Arrow Electronics Inc.

The stable outlook on electronic component distributor and service provider Arrow reflects our expectation that the company will maintain its market position and supplier relationships and generate positive free operating cash flow (FOCF) over the next 12-24 months as working capital investment moderates. The outlook also reflects our expectation that leverage will remain lower than 3x, even when accounting for shareholder returns and strategic acquisitions. We could lower the rating if the company adopts a more aggressive financial policy or pursues debt-financed acquisitions that keep leverage higher than 3x. A downgrade could occur because of prolonged end-market weakness or increased competitive pressures that also keep leverage above higher than 3x. We believe an upgrade is unlikely over the next two

...Arrow's operating performance is showing resilience through the COVID-19 pandemic Over the first nine months of 2020, Arrow's revenue declined 6.3% compared with the same period in 2019 as the effects of the COVID-19 pandemic weighed on demand. With an increased focus on cost controls, Arrow reduced its operating expenses by about 8.3%, resulting in only a modest margin erosion. Moreover, Arrow was able to repay roughly $700 million of debt using the $1.1 billion it generated over the first nine months of 2020, because of countercyclical nature of its working capital, which strengthened S&P Global Ratings' adjusted debt leverage to 2.2x, compared with 2.8x in 2019. We believe Arrow is starting to solidify a leadership position in the tech distribution industry. Over the past 12 months, Arrow has been the beneficiary of consolidating the supplier base and continues to grow its customer base and overall market share. We believe Arrow's strategy to offer solutions and services alongside its...

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