Broken Arrow (ARW)
An update on earnings quality after the Arrow Electronics 3Q collapse
We first discussed our earnings quality concerns with Arrow Electronics (ARW) for our Substack subscribers in our June 3 Red Flag Note which we followed up with a full earnings quality review of the company in our 7/18 piece Arrow Electronics (ARW)- A Follow-up to Our Red Flag Note.
Following those reports, ARW reported 2Q24 non-GAAP earnings of $2.78 which topped the Street consensus by 62 cps. The market was not initially impressed and the stock fell 5% on the day of the announcement. However, it quickly recovered and soon reached a 52-week high. Readers can see our review of the 2Q numbers in our August report Arrow Electronics- How Much Fluff Was in the 62 cps Beat? in which we review the earnings quality problems we continued to see in the company’s results.
On October 30, the company reported non-GAAP EPS of $2.38. While this topped consensus targets by 16 cps, the company issued disappointing sales guidance for its Global Components division. The market quickly expressed its disapproval, driving the stock down 15% since the announcement. Nevertheless, in our view, the beat was very low-quality and we continue to see multiple warning signs that a return to growth may be delayed.
For a closer look at the quarter, let’s get behind the numbers…