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Arrow Electronics, Inc. reported selected preliminary results for its second fiscal quarter ending June 29, 2019, and announced a planned wind-down of the company’s personal computer and mobility asset disposition business. The company expects to provide full second-quarter results, and guidance for the third quarter of 2019 on August 1, 2019.
“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 components business, we remain confident in our long-term strategy and our ability to generate strong cash flow,” said 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.”
The company expects to report total second quarter 2019 sales of approximately $7.30 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 (loss) per share on a diluted basis, excluding certain items1, are expected to be in the range of $1.50 to $1.62 per share. 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. 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.
Planned Wind-Down Of Personal Computer And Mobility Asset Disposition Business
Arrow Electronics today announced that it elected to initiate actions to close its personal computer and mobility asset disposition business, whose past results have been included as part of the global components business, in the United States and most other countries in which this business operates. The company initiated the process of making its employees aware of the decision beginning on July 15, 2019. The company is also proposing to close this business in Sweden, Belgium, and the United Kingdom but 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,” said Mr. Long. “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, the company expects to incur charges of approximately $115 million. These charges will be incurred primarily in the second quarter of fiscal year 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 non-cash 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. The company expects that operations will cease and the remaining wind down of the personal computer and mobility asset disposition business will be substantially complete by the end of 2019.
Operating Expense Reduction Program
Arrow Electronics has also initiated separate and distinct actions to reduce its annual operating expenses, which are expected to generate approximately $130 million in annualized cost savings. Substantially all of the cost actions will be completed by the end of 2019. The company expects to recognize approximately $45 million in costs related to cash severance as well as approximately $4 million in other non-cash asset impairments and approximately $10 million in cash contract termination costs. Substantially all of the severance, assets impairments, and termination costs are expected to be recognized in the third quarter of 2019.
“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,” said 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.”
Goodwill and Intangibles Impairment Charge
In addition, based in part on the decision to wind down the company's personal computer and mobility asset disposition business and its revised second quarter earnings expectations, the company conducted an interim goodwill impairment analysis related to the Americas components and Asia-Pacific components reporting units, and expects to record a non-cash goodwill impairment charge of approximately $570 million in the second quarter of 2019. The company 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 non-cash trade name impairment charge of $46 million in connection with an initiative to further integrate two global components businesses.
The company expects to record non-cash charges of $36 million related to certain receivables and inventory in its global components business.