Arrow Electronics Earnings Call NUGGETS: OpEx Outlook, Global Sales Trends

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

OpEx Outlook

Jim Suva – Citi: Congratulations to you and your team at Arrow for a solid results in a challenging environment. When we think about the Company and its OpEx outlook and given your cost cutting that you are doing and undergoing, somewhat offset by some of the folding in the acquisitions. Can you help us kind of dial into kind of an SG&A or an OpEx run rate as I know again you got OpEx being some – restructuring being done, but yes, you got some acquisitions folding in? Help us out with that OpEx and how we should think about that. Not only for September, but kind of going forward as a percent of sales or dollar basis or the best way to look at that?

Paul J. Reilly – EVP, Finance and Operations and CFO: Jim, what we think is that for the third quarter round numbers, I realize also that we do have an acquisition coming in Altimate was not in at all in the second quarter in P&L, it was in the balance sheet when we closed at the end of the quarter. So that’s adding some incremental expense. We expect to get some integration efficiencies from that. What kind of also works in our favor is from a translation point of view with a lower euro that will lower the U.S. dollar expenses. So when you add that all together, mix it all up, we’ll be about flat and maybe up a little bit in operating expense dollars in Q3. That means that there will be a nominal trend up in operating expenses as a percentage of sales. So that’s kind of how we see Q3. Q4, we would expect to see expense dollars go up, variable costs associated with higher sales, remember that that’s our most active quarter for our Global ECS business, but as a percentage of sales it would trend down below, right on at 9% level. So you’ll see nothing unusual in Q3 and in Q4 you’ll see a normal trend also in expenses.

Jim Suva – Citi: Then my quick follow-up. When we think about your inventory, which came up this quarter ending the quarter, your sales outlook is for sequentially to be down for the September quarter, is that just because demand kind of softened up here or is it because interest rates in your price protection on inventory looks at a low way to kind of take advantage and the low risk to take advantage if things do turn around. How should we think about that inventory management and why there is the disconnect of, inventory up, yet the sales outlook coming down?

Michael J. Long – Chairman, President and CEO: Well, Jim, there is a couple of things that really drove that. The first one was about half of that increase was a large customer engagement where we are providing supply chain services, so we had to organize the inventory to match that demand. The other half was in Asia and there we did see an increase of sales, but if you take a look at the historical terms, I think you’ll see the inventory turn levels that we have also went up. So all-in-all, the inventory is probably balanced close to an area that it needs to be.

Global Sales Trends

Shawn Harrison – Longbow Research: I was hoping, within Global Components maybe you could speak to the linearity of sales trends throughout the quarter and end of July, I guess, the volatility and then layering that just kind of the good strength that you saw in Asia what was the driver this quarter of that growth?

Michael J. Long – Chairman, President and CEO: Peter, do you want to take a shot at that and then we will follow-up?

Peter T. Kong – President, Arrow Global Components: Sure. In terms of sales trends and booking trend and I think that pretty much follow seasonality and as far as July is concerned that’s pretty much the same, it follows what we normally see in the market. As far as strength in the Asia, we are pretty proud of the team, I think, there is very good momentum with our Asia business at this moment both the core and Ultra Source both grew ahead of normal seasonality. This is mostly as a result of being successful in moving our strategy forward and expanding our customer engagement in the region. So, I believe that the momentum is going to continue.

Michael J. Long – Chairman, President and CEO: Just to add to that a little bit. And you get down to be at the booking level we saw the America is at about 1.04 book-to-bill, Asia was about 1.01, and EMEA was at 0.95. The interesting thing about the EMEA market was that it was the second strongest Q2 over the last five years as far as bookings go. So, there was bright spot in the middle of everything going on there that could have easily been overlooked. If you take the entire group and roll it up those bookings were really in line with normal seasonality at these levels.

Shawn Harrison – Longbow Research: I guess, as a follow up to that then, Mike. If you take the guidance of Global Components it looks as if it is maybe towards the lower end of seasonality. So, just wondering maybe how much conservatism you baked in there given looks to be a good book-to-bill ratio coming out of the quarter.

Michael J. Long – Chairman, President and CEO: Yeah, what we didn’t do was take an improved economy into our guidance going forward. We really took our backlog and what it split into, what we could see coming this quarter plus our normal booking rate. Frankly, we’re seeing some mixed signals out of Europe in terms of what is going there and that one is getting very difficult for us to call. So there probably is a little conservatism in that piece of it, but the others we think are fairly solid.