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    ARW
    Earnings call· Mar 2026(Q1 FY26)

    ARROW ELECTRONICS Q1 FY26 earnings call ARW

    May 7, 2026 Source

    Executive summary

    Arrow Q1 FY26 — Strong Revenue Growth and Margin Expansion Driven by Broad-Based Recovery

    Arrow Electronics delivered robust Q1 FY26 results, driven by strong unit volume growth and significant operating leverage across both Global Components and ECS segments. The company observed a broad-based market recovery, with improving leading indicators and building backlog, reinforcing confidence in sustainable momentum. Management emphasized disciplined cost structures and an expanding mix of higher-margin value-added services, positioning the company for continued profitable growth.

    Highlights

    5

    • Total revenue of $9.5 billion, increased 39% year-over-year (34% on a constant currency basis).

    • Non-GAAP EPS of $5.22, representing an increase of 190% year-over-year.

    • Non-GAAP operating margin expanded 160 basis points year-over-year to 4.2%.

    • Global Components non-GAAP operating margin increased 180 basis points sequentially to 5.5%.

    • Book-to-bill ratios improved further and are well above parity in all three operating regions.

    Concerns

    5

    • Global ECS non-GAAP operating margins declined modestly by 10 basis points year-over-year.

    • A charge was taken related to one underperforming multiyear contract in ECS.

    • Inventory grew sequentially by approximately $640 million, with half related to data center activity.

    • Asia is expected to be seasonally strong in Q2, operating at a lower margin than other regions.

    • Supply Chain Services is expected to return to more normal profit levels in Q2 after heavier growth in Q1.

    Guidance & targets

    6
    CategoryTargetConfidence
    Total Sales
    $9.15B - $9.75B
    high materiality
    High
    Global Components Sales
    $6.8B - $7.2B
    medium materiality
    High
    Enterprise Computing Solutions Sales
    $2.35B - $2.55B
    medium materiality
    High
    Tax Rate
    23% to 25%
    low materiality
    High
    Interest Expense
    ~$60M
    low materiality
    High
    Non-GAAP Diluted EPS
    $4.32 - $4.52
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Global Components
    Cyclical market recovery accelerated in back half of Q1, broad-based across geography, industry vertical, and customer type. Mass market backlog trending positively. Growth was unit volume-driven, not pricing.
    Non-GAAP operating income: $365M (up 67% QoQ)Non-GAAP operating margins increased 180 bps sequentiallyBook-to-bill ratios: well above 1 in all three regionsIndustrial and Transportation growth: double-digit sequential growth in Americas and EMEAIP&E revenue: >$1B (record)
    		$6.6B—13%5.5%
    Global Enterprise Computing Solutions (ECS)
    Benefited from strong secular demand trends in AI-driven workloads and data center build-out. Experienced a charge related to one underperforming multiyear contract. Well positioned with diversified line card and digital platform Arrowsphere.
    Total billings: $6.4B (up 39% YoY)Constant currency growth: 31% YoYExtra shipping days impact: several hundred million dollars of incremental billingsHardware sales: strong momentum due to AI investments and memory supply constraints
    		$2.8B39%—declined 10 bps YoY

    Operational metrics

    22
    Total revenue increase
    $2.7BYoY
    Q1 FY26

    Increased total revenue to $9.5 billion, exceeding guidance range.

    Non-GAAP EPS
    $5.22up 190% YoY
    Q1 FY26

    Significantly above guidance range, driven by favorable sales volume, value-added services, operational leverage, and lower interest expense.

    Non-GAAP operating margin
    4.2%up 160 bps YoY
    Q1 FY26

    Expanded due to strong revenue growth and significant margin expansion.

    Non-GAAP gross margin
    11.5%up 20 bps YoY
    Q1 FY26

    Driven by favorable business mix in global components and higher profit contribution from value-added services.

    Non-GAAP operating income
    $401Mup $222M YoY
    Q1 FY26

    Increased year-over-year by $222 million.

    Non-GAAP operating income increase
    $222MYoY
    Q1 FY26

    Increase in consolidated non-GAAP operating income.

    Non-GAAP operating income increase
    $146MQoQ
    Q1 FY26

    Increase in Global Components non-GAAP operating income to $365 million.

    Non-GAAP operating expenses
    $687Mup $95M YoY
    Q1 FY26

    Primarily driven by variable costs and FX.

    OPEX as percent of gross profit
    63.2%down 13.6 percentage points YoY
    Q1 FY26

    Operating expenses increased at roughly 1/3 the rate of revenue growth.

    Net working capital
    $6.9Bdown $490M QoQ
    Q1 FY26

    Declined sequentially for the first quarter.

    Net working capital decline
    $490MQoQ
    Q1 FY26

    Sequential decline in net working capital.

    Inventory
    $5.7Bup $640M QoQ
    Q1 FY26

    Inventory grew sequentially, with data center activity being a significant contributor.

    Return on working capital
    23.1%up 11.8 percentage points YoY
    Q1 FY26

    Financial metrics continue to improve.

    Return on invested capital
    13.4%up 7 percentage points YoY
    Q1 FY26

    Financial metrics continue to improve.

    Working capital as percent of sales
    ~18%declined
    Q1 FY26

    Working capital as a percent of sales declined in the first quarter.

    Cash conversion
    decreased 16 daysYoY
    Q1 FY26

    Cash conversion decreased year-over-year.

    Gross balance sheet debt
    $2.5Bdown $619M QoQ
    Q1 FY26

    Declined sequentially by $619 million.

    Shares repurchased
    $25M
    Q1 FY26

    Amount of shares repurchased in the first quarter.

    Value-added services contribution to operating income
    ~30%
    FY25

    Value-added services in total was about 30% of our operating income generated by the business areas last year.

    Memory exposure (revenue)
    mid-single-digit range
    current

    The memory exposure that we have is probably in the mid-single-digit range.

    ECS hardware business as percent of revenue
    25%
    current

    Our hardware business in ECS is only 25% of the revenue.

    Global Components operating margin change
    175 bps increaseQoQ
    Q1 FY26 vs Q4 FY25

    Operating margin increased from 3.75% to 5.5%.

    Industry KPIs

    6
    MetricValueDetails
    Orders book to billwell above parity in all 3 operating regions
    Segment revenue growth$6.6B (Global Components); $2.8B (Global ECS)USD
    Order visibility backlog policycontinues to build
    Supply demand imbalance lead timesgradually extend
    End market revenue mix organic growthdouble-digit sequential growth%
    Operating margin incremental leverage4.2%%

    Orderbook & backlog

    2
    Book-to-bill ratioswell above parityQ1 FY26

    improved further

    In all three operating regions; Global Components: well above 1 in all three regions.

    Backlogcontinues to buildQ1 FY26

    Building into the third and fourth quarters, providing confidence in sustainable momentum.

    Risks & headwinds

    4
    Underperforming multiyear contract in ECS

    Led to a charge in Q1 FY26

    Mitigation: In the process of adjusting the economics with this large long-term partner.

    Seasonal strength in AsiaQ2 FY26

    Asia operates at a lower margin than other regions

    Supply Chain Services profit normalizationQ2 FY26

    Expected to return to more normal profit levels

    Timing of organizational annual compensation increasesBeginning in Q2 FY26

    Will impact operating expenses

    What to watch in Q2 FY26

    5

    Global Components Operating Margin

    Q2 FY26
    Current5.5%
    TargetStrong operating margins, but with a step-down from Q1

    Why it matters

    Components margin expansion was a key driver of Q1 outperformance; monitoring its trajectory will indicate the sustainability of the recovery and the impact of mix shifts.

    I think your math might be a little bit wrong. We're not guiding to margins in the second quarter, but component margins do step down a little bit related to Asia mix and then the supply chain services step down as well as some of the OpEx that increases. But overall, I think we're still going to have very strong operating margins for components in the second quarter.

    Q&A highlights

    2

    What drove the strong ECS performance in Q1, how much was one-time, and what's the outlook for Q2? Can the contribution of value-added services, especially from hyperscalers, be quantified?

    Eric Nowak explained that ECS strength was due to continued high growth in cloud, AI, software, and infrastructure, with an acceleration in storage and compute hardware sales in Q1 due to memory shortages and customers ordering in advance. The 4 extra shipping days also contributed several hundred million dollars in billings. Q2 and Q3 are expected to be more normal, but hardware growth and cloud/AI/software will continue. Bill Austen added that one hyperscaler accelerated a data center build into Q1, boosting supply chain services revenue. Raj Agrawal noted that value-added services contributed about 30% of operating income last year, and while it might have ticked down slightly in Q1 due to overall business growth, it remains a significant contributor. He also clarified that ECS hardware business is only 25% of revenue, and memory impact is mostly on compute, which is a fraction of that.

    “Our hardware business in ECS is only 25% of the revenue. And of course, the memory impact mostly the compute and compute is just a fraction, only 75%. So basically, the impact is pretty weak on the ECS side. The opportunity that we have is that if this continues, this will be good for our cloud business because the customers will have to do more public cloud rather than buying hardware and software. So basically, it could be good for us in the longer term.”

    asked by Aidan Wilson · answered by Eric Nowak

    2 min read6 chapters

    Detailed Narrative

    01

    Market Recovery and Leading Indicators

    The company reported a broad-based market recovery in Q1 FY26, driven by unit volume growth rather than pricing. Leading indicators, such as book-to-bill ratios, improved further and are now well above parity in all three operating regions. Backlog continues to build into Q3 and Q4, providing confidence in sustainable momentum. Lead times are extending gradually but remain manageable.

    02

    Operating Leverage and Cost Discipline

    Arrow's restructuring efforts over the past couple of years are yielding significant operating leverage. Non-GAAP operating expenses increased at roughly one-third the rate of revenue growth, leading to a 13.6 percentage point decline in OPEX as a percent of gross profit. This cost discipline is contributing to substantial incremental margins as operational momentum builds.

    03

    Value-Added Services and Mix Shift

    A strategic shift towards higher-margin value-added services, including supply chain, engineering, design, and integration services, is a key driver of profitability. These services, particularly supply chain services, made a meaningful contribution to Q1 operating income. The company aims to deepen customer relationships and improve earnings quality through these offerings.

    04

    Global Components Performance

    The Global Components segment saw a cyclical market recovery accelerate faster than expected in the latter half of Q1. Sales increased $758 million sequentially to $6.6 billion, with non-GAAP operating income up 67% QoQ to $365 million, and operating margins expanding 180 bps sequentially to 5.5%. Growth was broad-based across geographies, industry verticals (Industrial, Transportation, Aerospace & Defense), and customer types, with mass market backlog trending positively.

    05

    Global ECS Performance

    The Global ECS business experienced strong secular demand trends, particularly in AI-driven workloads and data center build-out. Sales increased $800 million YoY to $2.8 billion, with total billings up 39% YoY to $6.4 billion. Hardware sales saw strong momentum due to AI investments and memory supply constraints. The business is well-positioned with its diversified line card and digital platform, Arrowsphere.

    06

    Capital Allocation and Shareholder Value

    Arrow maintains a focused capital allocation strategy, prioritizing reinvestment in organic growth, disciplined M&A, and returning excess capital to shareholders. The company repurchased $25 million in shares in Q1. The leadership team's compensation will be aligned with relative total shareholder return in 2026 to maximize shareholder value.

    AI-generated summary of the company’s earnings call. Not investment advice.