Arrow Electronics to exit ITAD business

Arrow Electronics Inc., Centennial, Colorado, has reported selected preliminary results for its second fiscal quarter ending June 29 and announced plans to exit the personal computer and mobility asset disposition business. The company says it expects to provide full second-quarter results and guidance for the third quarter Aug. 1.

“While we are disappointed that our anticipated results for the second quarter are lower than we had initially expected due to deteriorating demand conditions in the global componenin the United States and most other countries in which this business operatestin the United States and most other countries in which this business operatess business, we remain confident in our long-term strategy and our ability to generate strong cash flow,” says Michael J. Long, chairman, president and chief executive officer. “Arrow Electronics has built a resilient business model comprising a broad portfolio of technology solutions. As we look to the rest of 2019 and beyond, we are taking decisive actions to preserve profits while maintaining our engineering and value-added capabilities to continue to guide innovation forward.”

Arrow says it has elected to initiate actions to close its information technology asset disposition (ITAD) business, which includes personal computer and mobility asset disposition, in the United States and in most other countries in which the business operates. Past results for this business sement have been included as part of the global components business. The company says it began the process of making its employees aware of the decision beginning July 15. Arrow also has proposed closing this business in Sweden, Belgium and the United Kingdom and says it will start the consultative process with employees' representatives.

“After careful market analysis indicating that business dynamics have changed since we entered this market, we have decided to wind down operations at our personal computer and mobility asset disposition business,” Long says. “This will allow us to continue to focus on our cross-enterprise strategy to enable next-generation technologies, such as artificial intelligence, industrial automation, smart cities and vehicles.”

As a result of winding down the personal computer and mobility asset disposition business, Arrow says it expects to incur charges of approximately $115 million primarily in the second quarter of fiscal 2019, with the remaining amounts being incurred throughout the second half of 2019 and first half of 2020. The charges include an estimated $75 million noncash impairment of certain long-lived and intangible assets and an estimated $40 million future cash expenditure primarily related to personnel and other exit and disposal costs. Arrow says it expects operations to cease and the remaining wind-down of the personal computer and mobility asset disposition business to be completed by the end of 2019.

The company says it expects to report total second-quarter 2019 sales of approximately $7.3 billion, with global components sales of approximately $5.25 billion and global enterprise computing solutions sales of approximately $2.05 billion. Earnings loss per share on a diluted basis are expected to be in the range of $6.35 to $6.23, and earnings per share on a diluted basis, excluding certain items, are expected to be in the range of $1.50 to $1.62 per share, the company says.

Revised second-quarter expectations exclude approximately $78 million of sales and $78 million of after-tax losses from the personal computer and mobility asset disposition business.

Arrow says the net amount of cash provided by operating activities during the second quarter of 2019 is expected to be approximately $400 million. Cash used for the repurchase of approximately 2.1 million shares in the quarter totaled approximately $150 million.

The company says it also initiated actions to reduce its annual operating expenses that are expected to generate approximately $130 million in annualized cost savings. Substantially all the cost actions will be completed by the end of 2019. The company says it expects to recognize approximately $45 million in costs related to cash severance as well as approximately $4 million in other noncash asset impairments and approximately $10 million in cash contract termination costs. Substantially all the severance, assets impairments and termination costs are expected to be recognized in the third quarter of 2019, according to Arrow.

“Our cost reduction program reflects our thoughtful approach to improving efficiency while continuing to deliver the high levels of engineering and supply chain services our customers expect,” says Chris Stansbury, senior vice president and chief financial officer. “We are laser-focused on improving profit performance and capitalizing on the opportunities created by the convergence of information technology with operational technology.”

In addition, based in part on the decision to exit its personal computer and mobility asset disposition business and its revised second-quarter earnings expectations, the company says it conducted an interim goodwill impairment analysis related to the Americas components and Asia-Pacific components reporting units and expects to record a noncash goodwill impairment charge of approximately $570 million in the second quarter of 2019. Arrow says it is in the process of finalizing the impairment analysis and expects to provide a completed analysis in the form 10-Q filing for the second quarter of 2019. Additionally, the company expects to record a noncash trade name impairment charge of $46 million in connection with an initiative to further integrate two global components businesses.