23% YoY; billings +15%; robust EMEA (+39% YoY sales) and growing IT-as-a-service backlog; continued ArrowSphere adoption .
  • Components recovery signals: book-to-bill above parity in all regions; backlog improved for a second consecutive quarter; sequential growth in all regions; IP&E grew sequentially and YoY .

What Went Wrong

  • Margin pressure: consolidated non-GAAP gross margin 11.2% (down ~110 bps YoY) driven by APAC mix and large OEM customer mix in components; ECS product mix also weighed on margins .
  • Components operating leverage still muted: GC non-GAAP OI margin at 3.6% with YoY OI down due to mix; EMEA components down YoY on cc [-5.7%] .
  • Q3 EPS headwinds: tax rate reverting to 23–25% and interest expense rising to ~$65M, expected to drag sequential EPS vs Q2’s unusually low 17.6% tax rate .

Financial Results

Revenue, EPS, Margins (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($B)$7.283 $6.814 $7.580
GAAP Diluted EPS$1.86 $1.51 $3.59
Non-GAAP Diluted EPS$2.97 $1.80 $2.43
Non-GAAP Gross Margin %11.7% 11.3% 11.2%
Non-GAAP Operating Margin %3.8% 2.6% 2.8%

Actual vs Estimates (EPS and Revenue)

MetricQ1 2025 Estimate*Q1 2025 ActualQ2 2025 Estimate*Q2 2025 Actual
Primary EPS (non-GAAP)1.434*$1.80 2.048*$2.43
Revenue ($B)6.320*$6.814 7.124*$7.580

Values retrieved from S&P Global

Segment Breakdown (Sales and Operating Income)

Segment MetricQ4 2024Q1 2025Q2 2025
Global Components Sales ($B)$4.814 $4.778 $5.285
Global ECS Sales ($B)$2.469 $2.036 $2.295
Global Components OI ($M)116.9 171.4 186.8
Global ECS OI ($M)160.4 77.3 97.0

KPIs

KPIQ4 2024Q1 2025Q2 2025
ECS Billings YoY+10% +5% +15%
ECS Backlog YoY—>+50% >+50%
Book-to-Bill (Components)~at parity (2 regions at/near 1.0) ≥1.0 in all regions >1.0 all regions
Cash Conversion Cycle (days)77 77 68
Inventory TurnsImproved YoY —Highest in 2+ years
Share Repurchases ($M)$50 $50 $50

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Sales ($B)Q3 2025—$7.30–$7.90 New (sequentially higher vs Q2 guide)
Global Components Sales ($B)Q3 2025—$5.30–$5.70 New (sequentially higher vs Q2 guide)
Global ECS Sales ($B)Q3 2025—$2.00–$2.20 New (sequentially higher vs Q2 guide)
GAAP Diluted EPSQ3 2025—$1.49–$1.69 New (lower than Q2 GAAP guide due to prior Q2 investment gain)
Non-GAAP Diluted EPSQ3 2025—$2.16–$2.36 New (sequentially higher vs Q2 guide $1.90–$2.10 )
Tax RateQ3 202523–25% 23–25% Maintained
Interest ExpenseQ3 2025~$60M ~$65M Raised
FX Tailwind to Sales YoYQ3 2025~+$58M Q2 YoY ~+$135M YoY; EPS +$0.11 Raised tailwind
FX QoQ vs prior quarterQ3 2025+$109M Q/Q for Q2 +$89M Q/Q; EPS +$0.05 Slightly lower vs Q2
Tariff Billing Impact (Components)Q3 2025Q2 guide excluded; potential +2–4% sequential lift Assumes ~1% incremental billing impact similar to Q2 Clarified lower magnitude

Earnings Call Themes & Trends

TopicQ4 2024Q1 2025Q2 2025Trend
Cyclical Recovery SignalsLate innings; book-to-bill near parity; backlog stabilizing Book-to-bill ≥1.0 all regions; backlog growing; replenishment visible Book-to-bill >1; backlog up for 2nd straight quarter; modest recovery “taking flight” Improving
ECS Mid-market/Cloud & ArrowSphereHybrid cloud/AI momentum; ECS billings/gross profit up ECS billings/GP/OI up; backlog >+50% YoY; ArrowSphere adoption Continued YoY growth; backlog >+50% YoY; ArrowSphere adoption building Strong/Building
Tariffs & Trade PolicyNo material Q4 pull-ins Potential +2–4% to GC sales; guide excluded; mitigation plans ~1% billing impact in Q2; similar assumed for Q3; modest order acceleration in Asia Manageable
Inventory & Working CapitalInventory down $1.1B from peak; CCC 77 days Net WC down ~$340M; CCC 77 days CCC 68 days; inventory turns highest in 2+ years; WC $6.8B Improving
Lead Times & Customer MixMix-driven margin pressure; EMEA subseasonal ECS seasonality; components negative leverage Lead times stable (pre-pandemic norms); APAC and large OEMs leading recovery Stable lead times; mix headwinds
IP&E FocusIP&E resilient in Q4 IP&E sequential improvement IP&E growth sequential and YoY Positive

Management Commentary

  • CEO Sean Kerins: “In our global components business, while momentum in Asia was especially strong, we enjoyed sequential growth in all three operating regions… leading indicators continue to suggest that a modest cyclical recovery is in flight.”
  • CEO on ECS: “We delivered year-over-year growth in billings and gross profit… robust growth in our IT as-a-service backlog, alongside continued adoption of our digital platform, Arrowsphere.”
  • CFO Raj Agrawal: “Second quarter consolidated non-GAAP gross margin of 11.2% was down ~110 bps YoY… non-GAAP operating income of $215M (2.8% of sales)… non-GAAP diluted EPS $2.43 above our guided range mainly due to favorable sales and a lower tax rate.”
  • CFO on Q3: “Tax rate to return to ~23–25% and interest expense to increase to ~$65M… non-GAAP diluted EPS expected to be between $2.16 and $2.36.”

Q&A Highlights

  • Inventory/Turns: Management emphasized inventory down >$1B from peak, Q2 inventory down ~$50M, turns improved; remaining pockets of excess are manageable and adequately reserved .
  • Margins: Margins expected relatively stable QoQ; components gross margin pressure is regional/customer mix (APAC leading, larger OEMs); operating leverage to improve as mass market returns .
  • ECS Margin Clarification: Reported sales-based margin down YoY due to accounting mix; on billings basis, ECS margins were stable YoY; last year included a $20M reserve release .
  • Lead Times: Stable at pre-pandemic norms; not seeing extensions yet .
  • Tariffs: ~1% billing impact in Q2 components; similar assumed in Q3; modest order acceleration in Asia but no material impact baked into Q3 .

Estimates Context

  • Q2 2025: Revenue $7.58B beat vs ~$7.12B*; non-GAAP EPS $2.43 beat vs ~$2.05*; both above high-end of company guidance . [Values retrieved from S&P Global]
  • Q1 2025: Revenue $6.81B beat vs ~$6.32B*; non-GAAP EPS $1.80 beat vs ~$1.43* . [Values retrieved from S&P Global]
  • Implication: Consensus likely to raise ECS trajectory and components recovery slope; Q3 EPS consensus must incorporate higher tax/interest assumptions highlighted by management .

Key Takeaways for Investors

  • Beat-and-raise quarter: Strong Q2 beat on topline and EPS, and Q3 guide implies sequential sales growth across both segments despite normalized tax and higher interest expense .
  • Recovery evidence in Components: Book-to-bill >1.0 across regions, backlog building out in time (into Q4/Q1), APAC and large OEMs leading; expect operating leverage as mass market returns .
  • ECS momentum is durable: EMEA strength, cloud/infrastructure/cybersecurity demand, ArrowSphere adoption, and >50% YoY backlog growth support sustained billings/gross profit/operating income growth .
  • Mix-driven margin pressure near-term: APAC and large OEM mix compress gross margin; management executing productivity initiatives to offset; leverage to improve with scale and mix normalization .
  • Working capital execution: CCC improved to 68 days; inventory turns at 2+ year highs; continued $50M buybacks (remaining authorization ~$225M) provide capital returns amid balance sheet discipline .
  • FX/tariffs manageable: Q3 FX tailwinds to sales/EPS; tariff billing impact modest (~1%) and assumed consistent; risk monitored without aggressive pre-buy assumptions .
  • Trading setup: Positive estimate revisions bias on ECS and consolidated sales; watch Q3 tax/interest headwinds for EPS flow-through; optionality from continued backlog build and mass market normalization .

Appendix: Additional Relevant Press Releases (Q2 2025)

  • Arrow launches Global AI Accelerator Program to help channel partners adopt AI via ArrowSphere AI and AI Factory—supports ECS growth in cloud/AI-led mid-market .