Arrow Electronics Q3 2026 Earnings Call Transcript

Arrow Electronics (NYSE:ARW) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Arrow Electronics reported record revenue of $10.7 billion for Q3 2026, a 39% increase year-over-year, with non-GAAP operating margin expanding to 4.1%.

Key growth drivers included focused execution, positive operating leverage, sustained unit volume demand, and higher-margin value-added services.

The company’s Global Components and ECS segments showed strong performance, with ECS sales up 29% year-over-year, driven by demand in AI, cloud, and hybrid infrastructure.

Strategic initiatives involve expanding into value-added services, leveraging differentiated capabilities, and maintaining a diversified business model.

Future outlook includes Q4 revenue guidance of $11.55 to $12.15 billion and non-GAAP diluted EPS of $7 to $7.20, with expected growth in both Global Components and ECS segments.

Arrow Electronics continues to focus on long-term growth opportunities in industrial, aerospace, medical, and data centers, supported by AI and digital transformation trends.

Notable management comments highlighted recognition from key industry players and strategic supplier partnerships, reinforcing the company’s competitive positioning.

Full Transcript

OPERATOR

Today’s conference is being recorded. At this time I would like to turn the conference over to Michael Nelson, Arrow’s Vice President of Investor Relations. Please go ahead.

Michael Nelson (Vice President of Investor Relations)

Thank you, Operator. I’d like to welcome everyone to the Arrow Electronics third quarter 2026 earnings conference call. Joining me on the call today is our Interim Chief Executive Officer, Bill Austin, our Chief Financial Officer, Raj Agrawal, our President of Global Components, Rick Marano, and our President of Global Enterprise Computing Solutions, Eric Nowak. During this call, we’ll make forward-looking statements, including statements about our business outlook, strategies, plans, and projections regarding future financial results, which are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including due to the risk factors and other factors described in this quarter’s associated earnings release and our most recent annual report on Form 10-K and other filings with the SEC.

We undertake no obligation to update publicly or revise any of the forward-looking statements as a result of new information or future events. You can access our earnings release at investor.arrow.com along with a replay of this call. We’ve also posted a slide presentation on this website to accompany our prepared remarks and encourage you to reference these slides during this webcast. As a reminder, some of the figures we will discuss on today’s call are non-GAAP measures, which are not intended to be a substitute for our GAAP results. We’ve reconciled these non-GAAP measures to the most directly comparable GAAP financial measures in the accompanying slide presentation following our prepared remarks today.

Bill, Raj, Rick, and Eric will be available to take your questions. I’ll now hand the call over to our Interim CEO, Bill Austin.

William Austen (Chief Executive Officer)

Thank you, Michael, and good morning, everyone. We appreciate you joining us for a discussion of our third quarter 2026 results. I would like to start by recognizing our global teams for their continued dedication and disciplined execution. Their commitment to supporting our customers and suppliers has been instrumental in driving another quarter of excellent performance. Beginning on slide 3, we delivered another quarter of strong results with record total revenue and EPS. Total revenue of $10.7 billion increased 39% year over year, while non-GAAP operating margin expanded 130 basis points year over year to 4.1%. Strong revenue growth and positive operating leverage resulted in non-GAAP diluted EPS of $6.22, representing a significant year over year earnings growth of 158%.

Our strong performance this quarter was fueled by four key drivers that contributed meaningfully to our performance. First, focused execution across the business, including effective management of expenses and working capital while serving strong customer demand. Second, positive operating leverage resulting in meaningful year over year margin improvement. Third, sustained unit volume demand combined with pockets of limited capacity resulted in increased benefit from price inflation.

And fourth, continued contribution of higher-margin value-added services. From a segment perspective, both Global Components and Global ECS contributed to our strong performance. Our Global Components demand remains strong and broad-based across geographies, verticals, and customers, and our leading indicators continue to give us confidence in the durability of demand and the sustainability of growth. Book-to-bill ratios remain well above parity, while our backlog continues to build into mid-2027, improving our visibility.

We have also seen lead times gradually extend, but remain lower than a pervasive shortage environment. ECS posted a strong quarter, exceeding expectations through a combination of robust customer demand and improved backlog conversion. Demand continues to build across key technology categories, including AI, cloud, cybersecurity, and hybrid infrastructure, driving healthy growth in our billings and backlog. Turning to slide 4, Arrow remains well positioned to deliver long-term growth. We’ve discussed four pillars of our investment thesis over the past several quarters, and we continue to execute in these areas to further drive strength in our business model to solidify our competitive positioning. First, Arrow maintains a strong position across its six large and growing core end markets: industrial, transportation, aerospace and defense, medical, consumer electronics, and data centers.

Each of these markets is supported by attractive secular demand trends that continue to create growth opportunities. Second, our differentiated capabilities continue to drive profitable growth as we expand into higher-margin value-added services. Third, Arrow’s combination of Global Components and ECS creates a diversified business model that provides financial flexibility. I’d like to spend a moment here on ECS and highlight the progress we have made against our strategy to become the leading aggregator of AI and hybrid cloud solutions for the mid-market. Central to this strategy is our highly scalable value-added model, which provides technology suppliers with significant reach while expanding access and capabilities for our channel partners. Arrow scale is especially important because it allows us to connect the world’s leading technology providers with channel partners and end customers as demand continues to grow for AI, cloud, cybersecurity, and hybrid infrastructure solutions.

The ongoing build-out of AI is driving customers to modernize their technology environments. Customers are investing in additional compute, storage, networking, and cybersecurity capabilities to support growing data and performance requirements while also expanding their use of cloud-based solutions. For Arrow, these trends are being driven primarily by mid-market and enterprise customers who are increasingly deploying hybrid environments that blend cloud adoption with upgrades to their on-premise infrastructure.

As a result, we’re seeing healthy demand across the core technologies that underpin AI readiness, digital transformation, and long-term IT modernization. We’re seeing continued validation of our strategy through recognition from some of the industry’s most important players, including NetApp, where we were recognized as the North America Distributor of the Year for 2026, reflecting the strength of our partnership and success driving growth across the channel; HPE, where we extended our partnership through the addition of distribution rights for the Juniper product lines across North America and select EMEA markets, further enhancing our ability to deliver HPE’s full portfolio to channel partners; IBM, where we expanded our long-standing relationship through additional distribution coverage across seven additional countries in EMEA, increasing our reach and scale with this strategic supplier; Oracle, where we were recognized as the Global Cloud Distributor of the Year, reflecting accelerated Oracle Cloud adoption through partner recruitment, technical enablement, and joint go-to-market initiatives; and finally IDC, where we were recognized as a Cloud Platform leader, reflecting ArrowSphere’s differentiated cloud lifecycle management capabilities, reinforced by recent Microsoft and AWS Distributor of the Year recognitions.

These achievements highlight the strength of ECS’s value proposition, underpinned by our expanding ecosystem and category leadership, our deepening strategic supplier relationships, and our growing exposure to high-growth technologies. ECS continues to be uniquely positioned as a critical enabler of technology adoption, and we remain confident in our ability to drive long-term growth and value creation for this segment in the years ahead. Turning back now to our investment thesis, fourth and finally, our capital allocation priorities remain unchanged. We are focused on maximizing long-term shareholder value by deploying capital toward opportunities that offer attractive long-term risk-adjusted returns while maintaining our investment-grade rating.

Turning to slide 5, our strong third quarter performance reflects the continued momentum and strong operational execution across the business. We remain focused on expanding our portfolio of solutions and capabilities across both Global Components and ECS for higher-margin value-added services. We are confident these offerings will deepen customer engagement, broaden our market opportunities, and drive sustainable growth. We are equally committed to delivering profitable growth and driving positive operating leverage through disciplined execution and effective financial management.

We’re encouraged by the strength across our business and are excited about the opportunities ahead as we continue executing our strategy to deliver sustainable long-term shareholder value. With that, I’ll turn it over to Raj to discuss our financial performance in more detail. Thanks, Raj. Turning to slide 11, as we look ahead, we remain focused on disciplined execution, building on the operational momentum we have established, and further improving the quality of our growth. Arrow Electronics remains uniquely positioned at the intersection of several powerful secular growth trends in global components. Continued investment in artificial intelligence, aerospace and defense, industrial automation, and the broader digitization of the mass market continues to create opportunities across our portfolio.

We are increasingly seeing these trends expand beyond early adopters and large customers into a much broader base of enterprises and industrial customers. At the same time in ECS, as AI deployments continue to expand, customers are investing to modernize their technology stacks. Demand remains strong for compute, storage, networking, cybersecurity, and cloud solutions. As organizations build the infrastructure required to support increasingly sophisticated workloads, the quality of growth across Arrow Electronics continues to improve. We are benefiting from a healthier mix of customers, geographies, and value-added services, while strong execution is driving positive operating leverage throughout the business.

As a result, we are not only delivering growth, but doing so in a way that strengthens profitability and positions us for sustained performance. We are proud of the progress we have made, confident in the path ahead, and remain focused on delivering sustainable long-term value for all of our stakeholders. Finally, I’d like to share some recent leadership changes. After 22 years with Arrow Electronics, ECS President Eric Nowak has announced his plans to retire. He will remain in his role through the end of the year and will then serve as an advisor until the end of Q1 2027. I want to thank Eric for his exceptional leadership and many contributions to Arrow Electronics over the years. We’re pleased to welcome Rodney Clark, who will join Arrow Electronics on November 9th and will succeed Eric as President of ECS effective January 1st. Rodney brings significant global leadership experience across the commercial channel and technology sectors, having spent his career working closely with suppliers and customers. We look forward to welcoming Rodney as we continue to build on the success of ECS, deepen customer relationships, and execute our strategic priorities.

Also, we’re excited to welcome Anuj Gore as our Chief Information and Technology Officer, effective November 9th. Anuj brings extensive experience leading IT organizations and business transformations through prior senior leadership roles, overseeing significant technology investments, acquisition integrations, and AI frameworks. I would also like to thank Raymi Lebe, our Chief Strategy Officer, for her interim leadership of our global IT organization during this transition.

With that, Raj, Rick, Eric, and I would be happy to take your questions. Operator, please open the call for questions.

OPERATOR

We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Will Stein with Truist Securities.

Will, please go ahead.

Aiden (Analyst at Truist Securities)

Hey, good morning, guys. It’s Aiden on for Will. Thanks for taking my question. I was wondering if you could discuss the impact that memory prices had, maybe in both segments, please. Thanks.

William Austen (Chief Executive Officer)

Go ahead, Raj.

Rajesh Agrawal (Senior Vice President)

Yeah, for the third quarter, memory prices were certainly up quite a bit. Most of our revenue growth in the components business was driven by price increases in the third quarter. We have not assumed a lot in terms of memory price increases or other things in the fourth quarter. That’s primarily unit-volume driven. Having said that, the demand environment continues to be extremely strong. If we had gotten our hands on more product, we would have sold more. And so the environment itself is very, very strong. We feel very good about where things are, and that’s what we’ve assumed at this stage.

Aiden (Analyst at Truist Securities)

Great. And then if I could sneak in another one, could you maybe quantify how much the value-added services are contributing to profitability today?

Rajesh Agrawal (Senior Vice President)

Well, for last year, they contributed about 30% of our operating profit as a company. This year, because we’ve had so much growth in the rest of the company and in our core components business, that number is going to be lower than it was last year. We haven’t quantified it yet, but it’s certainly going to be drifting lower, not because it’s not performing well, but primarily because everything else is growing so much this year. So it’s still a significant contributor to our bottom line.

Aiden (Analyst at Truist Securities)

Awesome. Thanks, guys.

OPERATOR

Your next question comes from the line of Ruploo Bhattacharya from Bank of America. Ruploo, please go ahead.

Ruploo Bhattacharya (Analyst at Bank of America)

Hi. Thanks for taking my questions. My first question relates to working capital, Raj. A couple of things. Inventory was up 1.4 billion sequentially. You mentioned Arrow Intelligence Solutions and you said something about building compute and storage. Can you just kind of describe what that business is? Is this a manufacturing business? What are the margins in that business and how big is it from a revenue standpoint? And the second question I have on working capital is if we look at slide 9, it looks like DSO and DPO both have increased about 100 days year on year.

So is it that you’re having to give more payment terms, extended payment terms to clients, or is this related to supply chain services business? If you can just kind of explain or describe what’s happening with the DSOs and the DPOs. And I have a follow-up. Thank you.

William Austen (Chief Executive Officer)

Yeah, maybe I can start with— Yeah. Hey, Ruplo, this is Bill. On the AIS, what we call Arrow Intelligence Solutions, that’s AIS. That’s what we’ve talked about in the past. It’s part of our value-added services, and that’s where we build specific appliances that are low volume, high mix for customers. So we have got business with lots of customers building racks—storage, compute racks. And the inventory is up because we have large orders in the pipeline that didn’t ship within the quarter, and they are going to ship within the next quarters.

We need to bring that inventory in ahead of time so that we can build it, test it, and then ship it. So that’s all going to go through. And of the 1.4 billion of inventory, about 600 of that would have been related to AIS. And I’ll let Raj answer the other part of the question.

Rajesh Agrawal (Senior Vice President)

Yeah. And so the second part of your question, Ruploo, you’re right. The DSOs and DPOs are up about 100 days year on year. That’s being primarily driven by our supply chain services offering. Just as a reminder, that’s a working-capital-light offering that we have, but we are settling AR and AP in that business, and so you will see those things ballooning out. So nothing different than we’ve been calling out every call. So it’s the same factors that are driving it.

So nothing unusual there.

Ruploo Bhattacharya (Analyst at Bank of America)

Okay, thanks for the clarifications. Can I ask a follow-up on margins, specifically for the ECS segment margins? The fourth quarter is typically a strong quarter and when we look year on year, it typically has good growth. I mean, you get into the six handle in terms of operating margins. You made a point that this year you’re going to have more hardware versus software and services. So how does that impact? Is there anything to keep in mind as we model out operating margin for ECS in the fourth quarter?

Thank you.

Rajesh Agrawal (Senior Vice President)

Yes. Yeah, let me start, and then Eric, please feel free to add in. You know, the margins for ECS—you know, the net sales are driven by more hardware sales as we had mentioned, and so that does depress reported margins on a net sales basis. But you also have to look at billings-based margins, Ruploo, in that business in particular because the mix can change quite a bit between hardware and software. That has a direct impact on net sales reported margins.

But billings-based margins in the third quarter were up actually year over year, and then in the fourth quarter we see billings-based margins being relatively flat year on year. And so that’s a great indicator of the true health of the performance of that business. So the business is firing on all cylinders. Yes, you’re right, the net sales margins have historically been above 6% in the fourth quarter, but we’re implying something that’s lower than that in this fourth quarter.

But nothing has really changed there, and we’re actually doing very well in the business. Eric, do you want to add anything to that?

Eric Nowak (President of Global Enterprise Computing Solutions)

Yes, exactly as Raj described it, it’s difficult for us to basically manage the mix of the business. We had much more hardware sales in Q3. It will be the same in Q4 because our suppliers are very efficient in our ability to ship the hardware. And that’s why basically on a net sales basis, the margins are down. But on a billings basis, which is what we are looking for, it’s flat. So basically it’s on track.

Ruploo Bhattacharya (Analyst at Bank of America)

Good. Okay. Thanks for the details.

Rajesh Agrawal (Senior Vice President)

Thanks, Ruploo.

OPERATOR

Your next question comes from the line of Melissa Fairbanks with Raymond James. Melissa, please go ahead.

William Austen (Chief Executive Officer)

Hey, Melissa.

Melissa Fairbanks (Analyst at Raymond James)

Hey, guys. Thanks. Hey. Hey, how are you? Good morning. Doing well. Doing well. Drinking from the fire hose it feels like. But yeah, congrats on the results. And I know it’s extremely difficult to model these businesses. Raj, I think in answering—I think it was Will Stein’s question, the first question—you mentioned if you had been able to get more inventory, you could have shipped more through. And I know what we’ve heard from some of your supplier partners over the past couple of weeks is that lead times are extending.

Channel inventories are probably at record lows in Asia in particular, starting to come down in Europe. You know, US is a little bit higher. But just wondering what you are seeing in terms of lead times, channel inventories, availability, your ability to meet end-market demand.

William Austen (Chief Executive Officer)

Melissa? Maybe I’ll give it to Rick Marano. He’s the expert here, and so I might as well let him speak to it.

John Richard Marano (President)

Yes. Thanks, Melissa.

Melissa Fairbanks (Analyst at Raymond James)

Hi, Rick. Thanks,

Eric Nowak (President of Global Enterprise Computing Solutions)

Melissa. Thanks. Good. How are you? Melissa? I guess I’d answer the question this way. Overall, you know, we’ve talked about this in the past. We’ve talked about, you know, the recovery and how the recovery has gradually come along. And if you think about it through that lens as what we call the mass market customer base comes back and continues to come back, they come back to lead times that are expanding as well. And as lead times expand, obviously, you know, our ability to turn inventory or get inventory becomes a little bit more constrained.

It doesn’t mean in any way, shape or form that we believe that we’re not getting our fair share of inventory. What we’re saying is, is the contribution of a market that’s recovering, lead times are expanding and those converging just means it gets more difficult to get inventory in when we want to get inventory in. What I would say is this is look at it from a perspective of the health of the market overall. And take outside of it, look outside the traditional verticals to which we look at, if you expand it and look at areas like robotics or automation or power, things of that nature, you know, all those segments are coming back and they’re coming back strong and they’re coming back globally as well. So it’s a nice healthy recovery. It continues to cover lead times, continue to expand, but lead times have not expanded like we saw in the COVID period in any way, shape or form yet.

So, you know, it’s, of course we can get more inventory, we could turn more inventory, but we are getting a fair amount of inventory and it’s reflective of what we see in our bookings and our backlog out in future quarters.

Melissa Fairbanks (Analyst at Raymond James)

Okay, thanks so much. That’s, that’s super helpful. Maybe as a follow up, you know, you mentioned some of, you know, some of these end markets where there are higher value end markets like in aerospace and defense and some of the industrial automation, robotics, all of those types of areas. Are you starting to see any behavior on behalf of the suppliers where they’re going to hold more internally and not push inventory out to distributors like what we saw during the COVID times?

Or is this still, you know, we’re, we’re still business as usual. It’s just extended lead times.

Eric Nowak (President of Global Enterprise Computing Solutions)

I think it’s, it’s business as usual and extended lead times. And I think quite honestly, that’s reflective of what we’re seeing, Melissa, when we look out in time. And, you know, Bill and Raj both talked about visibility as we move out into 1H27. And, you know, that visibility is reflective of a recovery across the mass market and these vertical markets as well. So I don’t in any way, shape or form see suppliers in any way, not, you know, not giving us product based off the end market or technology.

Yeah. Now, Melissa, our backlogs and our, you know, if you look at our sales sequentially in some of the markets that Rick talked about, robotics, power conversion, energy, automation, sequentially, these are increasing rapidly on a, on a, from a sales basis and our backlog is increasing in those categories as well. So we see this, this as a very broad based, you know, cycle, if you will, beyond just storage and compute, transportation, aerospace and defense.

We’re now starting to see the mass market, you know, coming back with a lot of momentum.

Martha

Great. Thanks very much. Keep up the good work, guys.

Eric Nowak (President of Global Enterprise Computing Solutions)

Thanks, Martha.

OPERATOR

There are no further questions at this time. I will now turn the call back to Bill Austen for closing remarks.

William Austen (Chief Executive Officer)

Thank you. Thank you everyone for joining today and I look forward to speaking with all of you soon. I also want to take a moment to thank all of my Arrow colleagues for delivering an excellent result in Q3. And I’m really looking forward to Q4. Have a great day, everybody.

OPERATOR

This concludes today’s call. Thank you for attending. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.