Arrow Q3 Profit Declines 83 Percent, But 'Rebound' Ahead

Arrow CEO Michael Long forecasted a rebound and championed some of Arrow's sequential, quarter-by-quarter gains, while admitting, "we still have a long road ahead of us" with regard to a full recovery in IT spending.

Arrow reported profits of $12.6 million, at 10 cents a share, for its third quarter, down from $76.1 million, at 63 cents a share, from the same period a year ago. Restructuring and other one-time charges aside, Arrow's earnings were $44.9 million at 37 cents per share, down from $83.7 million at 70 cents per share a year ago. Quarterly revenue was $3.67 billion, down 15 percent from $4.3 billion in 2008.

Global components sales and profits for the quarter were down 15 percent and 41 percent, respectively, according to Arrow, while global enterprise computing solutions (Arrow ECS) sales and profits were down 13 percent and 18 percent, respectively.

Long noted that on the components side, Arrow has seen double-digit sequential increases in all regions and that the year-over-year declines seen especially in North America and Europe had begun to stabilize.

For ECS sales, Long and Arrow's executive team described the numbers as "ahead of the midpoint of our expectations," and said that ECS has improved 1 percent sequentially, quarter-to-quarter, with the North American region showing better-than-usual gains for a typically slower season.

"Our execution this quarter was excellent, exceeding our expectations for revenue, earnings per share, and cash flow. We continue to control well those things that we can, no matter the economic environment," Long said.

He cited sequential increases in storage and services, as well as a strong end-of-year in Arrow's federal government practice, as helping to buoy Arrow in the third quarter. Investment in the company, ERP, vertical market focuses and emerging markets would be the key initiatives for Arrow in the fourth quarter.

"There remains a good deal of uncertainty around the pace of enterprise IT solutions," Long said on the earnings call. "It's prudent to take a conservative approach to our outlook. Economy and business trends have improved but they are not back to normalized levels. We're encouraged by the improvement in sales, but still believe the recovery, when it occurs, is expected to be slow and steady."

Arrow's restructuring chargers came primarily through changes to its European business, the area that Arrow said during a previous earnings call would bear the brunt of cost reductions amounting to an expected $100 million.

Paul Reilly, Arrow's executive vice president and chief financial officer, predicted fourth quarter sales between $3.65 billion and $4.65 billion, with components accounting for between $2.25 and $2.65 billion and ECS accounting for between $1.4 billion and $1.6 billion.

During the call, Long cited discussions from the recent Global Technology Distribution Council (GTDC) Summit as fueling his optimism about recovery in distribution.

At that conference, Arrow ECS North America president Rich Severa told Channelweb.com that the down economy was a time when CIOs and CFOs would make sure they were getting the most ROI possible, and that Arrow would help VARs find those opportunities as well as prepare for the impending, though currently stalled, acquisition of Sun Microsystems by Oracle.