IM Ingram Micro Inc. (delisted)

Ingram Micro Inc. (IM) has reported first-quarter 2012 earnings per share of 59 cents that blew past the Zacks Consensus Estimate of 39 cents. The results were 71.8% higher than 34 cents reported in the earlier-year quarter. The beat was mostly attributable to cost control efforts as well as a tax benefit.

Revenues

Ingram Micro’s first quarter revenue of $8.64 billion decreased 1.0% from $8.72 billion in the year-ago quarter. The result was below the Zacks Consensus Estimate of $8.68 billion. The decrease was mainly due to a 1.0% negative impact of currency translation. Also, strength in North America and Latin America was more than offset by a lackluster contribution from Europe.

Revenue contribution from North America increased 2.9% year over year to $3.61 billion, mainly on higher hard disk drive (HDD) pricing and solid ramp up in the specialty business portfolio. Europe, Middle East and Africa (EMEA) contributed $2.65 billion, down 8.0% from the year-ago quarter. The decline was primarily due to the difficult macro environment and competitive pressures, which were partially offset by favorable performances in Germany and the U.K.

The Asia-Pacific region generated $1.95 billion in sales, up 0.8% from $1.93 billion in the first quarter of 2010. The slight improvement was attributed to strong regional performances in India and China. Latin America sales grew 6.0% year over year to $431.6 million. Though currency translation had a 5.0% negative impact, solid performance in Mexico and Peru turned the table.

Operating Results

Gross profit increased 3.0% to $467.6 million in the reported quarter from $454.1 million in the year-ago quarter. Despite the company’s weak top-line growth, gross margin grew 20 basis points (bps) year over year to 5.4% mostly due to lower procurement costs and higher HDD pricing. Also, the Australian business witnessed some margin improvement, after weak contributions over the past few quarters.

Selling, general and administrative expenses increased 2.4% year over year to $362.9 million. Operating margin increased 10 bps year over year to 1.2%.

Ingram Micro reported net income of $90.0 million, or 58 cents per share, compared to $56.3 million, or 34 cents in the year-ago quarter. Excluding reorganization costs, adjusted net income was $90.5 million or 59 cents per share, compared with $56.0 million or 34 cents in the year-ago quarter.

Balance Sheet and Share Repurchase

Ingram Micro exited the first quarter with cash and cash equivalents of $991.2 million, up from $891.0 million in the previous quarter. Accounts receivable decreased 13.2% sequentially to $3.88 billion. Inventories were $3.18 billion, up from $2.94 billion in the prior quarter. Total debt balance was $388.3 million, down from $392.4 million in the previous quarter.

Guidance

For the second quarter of 2012, the IT distributor expects revenue to be flat to slightly up sequentially. Ingram also expects gross margin to decline sequentially due to the cessation of HDD pricing benefit and lower revenue generation from the fee-based logistics biz.

Based on the improving IT spending trend, growing global demand for IT products and the completion target of the ERP system implementation in Australia in the near future, Ingram Micro is confident about achieving operational excellence ahead. Management is also looking forward to invest heavily to focus on higher margin products, while keeping the cost low.

Conclusion

We find Ingram Micro’s first quarter results impressive as the bottom line was well ahead of the Zacks Consensus Estimate. The company has provided a positive but cautious second quarter outlook. But we believe that support form its Australian venture and the improving IT spending trend will help Ingram to post better results ahead.

We remain fairly optimistic about Ingram Micro’s strategic relationship with network giant Juniper Networks Inc. (JNPR), as well as tech giants such as Hewlett-Packard Company (HPQ), IBM Corp. (IBM) and Microsoft Corp. (MSFT).

Though the company’s significant European exposure and debt burden are concerns, we prefer to be bullish on the stock given its growing SMB exposure and improving profitability.

Currently, Ingram Micro has a Zacks #2 Rank, implying a short-term Buy rating.

 
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