Arrow Electronics Inc. Earnings Call Nuggets: Linearity of Bookings, Component Product Trends

On Tuesday, Arrow Electronics Inc (NYSE:ARW) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Linearity of Bookings

Brian Alexander – Raymond James: Can you guys talk about the linearity of bookings in the quarter in component segment by region given the below seasonal revenue performance, but you alluded to the positive book-to-bill of $1.04 and then I have a follow-up.

Paul J. Reilly – EVP, Finance and Operations and CFO: Brian, so for the whole segment we were above 1 in each month during the first quarter and we’re again above 1 for the entire segment in the month of April. So, we saw that the entire segment was very strong. NAC and our Asia core business each month was above one also in the first quarter and they remain above one in the month of April. Our European core business was at parity and it was more choppy though as you would expect considering the broad economic background that we saw during the first quarter. With that said, they too in the month of April were above one, so above parity. So, I would say overall, that each of the businesses where there was some consistency in the economy. We were above one with the exception of Europe where it’s a bit choppier in each of the first four months of 2012.

Brian Alexander – Raymond James: So Paul, how do we reconcile your components revenue performance to your major competitor who reported more seasonal patterns and they were above the midpoint of their guidance, while Arrow was below seasonal at the low end of your guidance. Are there any major differences in supplier line card or pricing strategies or mix or anything else that you could think of that would explain the stark contrast in performance?

Paul J. Reilly – EVP, Finance and Operations and CFO: Brian, it’s a good question, because line cards are similar, like you know that there are some differences with a couple of the suppliers. You know that there may have been a bit of change in supplier performance. So, that’s not a significant item for us, but it is an item that’s out there. When we look at it, we now have probably outperformed the market for three years, good or bad is a statement of fact. So, we’re cautious on the economy around the globe. We’re cautious on performance. If we were more negative, you’ll see us taking more expense actions, but right now we’re hanging with those investments we’ve made because, we do believe the second half of the year will show some more robust economic backdrop and some more robust activity going forward.

Michael J. Long – Chairman, President and CEO: Brian, I might be able to add a little bit of clarity also on that. I think as you know and well publicized, in Asia Pac set-top boxes, TVs and some of the computer business, but primarily the set-top box, the TVs were down fairly significantly, and as you do know, we do play a pretty good or have a pretty good position in set-top box and I think that hurt us a little bit in Asia Pac.

Brian Alexander – Raymond James: Just to be clear, the ERP rollout that you are currently going through had no impact on results in the quarter?

Paul J. Reilly – EVP, Finance and Operations and CFO: We don’t believe there were any measurable impacts from the ERP rollout which we did in early part of Q4. So, we now have momentum for six months behind it.

Component Product Trends

Param Singh – Stifel, Nicolaus & Co.: This is (Param Singh) in for Matt Sheerin. Are you guys seeing any different trends across your component product categories, and specifically any difference between semiconductors and your passive and connectors business?

Michael J. Long – Chairman, President and CEO: Actually, right now, we saw a bright spot in the passive, electromechanical, and connector business, primarily due to some increase in automotive, we did have some share gain in what we would call our high reliability cable business, that deals with some of the aircraft that were out there, there were some contracts that came through for us in the quarter, and helped that business in a pretty good position. So, we did see a little bit of what I would say better improvement on the path of electromechanical side than we did semiconductor side for the quarter.

Param Singh – Stifel, Nicolaus & Co.: Follow up question, on the gross margin it looks like mix (indiscernible) margin in Q1 and if you look at your guidance it looks like it could be flat to down again is that more of a mix issue due to higher computing revenue or is there mix issue within components that’s giving a little of pricing pressure?

Paul J. Reilly – EVP, Finance and Operations and CFO: Right, so let me take it in reverse order. There was minimal GP change in our core components business year-over-year or even on a sequential basis, so it’s principally being driven by a change in mix, especially true from a historical point of view as we look at second quarter seasonality where we see some of the more higher margin businesses in components like Europe have business drop-off because of fewer shipping days around national religious holidays. We also grow our ECS business in second quarter. So, no real change from normal seasonality and the impact on pricing has been nominal, if anything, over the last year or so.