ARROW ELECTRONICS, INC. (ARW)·Q4 2024 Earnings Summary

Executive Summary

• Arrow delivered Q4 results above the high end of guidance: revenue $7.283B, GAAP EPS $1.86, and non‑GAAP EPS $2.97, driven by stronger ECS and solid execution despite a challenged components backdrop . Q4 non‑GAAP EPS beat exceeded the guided range by $0.29 and revenue topped the high end by ~$13M .
• Components remained subdued (–15% y/y; EMEA weakest at –25%), while ECS grew 12% y/y with strength in hybrid cloud, cybersecurity and early AI‑related datacenter activity; management views the components downcycle in “later innings” with book‑to‑bill near parity and normalizing cancellations .
• Q1’25 outlook implies a trough quarter: sales $5.98–$6.58B, non‑GAAP EPS $1.30–$1.50; FX a ~$138M/$0.13 y/y headwind; components down ~5.5% q/q at the midpoint and ECS roughly flat y/y at midpoint .
• Cash execution remains a bright spot: Q4 CFO $326M; FY24 CFO $1.1B; inventory down $1.1B from peak; $250M FY buybacks; gross debt ~$3.1B .
• Near‑term narrative: beat vs guidance, constructive ECS/AI demand, and cost actions offset by soft components and FX headwinds; management’s “later innings” tone and Q1 trough setup are likely stock focus points .

What Went Well and What Went Wrong

What Went Well

• ECS outperformed: Q4 ECS sales up 12% y/y to $2.469B; operating income up to $160M; momentum in hybrid cloud, cybersecurity, and AI‑related datacenter activity; management expects continued y/y margin expansion in ECS .
• Cost discipline and cash generation: non‑GAAP OpEx down ~$45M y/y in Q4; Q4 CFO $326M and FY24 CFO $1.1B; inventory reduced by $1.1B from peak; buybacks $50M in Q4, $250M FY .
• Beat vs guidance: Q4 non‑GAAP EPS $2.97 vs $2.48–$2.68 guided; revenue $7.283B vs $6.67–$7.27B guided; management: “beyond the high end of our guidance ranges” .

Quote: “We executed well… generating total sales and earnings per share that were beyond the high end of our guidance ranges.” — Sean Kerins, CEO .

What Went Wrong

• Components softness persists: Q4 components sales –15% y/y; Americas –10%, EMEA –25%, Asia –10%; GAAP gross margin pressure vs prior year; book‑to‑bill just shy of parity .
• FX headwinds: Q4 y/y FX impact –$27M revenue, –$0.11 EPS; Q1’25 expected –$138M revenue and –$0.13 EPS y/y; FX also –$90M q/q in Q1 .
• Subseasonal Europe outlook in components for Q1 and ECS seasonality drives sequential EPS step‑down; management flagged Q1 as smallest quarter for ECS .

Financial Results

Consolidated results vs prior quarters

Notes on margins: Q4 consolidated non‑GAAP gross margin was 11.7%, down ~90 bps y/y and up ~20 bps q/q, driven by ECS seasonality and components mix; components non‑GAAP GM 11.4%, ECS 12.4% .

Segment revenue and operating income

KPI: ECS Gross Billings (Q4 y/y)

Actual vs Q4 2024 Guidance (from 10/31/24)

Guidance Changes

Non‑GAAP EPS bridge for Q1’25 guide: GAAP $0.98–$1.18 + $0.07 intangibles + $0.25 restructuring & integration = $1.30–$1.50 .

Earnings Call Themes & Trends

Management Commentary

• Strategic positioning: “We… strengthened our position in both segments… expanded our linecard… unified our go‑to‑market [in ECS]… poised to benefit from… hybrid cloud and AI‑related solutions” — Sean Kerins .
• Cycle assessment: “We believe we’re in the later innings of the industry’s cyclical correction… book‑to‑bill… just shy of parity… cancellations normalized… backlog stabilizing” — Sean Kerins .
• ECS outlook: “We expect… year‑over‑year gross profit dollar growth in the first quarter from both regions and operating margin expansion for [ECS] overall” — Sean Kerins .
• Cost and cash: “Net working capital declined… OpEx… approximately $45 million lower y/y… Q4 CFO $326M and $1.1B for the full year; sixth consecutive quarter of positive cash flow” — Raj Agrawal .

Q&A Highlights

• Pull‑ins and pricing: No material pull‑ins from tariffs/price resets; transactional margins held up in core components markets; Q1 assumes similar margin environment — Sean Kerins .
• Turns demand & OpEx cadence: Turns business stable from Q3→Q4 and expected stable into Q1; quarterly OpEx baseline ~$600M post efficiencies; additional $90–$100M savings plan with ~⅓ in 2025 — Sean Kerins; Raj Agrawal .
• Inventory & recovery timing: Inventories broadly “creeping down”; Arrow inventory quality solid with no significant obsolescence concerns; recovery contingent on mass‑market demand; Europe expected subseasonal — Sean Kerins .
• Margin progression: Gross margins expected relatively stable Q4→Q1 in both segments; corporate EPS step‑down seasonally driven by ECS’s smallest quarter in Q1 — Raj Agrawal; Sean Kerins .

Estimates Context

• S&P Global consensus estimates were not available at the time of this analysis due to data retrieval limits. As a result, we benchmarked Q4 performance against company guidance instead of consensus. Values from S&P Global were unavailable at generation time.

Key Takeaways for Investors

• Q4 beat vs guidance driven by ECS strength; components remained soft but with improving leading indicators (book‑to‑bill ~1, normalized cancellations) — a constructive cycle‑turn signal .
• Q1’25 guide frames a trough: components down mid‑single digits q/q at midpoint and ECS roughly flat y/y, with FX a notable headwind; sets up potential 2H’25 recovery if leading indicators continue to improve .
• ECS is the growth engine with AI/hybrid cloud/cybersecurity drivers and ArrowSphere platform adoption; management expects continued y/y margin expansion in ECS .
• Cost program supports earnings resilience: OpEx run‑rate down materially vs 2023, with incremental $90–$100M savings targeted by end‑2026 and partial benefits in 2025; provides buffer while components recovers .
• Solid cash conversion persists: sixth straight quarter of positive CFO; inventory and working capital management underpin flexibility for debt management and buybacks (authorization ~$325M remaining) .
• Watch Europe in components (subseasonal outlook) and FX headwinds into Q1; narrative inflection hinges on mass‑market demand returning and continued ECS momentum .

Appendix: Additional Financial Details and Disclosures

• Non‑GAAP adjustments Q4’24 (EPS impact): ~$0.10 intangibles, ~$0.31 restructuring & integration, ~$0.63 components wind‑down, ~$0.06 other; GAAP EPS $1.86 to non‑GAAP $2.97 .
• Q4 financial statements and segment reconciliations: see 8‑K Exhibit 99.1 for detailed P&L, balance sheet, cash flow, and segment non‑GAAP reconciliations .
• ARW highlighted ECS ArrowSphere AI enhancements in Nov’24, enabling customized AI assistants for channel partners — relevant to ECS growth narrative .

All figures and statements are sourced from Arrow’s Q4’24 8‑K/press release and earnings call unless otherwise noted. Citations: .