Arrow Electronics (NYSE:ARW) reported fourth-quarter and full-year 2025 results that management described as ahead of expectations, citing continued improvement in key demand indicators in Global Components and record profitability in its Enterprise Computing Solutions (ECS) segment.
Fourth-quarter results topped expectations
Interim President and CEO Bill Austin said the company delivered “a very strong fourth quarter,” with revenue up 20% year-over-year and non-GAAP EPS up 48% year-over-year, both ahead of expectations. Austin highlighted sequential improvements in ordering behavior and leading indicators, while noting that “visibility continues to be cloudy” and the recovery remains gradual.
Fourth-quarter non-GAAP operating expenses were $669 million, up $53 million sequentially due to higher variable costs supporting sales growth and normal seasonality in ECS. Agrawal said cost savings initiatives helped reduce operating expenses as a percentage of gross profit to 67%, down 700 basis points sequentially and 100 basis points year-over-year. Non-GAAP operating income totaled $336 million, or 3.8% of sales.
Interest and other expense was $44 million, aided by lower average debt levels, and the non-GAAP effective tax rate was 23%. Non-GAAP diluted EPS came in at $4.39, above the guidance range, driven by stronger sales, a higher mix of value-added services, and lower interest expense.
Full-year 2025 growth led by ECS
For the full year, Arrow posted consolidated revenue of $30.9 billion, up 10% year-over-year (9% in constant currency). Global Components revenue rose 8% (7% in constant currency), while ECS revenue increased 18% (15% in constant currency). Full-year non-GAAP diluted EPS increased 4% to $11.02.
Agrawal said margins faced headwinds during the year from regional and customer mix in Global Components, which were offset by growth in “value-added services and continued productivity initiatives.” He added the company is seeing gradual improvements in Western regions and mass market customers.
Global Components: recovery signals improved
Global Components fourth-quarter sales rose $1.1 billion year-over-year to $5.9 billion, up $326 million sequentially and above guidance. Agrawal said results supported the company’s view that the cyclical recovery remains on track for a “gradual upswing,” with several previously cited data points improving again during the quarter.
- Book-to-bill: Improved in all three regions and was “above parity.”
- Backlog: Grew sequentially and increased for four consecutive quarters.
- Lead times: Began to “modestly expand,” which management linked to improving demand.
- Inventory: Turning at a more normal pace versus historical trends.
Agrawal said all three regions performed better than seasonal trends, with strength in both semiconductors and interconnect, passive and electromechanical (IP&E) components. He cited healthy demand trends in transportation, industrial, and aerospace and defense, with activity levels higher than a year ago.
Regionally, the company pointed to sequential growth in the Americas driven by aerospace and defense, industrial, transportation, and networking and communications. In EMEA, management noted a “healthy backlog build across verticals,” while Asia saw broad-based growth with strength in compute, consumer, and continued EV momentum in transportation.
Global Components non-GAAP operating income increased about $20 million sequentially to $219 million, up 10% from the prior quarter, and operating margins improved sequentially by 10 basis points.
ECS: record profitability and expanding model
In ECS, fourth-quarter sales increased roughly $400 million year-over-year to $2.9 billion, above the midpoint of guidance. On a constant-currency basis, ECS sales rose 11% year-over-year. Total ECS billings were $7.1 billion, up 16% year-over-year.
Agrawal said ECS continued to differentiate “on the more complex end of the IT spectrum,” with demand tied to hybrid cloud, infrastructure hardware and software, cybersecurity, data protection, and data intelligence for AI-driven workloads. He reported ECS backlog grew more than 75% year-over-year, ending 2025 at an all-time high.
On the business mix, Austin said roughly one-third of total ECS billings are recurring revenue volumes, and about three-quarters of ECS billings are software and services, with the remaining 25% tied to hardware solutions. During Q&A, ECS President Eric Nowak said hardware includes storage, compute, networking, and security, and he characterized the highest growth on the hardware side as coming from networking and security.
Management also discussed an effort to move beyond transactional distribution in ECS through agreements where Arrow becomes an exclusive go-to-market partner for suppliers, taking on some or all commercial activities and gaining the ability to sell software licenses and subscriptions under the supplier’s brand. Agrawal called these agreements a strategic pillar and said they are expected to be “meaningfully margin accretive once at scale.”
Capital allocation, working capital, and 2026 outlook
Austin said Arrow remains committed to returning excess capital to shareholders. The company repurchased $50 million of stock in the fourth quarter and $150 million during 2025. Austin added that since 2020, Arrow has returned approximately $3.6 billion to shareholders through share repurchases.
On the balance sheet, net working capital increased about $180 million sequentially to $7.4 billion to support growth. Arrow reported return on working capital of 18% (up 170 basis points year-over-year) and return on invested capital of 11.1% (up 190 basis points year-over-year). Inventory ended the quarter at $5.1 billion, with improved inventory turns. Cash flow from operating activities was $200 million in the quarter and $64 million for the full year. Gross debt declined $44 million sequentially to $3.1 billion.
In Q&A, Agrawal attributed recent lower-than-expected interest expense to the timing of working capital and cash flows, as well as the benefit of lower short-term rates, noting the company holds a meaningful amount of short-term debt.
For the first quarter, Arrow guided sales of $7.95 billion to $8.55 billion and non-GAAP EPS of $2.70 to $2.90, with an assumed tax rate of 23% to 25% and interest expense of about $60 million. Global Components sales are expected to be $5.75 billion to $6.15 billion, while ECS sales are expected to be $2.2 billion to $2.4 billion.
Looking into 2026, management maintained a cautious stance, pointing to ongoing inventory normalization, macro and geopolitical uncertainty, and variability by region, market, and customer type. Agrawal said Global Components is expected to perform above seasonal trends in all regions in Q1, with Q2 seasonality expected to be strong for Asia. He also noted a calendar impact: Q1 has four additional shipping days that will result in four fewer shipping days in Q4, primarily affecting ECS.
Austin said Arrow recently made internal organizational changes to align go-to-market teams, including appointing Chief Growth Officers across Global Components distribution and services areas and naming a Chief Revenue Officer in ECS to integrate sales, marketing, and vendor and customer success. He also said the board’s search for a permanent CEO is ongoing and the company will update the market when it is complete.
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.
