Arrow Electronics NYSE: ARW reported sharply higher first-quarter 2026 results, with management pointing to broad-based demand recovery in components, continued strength tied to AI and data center spending in its enterprise computing business, and improved operating leverage from prior cost actions.
The company said total revenue rose 39% year-over-year to $9.5 billion, exceeding its guidance range. Non-GAAP operating margin expanded 160 basis points to 4.2%, while non-GAAP diluted earnings per share increased 190% year-over-year to $5.22.
Interim President and Chief Executive Officer William Austen said the quarter reflected “unit volume growth coupled with good execution,” leverage in the profit-and-loss statement, and a stronger mix of value-added services. He said the company saw strong performance in both Global Components and Global Enterprise Computing Solutions, or ECS.
Components Recovery Broadens Across Regions and End Markets
In Global Components, first-quarter sales increased $758 million sequentially to $6.6 billion, up 13% from the prior quarter. Non-GAAP operating income in the segment rose $146 million sequentially to $365 million, while non-GAAP operating margin increased 180 basis points to 5.5%.
Chief Financial Officer Rajesh K. Agrawal said the cyclical market recovery accelerated in the back half of the first quarter at a pace that exceeded the company’s expectations. He said growth was broad-based across geography, industry vertical and customer type, with book-to-bill ratios “well above 1” in all three regions.
Management said backlog is building into the third and fourth quarters, and lead times are gradually extending but remain below levels associated with a broad shortage environment. Austen said the company believes customer order patterns are rational and that demand is being driven by unit volumes rather than price.
Agrawal said industrial and transportation, Arrow’s two largest verticals, posted double-digit sequential growth in both the Americas and EMEA. He also highlighted strength in aerospace and defense in the Americas and EMEA, while Asia growth was driven by industrial, mass market customers and demand for data center computing power.
Arrow also said its interconnect, passive and electromechanical components business, described by management as an accretive segment, generated record revenue and surpassed $1 billion for the first time in the quarter.
ECS Benefits From AI and Data Center Trends
Global ECS sales rose approximately $800 million year-over-year to $2.8 billion, above the company’s guidance range. Sales were up 39% from the prior year, or 31% on a constant-currency basis. Total ECS billings were $6.4 billion, also up 39% year-over-year.
Agrawal said ECS continued to benefit from demand trends in AI-driven workloads, cloud infrastructure software, cybersecurity, data protection and data intelligence. However, non-GAAP operating margin in ECS declined modestly by 10 basis points year-over-year. He cited strong hardware momentum tied to AI investments, a charge primarily related to one underperforming multi-year contract, and the impact of four extra shipping days in the quarter.
The company said the four extra shipping days added “several hundred million” dollars of incremental billings in the quarter. Normalizing for those days, management said ECS still achieved year-over-year growth in billings, net sales, gross profit and operating income dollars.
In response to an analyst question, management said the ECS strength reflected ongoing growth in cloud, AI, software and infrastructure. The company also said memory shortages contributed to higher growth in storage and compute, as customers placed orders in advance to avoid price increases and secure deliveries during the year.
Value-Added Services Remain a Key Margin Driver
Management repeatedly emphasized Arrow’s focus on higher-margin value-added services, including supply chain services, engineering and design services, integration services and demand creation.
Austen said traditional distribution remains “the engine” of the company, but Arrow is seeking to expand margins by building value-added offerings around that core. He said value-added services and especially supply chain services made a meaningful contribution to first-quarter operating income.
Agrawal said value-added services represented about 30% of operating income generated by Arrow’s business areas last year and remained a significant contributor to the bottom line in the first quarter, though the percentage “probably ticked down just a little bit” because of overall business growth.
During the question-and-answer session, Austen said one hyperscaler accelerated a data center build into the first quarter, contributing higher-than-expected revenue in Arrow’s supply chain services business. Agrawal said the company expects supply chain services to return to a more normal profit level in the second quarter, while still remaining a meaningful contributor.
Cash Flow, Working Capital and Capital Allocation
Net working capital declined sequentially by approximately $490 million to $6.9 billion. Inventory increased sequentially by approximately $640 million to $5.7 billion, with nearly half of the build related to data center activity within Arrow Intelligent Solutions. Agrawal said that offering helps customers design, build and test compute and storage infrastructure for AI workloads and is margin accretive for Arrow.
Return on working capital rose 11.8 percentage points year-over-year to 23.1%, while return on invested capital increased 7 percentage points to 13.4%. Working capital as a percentage of sales declined to approximately 18%, and cash conversion decreased by 16 days year-over-year.
Cash flow from operating activities was $700 million, aided by the timing of cash flows in supply chain services. Agrawal said that timing could partially reverse over the balance of the year. Gross balance sheet debt declined sequentially by $619 million to $2.5 billion, and the company repurchased $25 million of shares during the quarter.
Second-Quarter Outlook and CEO Search
For the second quarter, Arrow guided for total sales between $9.15 billion and $9.75 billion, representing 25% year-over-year growth at the midpoint. The company expects Global Components sales between $6.8 billion and $7.2 billion, up 5% sequentially at the midpoint. ECS sales are expected between $2.35 billion and $2.55 billion, up 7% year-over-year at the midpoint.
Arrow forecast a tax rate of 23% to 25%, interest expense of approximately $60 million and non-GAAP diluted EPS between $4.32 and $4.52.
Agrawal said the company expects Global Components to perform at or above seasonal trends in all regions for the remainder of the year, though Asia is expected to be seasonally strong in the second quarter and operates at a lower margin than other regions. He also said operating expenses will be affected beginning in the second quarter by annual compensation increases.
Management addressed investor questions about whether demand reflected pull-ins or double ordering. Austen said Arrow monitors customer order flows and investigates unusual order patterns. He said the company does not currently see customers double ordering. Rick Marano, president of Global Components, said customers appear to be planning buffer inventories in response to gradually increasing lead times, while Agrawal said the revenue growth in components was driven by unit volume rather than pricing.
Austen also said Arrow does not resell CPUs or GPUs. Regarding ECS, management said hardware represents 25% of revenue, and compute is only a fraction of that total.
Separately, Austen said the board’s search for a permanent CEO is ongoing and that Arrow will update the market when an appointment is ready to be announced. He also said the leadership team’s 2026 compensation will be tied to relative total shareholder return.
About Arrow Electronics NYSE: ARW
Arrow Electronics NYSE: ARW is a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. The company offers a broad portfolio of semiconductors, passives, connectors, electromechanical devices and embedded solutions, serving customers across diverse end markets including automotive, communications, computing, aerospace, defense and healthcare. Through its extensive supplier relationships, Arrow enables design engineers to identify and procure components required for the development of new electronic systems and devices.
In addition to component distribution, Arrow delivers value-added services such as design engineering support, supply chain management, global logistics and technical training.
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