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ARROW ELECTRONICS, INC. (ARW)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered revenue of $7,712.5M (+13% y/y) and non-GAAP EPS of $2.41, both above the high end of guidance; GAAP EPS was $2.09 .
  • Results exceeded S&P Global consensus on revenue ($7,712.5M vs $7,673.5M*) and non-GAAP EPS ($2.41 vs $2.2925*); upside drivers were stronger sales and lower interest expense, partly offset by a $21M ECS charge .
  • Global Components (GC) sales rose 12% y/y to $5,556.4M with APAC strength and book-to-bill above 1 across regions; mix (APAC > Americas/EMEA, mass market lag) pressured margins .
  • ECS sales rose 15% y/y to $2,156.1M with billings up 14% and backlog growth >70% y/y; near-term margins were depressed by a one-time ~$21M charge tied to underperforming multi-year strategic outsourcing contracts .
  • Q4 2025 outlook calls for $7.80–$8.40B revenue and $3.44–$3.64 non-GAAP EPS, with FX a y/y tailwind but Q/Q neutral on EPS; tax rate 23–25% and interest expense ~$60M .

What Went Well and What Went Wrong

What Went Well

  • Revenue and non-GAAP EPS beat both guidance and Street, supported by both segments; CFO cited favorable sales and lower interest expense as drivers of EPS upside .
  • GC showed broad-based strength: APAC up 12% q/q to $2.4B, book-to-bill above parity in all regions, and sequential growth in semis and IP&E; industrial and transportation remained healthy .
  • ECS strategic positioning improved: billings +14% y/y to $5.19B and backlog growth >70% y/y to an all-time high; management expects strategic outsourcing to be margin-accretive longer term .

What Went Wrong

  • ECS margins compressed: ~$21M charge on underperforming multi-year outsourcing contracts reduced consolidated non-GAAP gross margin by ~30 bps and ECS non-GAAP operating margin to 3.0% .
  • Mix headwinds weighed on profitability: APAC-led recovery and slower mass-market demand in the West pressured GC margins; management expects the West to “catch up” gradually into 2026 .
  • Working capital and cash flow: net working capital rose ~$450M q/q on higher receivables; CCC increased 5 days to 73 days; operating cash flow was an outflow of $282M in Q3 .

Financial Results

Headline Metrics

MetricQ3 2024Q2 2025Q3 2025
Consolidated Sales ($USD Millions)6,823.3 7,579.9 7,712.5
GAAP Diluted EPS ($)1.88 3.59 2.09
Non-GAAP Diluted EPS ($)2.38 2.43 2.41

Actual vs S&P Global Consensus (Q3 2025)

MetricS&P ConsensusActualOutcome
Revenue ($USD Millions)7,673.5*7,712.5 Beat
Non-GAAP EPS ($)2.2925*2.41 Beat

Values marked with * retrieved from S&P Global.

Segment Sales

Segment Sales ($USD Millions)Q3 2024Q2 2025Q3 2025
Global Components4,946.1 5,284.9 5,556.4
Global ECS1,877.3 2,295.0 2,156.1

Segment Profitability (Non-GAAP)

MetricQ3 2024Q2 2025Q3 2025
GC Non-GAAP Operating Income ($USD Millions)193.0 188.8 199.2
GC Non-GAAP Operating Margin (%)3.9% 3.6% 3.6%
ECS Non-GAAP Operating Income ($USD Millions)76.7 97.9 64.7
ECS Non-GAAP Operating Margin (%)4.1% 4.3% 3.0%

KPIs

KPIQ1 2025Q2 2025Q3 2025
ECS Gross Billings ($USD Thousands)4,638,954 5,139,968 5,189,972

Notes: Consolidated non-GAAP gross margin in Q3 2025 was ~10.8% (down ~70 bps y/y, with ~30 bps from ECS charge) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Sales ($B)Q4 2025—7.80 – 8.40 New
Global Components Sales ($B)Q4 2025—5.10 – 5.50 New
Global ECS Sales ($B)Q4 2025—2.70 – 2.90 New
GAAP Diluted EPS ($)Q4 2025—3.08 – 3.28 New
Non-GAAP Diluted EPS ($)Q4 2025—3.44 – 3.64 New
Average Tax Rate (%)Q4 2025—23 – 25 New
Interest Expense ($M)Q4 2025—~60 New
FX impact on Sales (y/y)Q4 2025—+$226M New
FX impact on EPS (y/y)Q4 2025—+$0.22 New
FX impact Q/QQ4 2025—Sales -$12M; EPS flat vs Q3 New

Earnings Call Themes & Trends

TopicQ1 2025 (Mar)Q2 2025 (Jul)Q3 2025 (Oct)Trend
AI/technology initiativesECS billings +5% y/y; momentum on-prem + cloud; Arrowsphere adoption rising Continued billings +15% y/y; strong IT-as-a-service backlog Supply chain services enabling AI infrastructure build-outs; ECS solutions for cybersecurity/data intelligence Expanding AI-related demand
Strategic outsourcing (ECS)——New multi-year outsourcing deals; $21M charge this quarter; multi-year accretive margin potential (double GM vs core) Early-stage; margin variability near term
Supply chain & working capitalLowered net working capital by ~$340M; CFO highlighted $350M OCF in Q1 Improved turns and reduced CCC in Q2 Net working capital +$450M q/q; CCC up 5 days to 73; OCF -$282M Working capital investment with growth
Regional trends & mixEMEA momentum in both segments ECS EMEA +39% y/y; GC APAC strength APAC leading recovery; Americas/EMEA lag; mass market slower, pressuring margins Gradual normalization into 2026
Tariffs/complianceTariff impacts excluded from Q2 outlook Q3 outlook assumed ~1% GC tariff impact carryover BIS placed then moved to remove three China subs from Entity List; operations authorized to resume Compliance risk mitigated; monitoring

Management Commentary

  • “We delivered solid revenue and earnings per share during the quarter… achieved within a market that continues to gradually recover from a prolonged cyclical correction.” – Interim CEO Bill Austen .
  • “Non-GAAP diluted EPS for the third quarter was $2.41… above our guided range, driven by… favorable sales results and a lower interest expense. The [ECS] charge lowered EPS by $0.31.” – CFO Raj Agrawal .
  • “Our supply chain services offering is… positioned to support growth in AI infrastructure build-out… hyperscalers… need help with sourcing, managing, staging, and provisioning of electronic components globally.” – Interim CEO Bill Austen .
  • “If we are successful… [strategic outsourcing] is accretive… we should be able to achieve double the gross margins… versus the rest of ECS” longer term, though near-term charges may occur. – CFO Raj Agrawal .

Q&A Highlights

  • CEO succession: Interim CEO Bill Austen stated he is not a candidate for the permanent role; a board-led search is underway .
  • ECS strategic outsourcing: ~$21M charge tied to underabsorption of fixed fees; management expects variability near term but sees materially higher steady-state margins versus core ECS .
  • ECS margin trajectory: Q4 expected to be “very strong,” with better margins versus last year absent the Q3 charge; backlog, GP dollars, and OP dollars expected to grow .
  • 2026 color: Recovery pacing is “gradual” given macro uncertainty; management expects West/mass market to follow APAC over time; models that assume a faster snapback may be aggressive .
  • Working capital: Some contracts may require more working capital, but ECS remains a relatively light WC business with higher returns; company will manage WC prudently .

Estimates Context

  • Q3 2025 non-GAAP EPS of $2.41 beat S&P Global consensus of $2.2925*, aided by stronger sales and lower interest expense despite the ~$21M ECS charge .
  • Revenue of $7,712.5M beat S&P Global consensus of $7,673.5M*, with GC strength (APAC) and ECS growth in billings/backlog offset by the ECS charge effect on margins .
  • Forward estimates may need to reflect: (1) stronger Q4 ECS billings and earnings outlook, (2) incremental FX tailwinds y/y in Q4, (3) ongoing mix headwinds to margins and potential variability from strategic outsourcing as it scales .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Beat-and-raise setup: Q3 non-GAAP EPS and revenue beat Street, and Q4 guidance implies double-digit y/y growth with non-GAAP EPS of $3.44–$3.64, a potential near-term catalyst if execution continues .
  • Mix headwinds are real but cyclical: APAC-led recovery and mass-market lag are compressing margins; management expects gradual normalization through 2026 as the West catches up .
  • ECS growth engine with near-term variability: Strategic outsourcing expands TAM and should be margin-accretive long term; Q3’s $21M charge underscores ramp risk but not the structural opportunity .
  • AI-linked services provide upside: Supply chain services, engineering/design, and integration tied to AI/data center builds are margin-accretive and grew well in Q3 .
  • Balance sheet and cash conversion bear watching: Higher receivables drove net working capital +$450M and CCC +5 days to 73; inventory remains ~$4.7B—tight execution needed into Q4’s seasonal peak .
  • Compliance overhang addressed: BIS matter regarding China subsidiaries moved toward resolution within 10 days, reinforcing trade compliance capabilities .
  • Segment focus: Favor GC exposure to industrial/transportation and ECS’s recurring revenue model; monitor ECS margins in Q4 to validate rebound post-charge .

Appendix: Additional Disclosures and Notes

  • Non-GAAP adjustments in Q3 included $0.07/share for intangible amortization, $0.51/share for restructuring/integration, and $(0.16)/share for non‑recurring tax items; non-GAAP diluted EPS was $2.41 .
  • FX tailwind in Q3 vs. prior year: +$128M sales and +$0.08 diluted EPS; Q4 FX expected +$226M sales and +$0.22 diluted EPS vs. Q4 2024, but flat Q/Q EPS impact vs. Q3 .
  • Segment details: GC sales $5,556.4M (+12% y/y) and ECS sales $2,156.1M (+15% y/y); ECS operating income down on the $21M charge .