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Arrow Electronics (ARW) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 6, 2026

Source: earnings call transcript

Executive summary

Arrow Electronics Q2 FY26 — Strong Revenue Growth and EPS Beat

Arrow Electronics delivered strong Q2 FY26 results, driven by broad-based demand, disciplined execution, and a favorable mix of value-added services. The company's leading indicators, including robust book-to-bill ratios and growing backlog, reinforce confidence in sustained growth, particularly in AI, industrial, and aerospace & defense markets. Management is focused on improving growth quality and operational efficiency, while navigating contract restructuring in its ECS segment.

Highlights

5

  • Total revenue of $10 billion, increased 32% year-over-year.

  • Non-GAAP EPS of $5.45, representing a significant increase of 124% year-over-year.

  • Operating margin expanded 120 basis points year-over-year to 4%.

  • Global Components book-to-bill ratios remain well above parity, with backlog building into 2027.

  • Global ECS backlog growth over 75% year-over-year, reaching an all-time high.

Concerns

2

  • ECS non-GAAP operating margins declined 100 basis points year-over-year due to a $27 million charge related to restructuring underperforming multiyear contracts.

  • Expects more charges in the second half of the year for ECS contract restructuring, albeit at a lesser pace.

Guidance & targets

CategoryTargetConfidence
Total Sales
$9.6 billion to $10.2 billion
high materiality
High
Global Component Sales
$7.5 billion and $7.9 billion
medium materiality
High
Enterprise Computing Solutions Sales
$2.1 billion and $2.3 billion
medium materiality
High
Tax Rate
23% to 25%
low materiality
High
Interest Expense
approximately $50 million
low materiality
High
Non-GAAP Diluted EPS
$4.83 and $5.03
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Global Components
Sales exceeded guidance range. Growth was broad-based across geographies, industry verticals (aerospace & defense, industrial, transportation), and customer segments. Lead times extending for certain technologies but not indicative of a pervasive shortage. Customer order patterns are normal.
Sequential revenue increase: $726 millionNon-GAAP operating margin sequential decline: 10 basis pointsNon-GAAP operating margin year-over-year increase: 180 basis pointsBook-to-bill ratios: well above 1 in all 3 regionsBacklog: building out into H1 2027Price inflation contribution to sequential revenue growth: ~1/3Memory as % of total segment revenue: low double-digitIP&E sales: >$1 billion for second consecutive quarter
$7.4 billion—11%5.4%
Global Enterprise Computing Solutions (ECS)
Sales exceeded guidance range. Strategically positioned at the complex spend of the IT stack, driven by hybrid cloud and AI demand. Hardware solutions constrained by memory and SSD shortages. Non-GAAP operating margins declined due to a $27 million charge related to restructuring underperforming multiyear contracts.
Year-over-year growth constant currency: 13%Total billings: $5.9 billion, up 14% year-over-yearBacklog growth: >75% year-over-year, all-time highSecurity revenue growth: 21% year-over-yearCompute revenue growth: 51% year-over-yearBusiness application revenue growth: 26% year-over-year
$2.6 billion14%—Declined 100 bps YoY

Orderbook & backlog

Global Components Backlog into 2027 Q2 FY26 end

continues to build

Provides visibility and confidence in the sustainability of the business's momentum.

Global ECS Backlog over 75% YoY growth Q2 FY26 end

all-time high

Driven by hybrid cloud and AI demand.

Product announcements

ProductTypeDetails
Digital Test Drivelaunch
eInfochipsmilestone
ECS Experience Centersexpansion
Microsoft Distinctions (CoPilot and Azure Virtual Desktop)milestone

Deals & partnerships

Strategic Partner Restructuring of underperforming multiyear 'beyond distribution' contracts multiyear

Arrow has been working through discussions with a strategic partner to restructure and change the economics around some beyond distribution contracts. One key element of the agreement has been terminated, and efforts continue to restructure another. The relationship remains highly valued.

Risks & headwinds

ECS Contract Restructuring Charges H2 FY26

Q2 FY26 charge of $27 million; more charges expected in H2 FY26

Mitigation:Terminated one key element of the underperforming contract; working to restructure another. Aiming to get this part of the business on the right track.

Hardware Supply Constraints Current

On-premise storage and compute constrained by thin supply

Mitigation:Leveraging role to source, provision, manage, and scale alternatives that lean more on software and public cloud solutions.

What to watch in Q3 FY26

ECS Contract Restructuring Charges

H2 FY26
Current $27M charge in Q2 FY26
Target Monitor for additional charges in H2 FY26

Why it matters

Impacts ECS profitability and signals progress in resolving underperforming contracts.

I do expect some more charges in the second half of the year, probably at a lesser pace than what we saw in the second quarter.

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Q&A highlights

What inning of the component cycle is Arrow in, given the robust year-over-year growth?

Management believes they are in the 'early innings,' specifically the 'second inning,' of the component cycle. They highlight that AI, aerospace & defense, and the core business are all driving growth, with strong indicators and building backlog.

“I would say we're in the second inning, somewhere in that range, but Rick is sitting here and he's living it every day. So I'm going to turn it over to Rick. ... The growth in the core business is steady. All the indicators are strong. Backlog continues to build. And there's plenty of time left in the game from my perspective as it builds.”

asked by William Stein · answered by William Austen

2 min read 6 chapters

Detailed narrative

Strong Q2 Performance & Drivers

Arrow Electronics delivered excellent results in Q2 FY26, with total revenue reaching $10 billion, a 32% year-over-year increase, and non-GAAP EPS surging 124% year-over-year to $5.45. Operating margin expanded 120 basis points to 4%. This performance was driven by sustained unit volume growth, disciplined execution, positive operating leverage, and a favorable mix of higher-margin value-added services.

Leading Indicators & Demand Durability

The company's leading indicators reinforce confidence in its operating model, with book-to-bill ratios improving and remaining well above parity, and backlog building into 2027. Growth is primarily customer demand-driven, with incremental benefits from price inflation. Demand is broad-based, spanning AI investment trends, industrial, aerospace & defense, and the reemergence of transportation, indicating an early stage mass market upturn.

Differentiated Capabilities & Strategic Advantages

Arrow continues to expand its differentiated capabilities, including the introduction of 'Digital Test Drive,' a remote AI-driven engineering platform, and the strengthening of its eInfochips business, recognized by Gartner for physical AI services. The company also expanded its ECS Experience Centers and earned key Microsoft distinctions for CoPilot and Azure Virtual Desktop, validating its expertise in AI, cloud, and modern workplace solutions.

Capital Allocation & Financial Flexibility

Arrow maintains a focused capital allocation strategy designed to maximize shareholder value. This involves reinvesting in the business for organic growth, evaluating disciplined M&A opportunities, and returning excess capital to shareholders, all while preserving an investment-grade credit rating. The diversified business model, strong balance sheet, and consistent free cash flow generation provide significant financial flexibility.

ECS Contract Restructuring

In the second quarter, Arrow took a $27 million charge within its Global ECS business, which impacted non-GAAP operating margins by 100 basis points year-over-year. This charge is related to restructuring underperforming multiyear contracts with a strategic partner, with one key element of a 'beyond distribution' agreement already terminated. The company expects additional, though smaller, charges in the second half of FY26 as it works to fully resolve these agreements.

New President & COO Appointment

Arrow announced the appointment of Dee Meriwether as its new President and Chief Operating Officer, effective in early September. This strategic addition is expected to further strengthen the organization with her extensive distribution experience and leadership in commercial, operational, and financial teams, supporting the company's succession planning.

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