Arrow Electronics, Inc. EBITDA surged on 21.3% and EBITDA Margin showed almost no change
02/07/2019 • About Arrow Electronics, Inc. (
$ARW) • By InTwits
Arrow Electronics, Inc. reported 2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- EBITDA Margin is relatively stable: 4.5% in 2018 vs. 4.1% in 2017 vs. 4.0% in 2014
- Arrow Electronics, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 0.6%.
- The company has highly profitable business model: ROIC is 13.3%
- It operates with high leverage: Net Debt/EBITDA is 2.2x while industry average is 0.2x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue jumped on 11.8%. Revenue growth showed slowdown in 18Q4 - it was 5.0% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased slightly on 1.6 pp from 20.0% to 21.7% in 2018.
Gross Margin showed almost no change in 2018. SG&A as a % of Revenue showed almost no change in 2018.
Net Income margin increased slightly on 0.90 pp from 1.5% to 2.4% in 2018. The efficient tax rate was 20.8% in 2018 while the average for the last five years was 28.3%.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 0.46% in 2018. The company showed almost no change in CAPEX/Revenue from 2015 to 2018. For the last three years the average CAPEX/Revenue was 0.64%. During 2014-2018 CAPEX as a % of Revenue topped in 2017 at 0.77%.
Accounts receivable as a % of Revenue showed almost no change in 2018. Inventories as a % of Revenue increased slightly on 0.63 pp from 12.4% to 13.1% in 2018. Accounts payable as a % of Revenue showed almost no change in 2018.
Arrow Electronics, Inc. has spent
$332m on M&A in 2018 which accounts for 1.1% of revenue.
Return on investment
The company operates at good ROIC (13.3%) and ROE (13.9%). ROIC increased slightly on 1.2 pp from 12.1% to 13.3% in 2018. ROE increased on 5.4 pp from 8.6% to 13.9% in 2018.
Leverage (Debt)
Debt level is 2.2x Net Debt / EBITDA and 2.6x Debt / EBITDA. Net Debt / EBITDA decreased on 0.1x from 2.3x to 2.2x in 2018. Debt increased on 5.9% while cash dropped on 30.2%.
Arrow Electronics, Inc. has no short term refinancing risk: cash is higher than short term debt (206.8%).
Valuation and dividends
The company's trades at EV/EBITDA 7.3x and P/E 9.5x.
Management team
The company's CEO is Michael J Long "Mike". Michael J Long "Mike" is a founder and has 10 years tenure with the company. CEO total compensation was
$15,339,932 in 2018 which included
$1,200,000 salary. The company's CFO Christopher D Stansbury "Chris" has spent 1 year with the company.
0.79% of the company is owned by insiders. Insider ownership didn't change in 2018.
The company has 20,100 employees. The number of employees increased on 6.9%. Average revenue per employee in 2018 was
$1,476,456 and it increased on 4.5%.
Financial and operational results
FY ended 12/31/2018
Arrow Electronics, Inc. ($ARW) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 22,769 | 23,282 | 23,488 | 26,555 | 29,677 | 11.8% |
| Gross Profit | 2,996 | 3,035 | 3,144 | 3,357 | 3,701 | 10.2% |
| SG&A | 1,960 | 1,986 | 2,047 | 2,162 | 2,303 | 6.5% |
| EBITDA | 918 | 980 | 1,036 | 1,099 | 1,334 | 21.3% |
| EBIT | 762 | 824 | 877 | 946 | 1,148 | 21.3% |
| Tax | 185 | 192 | 191 | 287 | 188 | -34.5% |
| Net Income | 498 | 498 | 523 | 402 | 716 | 78.1% |
| Stock Based Compensation | -7 | -6 | | | | |
Balance Sheet
|
|---|
| Cash | 400 | 273 | 534 | 730 | 509 | -30.2% |
| Accounts Receivable | 6,044 | 6,161 | 6,747 | 8,126 | 8,945 | 10.1% |
| Inventory | 2,335 | 2,466 | 2,856 | 3,303 | 3,879 | 17.4% |
| Accounts Payable | 5,027 | 5,193 | 5,774 | 6,757 | 7,632 | 13.0% |
| Short Term Debt | 13 | 44 | 94 | 357 | 246 | -31.0% |
| Long Term Debt | 2,068 | 2,381 | 2,696 | 2,933 | 3,239 | 10.4% |
Cash flow
|
|---|
| Capex | 123 | 155 | 165 | 204 | 135 | -33.6% |
| Acquisitions | 163 | 515 | 65 | 4 | 332 | 9,039.0% |
Ratios
|
|---|
| Revenue growth | 6.6% | 2.3% | 0.9% | 13.1% | 11.8% | |
| EBITDA growth | 6.6% | 6.7% | 5.7% | 6.1% | 21.3% | |
|
|---|
| Gross Margin | 13.2% | 13.0% | 13.4% | 12.6% | 12.5% | -0.2% |
| EBITDA Margin | 4.0% | 4.2% | 4.4% | 4.1% | 4.5% | 0.4% |
| EBIT Margin | 3.3% | 3.5% | 3.7% | 3.6% | 3.9% | 0.3% |
| SG&A, % of revenue | 8.6% | 8.5% | 8.7% | 8.1% | 7.8% | -0.4% |
| SBC, % of revenue | -0.0% | -0.0% | | | |
| Net Income Margin | 2.2% | 2.1% | 2.2% | 1.5% | 2.4% | 0.9% |
| CAPEX, % of revenue | 0.5% | 0.7% | 0.7% | 0.8% | 0.5% | -0.3% |
|
|---|
| ROIC | 11.9% | 12.7% | 12.5% | 12.1% | 13.3% | 1.2% |
| ROE | 12.0% | 12.0% | 12.2% | 8.6% | 13.9% | 5.4% |
| Net Debt/EBITDA | 1.8x | 2.2x | 2.2x | 2.3x | 2.2x | -0.1x |
People
|
|---|
| Insider ownership | 0.8% | 0.8% | 0.8% | 0.8% | 0.8% | 0.0% |
| Employees | 17,000 | 18,500 | 18,700 | 18,800 | 20,100 | 6.9% |
| Revenue/Employee, th. $ | 1,339 | 1,258 | 1,256 | 1,412 | 1,476 | 4.5% |
Arrow Electronics, Inc. ($ARW) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 6,876 | 7,393 | 7,490 | 7,918 | | 19.9% | 15.1% | 9.3% | 5.0% |
| EBITDA | 283 | 333 | 336 | 382 | | 23.1% | 24.4% | 22.6% | 16.6% |
| Net Income | 139 | 170 | 177 | 231 | | 21.2% | 70.4% | 31.7% | 329.9% |
Balance Sheet
|
|---|
| Cash | 549 | 331 | 474 | 509 | | 5.2% | -21.3% | -18.9% | -30.2% |
| Short Term Debt | 38 | 115 | 158 | 246 | | -91.9% | -73.1% | -58.4% | -31.0% |
| Long Term Debt | 3,533 | 3,690 | 3,352 | 3,239 | | 43.6% | 39.7% | 19.6% | 10.4% |
Ratios
|
|---|
| Gross Margin | 12.6% | 12.6% | 12.3% | 12.3% | | -0.6% | -0.2% | 0.0% | -0.0% |
| EBITDA Margin | 4.1% | 4.5% | 4.5% | 4.8% | | 0.1% | 0.3% | 0.5% | 0.5% |
| Net Income Margin | 2.0% | 2.3% | 2.4% | 2.9% | | 0.0% | 0.7% | 0.4% | 2.2% |
Peers in Technology Distributors
Below we provide Arrow Electronics, Inc. benchmarking against other companies in Technology Distributors industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Tech Data Corporation ($TECD) | | 3.2% | -4.7% | -8.3% | 38.9% |
| EACO Corp ($EACO) | | 4.1% | 5.9% | 5.7% | 23.1% |
| Richardson Electronics, Ltd. ($RELL) | | -0.7% | 3.7% | -3.6% | 19.2% |
| Synnex Corporation ($SNX) | | -3.6% | 5.4% | 21.2% | 17.6% |
| Wayside Technology Group, Inc. ($WSTG) | | 12.1% | 9.4% | -61.6% | 13.0% |
| |
|---|
| Median (16 companies) | | 4.5% | 5.3% | 4.2% | 8.3% |
|---|
| Arrow Electronics, Inc. ($ARW) | | 2.3% | 0.9% | 13.1% | 11.8% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Taitron Components Incorporated ($TAIT) | 25.4% | 31.1% | -10.8% | 39.4% | 44.0% |
| Richardson Electronics, Ltd. ($RELL) | 29.7% | 30.0% | 31.6% | 32.1% | 33.7% |
| EACO Corp ($EACO) | 27.5% | 29.3% | 29.3% | 28.5% | 28.5% |
| Surge Components Inc ($SPRS) | 24.5% | 25.0% | 25.2% | 25.2% | 25.6% |
| ADDvantage Technologies Group, Inc. ($AEY) | 32.3% | 35.0% | 32.2% | 30.4% | 23.7% |
| |
|---|
| Median (16 companies) | 15.9% | 16.3% | 14.2% | 16.9% | 16.3% |
|---|
| Arrow Electronics, Inc. ($ARW) | 13.2% | 13.0% | 13.4% | 12.6% | 12.5% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Taitron Components Incorporated ($TAIT) | -8.6% | -3.2% | -39.0% | 13.0% | 19.2% |
| CDW Corporation ($CDW) | 7.3% | 7.5% | 7.7% | 7.6% | 7.7% |
| ePlus inc. ($PLUS) | 7.3% | 7.5% | 7.6% | 7.3% | 7.1% |
| EACO Corp ($EACO) | 4.0% | 4.5% | 4.7% | 4.5% | 5.9% |
| Surge Components Inc ($SPRS) | 2.8% | 3.8% | -1.5% | 1.2% | 4.8% |
| |
|---|
| Median (16 companies) | 3.2% | 3.5% | 3.4% | 3.5% | 4.0% |
|---|
| Arrow Electronics, Inc. ($ARW) | 4.0% | 4.2% | 4.4% | 4.1% | 4.5% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Richardson Electronics, Ltd. ($RELL) | 2.0% | 3.5% | 3.4% | 3.8% | 3.2% |
| ePlus inc. ($PLUS) | 0.9% | 1.0% | 2.1% | 1.5% | 1.0% |
| EACO Corp ($EACO) | 0.6% | 0.4% | 0.3% | 5.5% | 0.8% |
| Avnet, Inc. ($AVT) | 0.4% | 0.6% | 0.8% | 0.7% | 0.8% |
| PC Connection, Inc. ($CNXN) | 0.3% | 0.5% | 0.4% | 0.4% | 0.8% |
| |
|---|
| Median (16 companies) | 0.4% | 0.5% | 0.4% | 0.5% | 0.5% |
|---|
| Arrow Electronics, Inc. ($ARW) | 0.5% | 0.7% | 0.7% | 0.8% | 0.5% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Surge Components Inc ($SPRS) | 6.7% | 9.5% | -4.0% | 3.9% | 24.6% |
| CDW Corporation ($CDW) | 16.5% | 17.3% | 18.8% | 20.1% | 23.1% |
| EACO Corp ($EACO) | 19.6% | 21.8% | 22.2% | 16.1% | 21.2% |
| ePlus inc. ($PLUS) | 20.1% | 21.0% | 21.5% | 22.8% | 20.8% |
| Insight Enterprises, Inc. ($NSIT) | 17.0% | 17.4% | 20.7% | 19.3% | 20.0% |
| |
|---|
| Median (17 companies) | 13.6% | 11.9% | 12.1% | 9.9% | 11.2% |
|---|
| Arrow Electronics, Inc. ($ARW) | 11.9% | 12.7% | 12.5% | 12.1% | 13.3% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Synnex Corporation ($SNX) | 2.0x | 0.9x | 1.2x | 2.1x | 3.9x |
| Anixter International Inc. ($AXE) | 3.2x | 4.7x | 3.6x | 3.0x | 3.1x |
| ScanSource, Inc. ($SCSC) | -1.4x | -0.9x | 0.2x | 0.6x | 2.5x |
| CDW Corporation ($CDW) | 3.2x | 3.3x | 2.8x | 2.7x | 2.4x |
| Avnet, Inc. ($AVT) | 1.2x | 1.1x | 2.2x | 1.5x | 2.2x |
| |
|---|
| Median (15 companies) | -0.2x | -0.4x | 0.1x | 0.9x | 0.5x |
|---|
| Arrow Electronics, Inc. ($ARW) | 1.8x | 2.2x | 2.2x | 2.3x | 2.2x |
