Arrow Electronics (ARW)

Global electronics components and solutions distributor Arrow Electronics (NYSE:ARW) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 13% year on year to $7.71 billion. On the other hand, next quarter’s revenue guidance of $8.1 billion was less impressive, coming in 3.1% below analysts’ estimates. Its non-GAAP profit of $2.41 per share was 5.1% above analysts’ consensus estimates.

Company Overview

Founded as a single retail store, Arrow Electronics (NYSE:ARW) provides electronic components and enterprise computing solutions to businesses globally.

Engineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors in the technology products and services industry include Insight Enterprises (NASDAQ:NSIT), PC Connection (NASDAQ:CNXN), and CDW Corporation (NASDAQ:CDW).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Arrow Electronics’s sales grew at a weak 1.3% compounded annual growth rate over the last five years. This was below our standards and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Arrow Electronics’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 7.8% annually.

Arrow Electronics also breaks out the revenue for its most important segments, Components and ECS, which are 72% and 28% of revenue. Over the last two years, Arrow Electronics’s Components revenue (electronic component sales) averaged 11.6% year-on-year declines. On the other hand, its ECS revenue (computing solutions and services) averaged 7% growth.

This quarter, Arrow Electronics reported year-on-year revenue growth of 13%, and its $7.71 billion of revenue exceeded Wall Street’s estimates by 0.7%. Company management is currently guiding for a 11.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.5% over the next 12 months, an improvement versus the last two years. This projection is above the sector average and indicates its newer products and services will spur better top-line performance.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

Arrow Electronics has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 12.2% gross margin over the last five years. That means Arrow Electronics paid its suppliers a lot of money ($87.80 for every $100 in revenue) to run its business.

Arrow Electronics produced a 10.8% gross profit margin in Q3, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Arrow Electronics was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.1% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Arrow Electronics’s operating margin decreased by 1.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Arrow Electronics’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Arrow Electronics generated an operating margin profit margin of 2.3%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Arrow Electronics’s EPS grew at an unimpressive 7% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Arrow Electronics’s earnings to better understand the drivers of its performance. A five-year view shows that Arrow Electronics has repurchased its stock, shrinking its share count by 33.2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Arrow Electronics, its two-year annual EPS declines of 28.5% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Arrow Electronics reported adjusted EPS of $2.41, up from $2.38 in the same quarter last year. This print beat analysts’ estimates by 5.1%. Over the next 12 months, Wall Street expects Arrow Electronics’s full-year EPS of $9.61 to grow 37.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Arrow Electronics has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.1%, lousy for an industrials business.

Taking a step back, we can see that Arrow Electronics’s margin dropped by 1.1 percentage points during that time. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s in the middle of an investment cycle.

Arrow Electronics burned through $312 million of cash in Q3, equivalent to a negative 4% margin. The company’s cash burn increased meaningfully year on year and is a deviation from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Arrow Electronics hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 13.2%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Arrow Electronics’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Arrow Electronics reported $213.6 million of cash and $3.13 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $990.3 million of EBITDA over the last 12 months, we view Arrow Electronics’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $19.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue and EPS guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $113.57 immediately following the results.

Updated: December 3, 2025 at 10:43 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Arrow Electronics falls short of our quality standards. For starters, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its low gross margins indicate some combination of competitive pressures and high production costs.

Arrow Electronics’s P/E ratio based on the next 12 months is 9.6x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $108.25 on the company (compared to the current share price of $110.95).