Sales up but margins under pressure in Q2 for Arrow

Strong growth in its value-add arm helped distribution monolith Arrow post a robust set of second-quarter numbers, although changes in its geographical mix of business and a fierce competitive landscape put a dent in its bottom line.

For the three months to the end of June, the Colorado-headquartered distie's reported sales grew by 3.4 per cent year on year to $5.3bn (£3.4bn). Headline components sales declined 1.6 per cent to $3.4bn, but revenue from its Enterprise Computing Solutions (ECS) arm spiked 12.4 per cent to $1.9bn.

Despite the turnover increases, reported operating profit fell 17.4 per cent annually to $155.9m. However, net quarterly earnings per share were up by a cent to $1.12.

A strong showing in Asia-Pacific helped shore up the performance of Arrow's components arm, as regional sales grew 10 per cent. This helped offset a decline of four and nine per cent in North America and Europe respectively.

The ECS division saw North American revenue jump 10 per cent annually, while the April 2012 acquisition of Altimate helped sales in Europe to soar by 18 per cent in comparison with last year's second quarter.

Arrow indicated that it "remains somewhat cautious" in its outlook for Q3, as "there remains economic uncertainty across the globe". Sales are forecast to come in between $4.9bn and $5.3bn.

In a conference call with analysts transcribed by Seeking Alpha, Arrow chief executive Michael Long explained that in the current climate "gross margins are negatively affected by a few factors".

"One is the ongoing pricing pressure of [competitors], as well as some of the changes in product and geographic mix," he added. "And the other one is Asia-Pac components grew significantly faster than the Americas or EMEA and accounted for a greater proportion of our sales versus a year ago.

"What we have seen is a strengthening in the backlog, [following] three quarters of positive book-to-bill [improvement]. So it is our belief that the margin's decline will abate and we will start seeing margin growth from this point out."

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• Arrow ECS