Arrow Electronics, Inc. (ARW) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong financial performance with a 20% revenue increase and 48% EPS growth in Q4 2025, driven by demand recovery and value-added services. The company has a solid shareholder return plan with significant share repurchases. Despite some execution risks due to organizational changes, market trends like AI and cloud support future growth. The Q&A session indicates continued momentum into Q1, although visibility beyond that is unclear. Overall, the positive financial results and strategic initiatives outweigh the uncertainties, suggesting a positive stock price movement.
Key Financial Performance
Revenue Revenue increased 20% year-over-year in Q4 2025, driven by strong execution across global components and ECS. Full year 2025 revenue was $30.9 billion, up 10% versus the prior year, with global components revenue increasing 8% and ECS revenue increasing 18%. The growth was attributed to demand recovery, value-added services, and productivity initiatives.
Non-GAAP EPS Non-GAAP EPS increased 48% year-over-year in Q4 2025 to $4.39, driven by favorable sales results, a higher mix of value-added services, and lower interest expense. For the full year, non-GAAP EPS increased 4% to $11.02, supported by growth in value-added services and productivity initiatives.
Gross Margin Non-GAAP gross margin for Q4 2025 was 11.5%, down 20 basis points year-over-year due to regional and customer mix in global components. However, value-added services and productivity initiatives helped offset some of the headwinds.
Operating Income Non-GAAP operating income for Q4 2025 was $336 million, representing 3.8% of sales. This was an improvement due to normal seasonality in ECS and cost-saving initiatives. Global components operating income increased 10% sequentially to $219 million.
Cash Flow Cash flow from operating activities for Q4 2025 was $200 million, and for the full year, it was $64 million. Improvements in working capital management and inventory turns contributed to better cash flow performance.
Book-to-Bill Ratio and Backlog Book-to-bill ratio improved and was above parity in all regions, with backlog seeing healthy sequential growth for four consecutive quarters. This indicates a gradual cyclical recovery and improving demand levels.
ECS Revenue ECS revenue for Q4 2025 increased 16% year-over-year to $2.9 billion, driven by strong demand for hybrid cloud, infrastructure hardware and software, cybersecurity, and AI-driven workloads. ECS billings grew 16% year-over-year, with 75% of billings from software and services.
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Operating Highlights
Value-added services: The contribution of value-added services as a percentage of total operating income has grown from less than 20% historically to roughly 30% in 2025. These services include supply chain, engineering and design, and integration services, which are driving profitable growth.
AI and cloud-related demand: Secular growth in cloud, AI, and data center demand is creating tailwinds for both components and ECS businesses, particularly in areas like AI infrastructure build-out.
ArrowSphere AI offerings: Arrow was recognized as Microsoft's 2025 Distributor Partner of the Year for its ArrowSphere AI offerings, which help channel partners drive sustainable growth.
Global market positioning: Arrow holds a leading position in large and expanding markets, including industrial, transportation, aerospace and defense, medical, consumer electronics, and data center. Demand trends and ordering behavior improved sequentially in Q4 2025.
Regional performance: Incremental improvements were seen in Western regions and mass market customers, with healthy backlog growth in EMEA and broad-based sales growth in Asia.
Operational efficiencies: Efforts to simplify operations, consolidate resources, and realign geographically are creating operating leverage and reinvestment capacity. Cost savings initiatives have supported lower operating expenses as a percentage of gross profit.
Productivity improvements: A focus on driving costs out and creating a productivity flywheel has expanded margins and provided reinvestment capacity for growth.
Strategic shifts in ECS: ECS is moving beyond transactional distribution toward higher-value engagements, including strategic outsourcing and recurring revenue models. Approximately 1/3 of ECS billings are now recurring revenue.
Capital allocation strategy: Arrow is focused on reinvesting in organic growth opportunities, pursuing disciplined M&A, and returning excess capital to shareholders. In Q4 2025, $50 million in stock was repurchased, with $3.6 billion returned to shareholders since 2020.
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Risk or Challenges
Visibility and Demand Uncertainty: Visibility continues to be cloudy, and while leading indicators like book-to-bill and backlog are improving, the recovery remains gradual and uncertain.
Macroeconomic and Geopolitical Instability: Macro and geopolitical instability is creating uncertainty, which could impact demand levels and market recovery.
Inventory Normalization: Inventory normalization throughout the supply chain is still in progress, which is contributing to a more gradual recovery.
Regional and Customer Mix Challenges: Margins experienced headwinds from regional and customer mix in global components, which could impact profitability.
Operational Efficiency and Cost Management: Efforts to simplify operations, consolidate resources, and realign geographically are ongoing, but more work is needed to achieve desired productivity and cost savings.
Market and Customer Variability: The recovery remains different by region, end market, and customer type, creating challenges in aligning investment levels with demand.
Supply Chain and Lead Times: Stated lead times are modestly expanding, indicating improving demand levels, but supply chain complexities remain a challenge.
Strategic Execution Risks: The company is undergoing organizational changes to align with growth initiatives, which could pose execution risks during the transition.
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Guidance & Outlook
Revenue Expectations: Sales for Q1 2026 are expected to be between $7.95 billion and $8.55 billion, representing a 21% year-over-year increase at the midpoint. Global component sales are projected to be between $5.75 billion and $6.15 billion, with ECS sales expected to range from $2.2 billion to $2.4 billion.
Margin Projections: Non-GAAP diluted earnings per share for Q1 2026 is expected to be between $2.70 and $2.90. Margins are expected to improve through a gradual recovery, supported by higher-margin value-added services and operational efficiencies.
Market Trends: Demand levels are incrementally improving in many markets, with leading indicators such as book-to-bill ratios and backlog showing positive trends. Specific growth is expected in areas like AI infrastructure, cloud, and data center demand.
Business Segment Performance: Global components are expected to perform above seasonal trends in Q1 2026, with strength in aerospace, defense, industrial, and transportation sectors. ECS is projected to see a 13% year-over-year increase in sales at the midpoint, driven by hybrid cloud, cybersecurity, and AI-related demand.
Capital Expenditures and Allocation: The company plans to reinvest in organic growth opportunities, pursue strategic M&A, and return excess capital to shareholders. In Q4 2025, $50 million in stock was repurchased, and since 2020, $3.6 billion has been returned to shareholders.
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Shareholder Return Plan
Share Repurchase Program: In Q4, Arrow repurchased $50 million in stock. Since 2020, the company has returned approximately $3.6 billion to shareholders through share repurchases. This reflects the company's confidence in the durability of its business model and its commitment to shareholder value creation.
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Key Q&A
Q:Can you comment on billing linearity through the quarter and booking patterns?
A:There was nothing unusual in terms of billing or booking patterns during the fourth quarter. All three regions performed ahead of normal seasonality in components, and momentum has continued into the first quarter.
Q:What drove strong sales in the Americas region for global components and strong revenue growth in EMEA for ECS? Do you think this growth will sustain into the second half of '26?
A:The strong sales were driven by healthy demand in key vertical segments like transportation, aerospace, defense, and industrial. Western regions and the mass market are starting to come back. Growth trends are expected to continue into the first quarter, but no specific projection for the second half of '26 was provided.
Q:In the ECS segment, 25% of billings are hardware. Can you elaborate on the strength in specific categories and value-added services?
A:Hardware accounts for 25% of ECS revenue, with the rest being software, cloud, and services. Growth is strongest in networking and security. Value-added services are an extension of existing offerings across multiple vertical markets, with no specific projection on their contribution to operating income, though they are highly profitable.
Q:How should we think about working capital investment and its impact on interest expense?
A:Interest expense has been lower than expected due to timing of cash flows and working capital investment. Short-term rates being 100 basis points lower than the prior year also contributed. Working capital is expected to increase in the first quarter due to growth, which may impact interest expense.
Q:Would we expect above seasonal results in Western markets during the recovery cycle?
A:Visibility beyond 90 days remains unclear, but Q1 is expected to be above seasonal in all three regions, including Western markets.
Q:Review of Unclear Management Responses
A:Management avoided providing specific projections for the second half of '26 regarding growth sustainability and the exact contribution of value-added services to operating income. Additionally, visibility beyond 90 days remains unclear, and no detailed breakdown of future trends was provided.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ArrowSphere
Electronics Full
Slide
capability
capacity
capital basis
cash generation
chain service
channel partner
cloud AI
cost
creation
demand level
design
discipline
driver
durability
extension
flexibility
generation cycle
hardware
improvement region
increase
investment thesis
level market
margin value
model
networking
opportunity
percent sale
pillar
point capital
position
productivity
provider channel
quality
return capital
role
sale strength
shareholder value
technology
value service
ARW Transcript
Arrow Electronics, Inc. (ARW) Q4 2025 Earnings Call Transcript
Positive2-5
The earnings call reveals strong financial performance with a 20% revenue increase and 48% EPS growth in Q4 2025, driven by demand recovery and value-added services. The company has a solid shareholder return plan with significant share repurchases. Despite some execution risks due to organizational changes, market trends like AI and cloud support future growth. The Q&A session indicates continued momentum into Q1, although visibility beyond that is unclear. Overall, the positive financial results and strategic initiatives outweigh the uncertainties, suggesting a positive stock price movement.
Arrow Electronics, Inc. (ARW) Presents at UBS Global Technology and AI Conference 2025 Prepared Remarks Transcript
Neutral12-2
Arrow Electronics, Inc. (ARW) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call summary indicates strong financial performance, with significant growth in global components and ECS sales, and a positive outlook for operating margins. Despite a $21 million charge impacting ECS margins, management remains optimistic about future growth and margin recovery. The Q&A section reveals confidence in strategic outsourcing contracts and a gradual market recovery. These factors, combined with stable operating margins and a positive sales outlook, suggest a likely positive stock price movement over the next two weeks.
Arrow Electronics, Inc. (ARW) Q2 2025 Earnings Call Transcript
Positive7-31
Despite some challenges like interest expense and tax rate increases, the company reported strong financial performance with a 10% YoY sales increase and EPS above guidance. The Q&A section revealed confidence in inventory management and stable margins. The positive ECS sales growth and share repurchase plan further support a positive outlook. While uncertainties exist, the overall sentiment leans positive due to strong sales, EPS performance, and strategic initiatives.
ARW Slides
ARW Report
Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
