Skip to content
    ARW
    Earnings call· Jun 2026(Q2 FY26)

    ARROW ELECTRONICS Q2 FY26 earnings call ARW

    Aug 6, 2026 Source

    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

    6
    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

    2
    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

    Operational metrics

    20
    Non-GAAP EPS
    $5.45up 124% YoY
    Q2 FY26

    Exceeded expectations and guidance range.

    Non-GAAP Operating Margin
    4%expanded 120 bps YoY
    Q2 FY26

    Exceeded expectations.

    Non-GAAP Gross Margin
    11.2%flat YoY
    Q2 FY26

    As a percent of sales.

    Non-GAAP Operating Expenses
    $719 millionincreased $88 million YoY
    Q2 FY26

    Primarily driven by variable costs and FX.

    Non-GAAP OpEx as % of Gross Profit
    64.1%declined 10.5 percentage points YoY
    Q2 FY26

    Reflects operational efficiency and operating leverage.

    Non-GAAP Operating Income
    $403 millionincreased $188 million YoY
    Q2 FY26

    Strong increase driven by operating leverage.

    Effective Tax Rate
    23%
    Q2 FY26

    Non-GAAP effective tax rate.

    Interest and Other Expenses
    $37 million
    Q2 FY26

    Benefited from lower average debt levels.

    Net Working Capital
    $6.8 billiondeclined ~$100 million sequentially
    Q2 FY26 end

    Working capital management.

    Inventory
    $5.9 billiongrew $217 million sequentially
    Q2 FY26 end

    Inventory management.

    Return on Working Capital
    23.6%increased 10.9 percentage points YoY
    Q2 FY26

    Improved financial metric.

    Return on Invested Capital
    13.9%increased 5.8 percentage points YoY
    Q2 FY26

    Improved financial metric.

    Working Capital as % of Sales
    ~17%declined
    Q2 FY26

    Improved efficiency.

    Cash Conversion
    Decreased 23 daysYoY
    Q2 FY26

    Improved cash flow dynamics.

    Gross Balance Sheet Debt
    $2.2 billiondeclined ~$300 million sequentially, ~$650 million YoY
    Q2 FY26 end

    Lower debt levels.

    Adjusted Leverage Ratio
    1.75ximproved >1 turn
    Past 12 months

    Provides increased financial flexibility.

    Share Repurchases
    $43 million
    Q2 FY26

    Capital return to shareholders.

    ECS Contract Restructuring Charge
    $27 million
    Q2 FY26

    Related to underperforming multiyear contracts with a strategic partner. More charges expected in H2 FY26.

    Global Components Price Inflation Contribution
    ~1/3
    Q2 FY26

    Contribution to sequential revenue growth.

    Global Components Memory as % of Segment Revenue
    low double-digit
    Q2 FY26

    Represents a portion of total segment revenue.

    Industry KPIs

    7
    MetricValueDetails
    Orders book to billwell above 1
    Segment revenue growthGlobal Components: $7.4B, Global ECS: $2.6BUSD
    Order visibility backlog policyinto 2027
    Recurring software services mix—
    Supply demand imbalance lead timesextending
    End market revenue mix organic growth—
    Operating margin incremental leverage4%%

    Orderbook & backlog

    2
    Global Components Backloginto 2027Q2 FY26 end

    continues to build

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

    Global ECS Backlogover 75% YoY growthQ2 FY26 end

    all-time high

    Driven by hybrid cloud and AI demand.

    Product announcements

    4
    ProductTypeDetails
    Digital Test Drivelaunch
    eInfochipsmilestone
    ECS Experience Centersexpansion
    Microsoft Distinctions (CoPilot and Azure Virtual Desktop)milestone

    Deals & partnerships

    1
    Strategic PartnerRestructuring of underperforming multiyear 'beyond distribution' contractsmultiyear

    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

    2
    ECS Contract Restructuring ChargesH2 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 ConstraintsCurrent

    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

    5

    ECS Contract Restructuring Charges

    H2 FY26
    Current$27M charge in Q2 FY26
    TargetMonitor 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.

    Q&A highlights

    5

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

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