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Arrow (ARW) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Information Technology· May 7, 2026

Source: earnings call transcript

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

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

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

Orderbook & backlog

Book-to-bill ratios well above parity Q1 FY26

improved further

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

Backlog continues to build Q1 FY26

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

Risks & headwinds

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 Asia Q2 FY26

Asia operates at a lower margin than other regions

Supply Chain Services profit normalization Q2 FY26

Expected to return to more normal profit levels

Timing of organizational annual compensation increases Beginning in Q2 FY26

Will impact operating expenses

What to watch in Q2 FY26

Global Components Operating Margin

Q2 FY26
Current 5.5%
Target Strong 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.

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Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.