immixGroup Deal, Data Center Driving Growth For Arrow

Arrow Electronics' acquisition of federal government distributor immixGroup and demand for technologies around the data center led to another solid quarter.

The Englewood, Colo.-based distributor saw quarterly non-GAAP earnings rise 3 percent for its third quarter ended March 28 to $127.8 million, or $1.32 per share. This was in line with estimates from analysts, according to Seeking Alpha.

Year-over-year revenue jumped 3.4 percent after accounting for changes in foreign currency exchange rates from $4.85 billion to $5.01 billion, falling short of expectations of $5.11 billion.

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"We believe we're right where we need to be right now," Mike Long, Arrow chairman, president and CEO, said during the company's earnings call.

The quarterly results were released Thursday before the market opened. By early afternoon, investors had sent the company's stock down 4.7 percent to $59.99 per share.

ImmixGroup is expected to contribute $200 million to Arrow's revenue total in the second quarter, with even stronger sales in the third quarter at the Sept. 30 deadline for the federal buying season. Arrow closed on its acquisition of immixGroup, No. 37 on the CRN Solution Provider 500, at the end of March.

The deal will provide Arrow with more breadth and depth in the federal government space, according to Sean Kerins, president of Arrow's enterprise computing solutions (ECS) business. Kerins added that immixGroup's focus on software-based solutions in the data center aligns well with Arrow's strategy. The company does roughly $700 million of business each year, Arrow said during the call.

Arrow's enterprise computing solutions (ECS) division saw global sales increase 6.9 percent on a constant currency basis to $1.66 billion. European sales grew 7.7 percent on a constant currency basis to $582 million, while revenue from the Americas was up 8 percent.

Much of this comes from a refresh around products in the data center, Long said, with the distributor experiencing double-digit growth around server sales as well as strong returns from virtualization, services and software.

The company has moved over the past several years from being primarily a server distributor to one with robust capabilities around security, virtualization and storage, Long said. In the quarters ahead, Arrow anticipates its earnings will grow faster as demand for security and infrastructure software increases.

Arrow also is trying to gauge how fast solid-state storage will be adopted, as well as how much of their workload end users are looking to move over to the cloud. Thus far, most of the growth is coming from existing storage manufacturers, Long said, because they're still seeing demand from the midmarket.

For the next quarter, Arrow said it expects earnings of $1.43 to $1.55 per share, and revenue in the range of $5.45 billion to $5.85 billion. Analysts had projected earnings of $1.49 per share on sales of $5.74 billion. Enterprise computing sales are expected to come in between $2 billion and $2.2 billion, the distributor said.

PUBLISHED APRIL 30, 2015