Ingram Posts Decent 2Q - Analyst Blog
July 27 2012 - 9:45AM
Zacks
Ingram Micro Inc.
(IM) has reported second-quarter 2012 earnings per share of 39
cents that beat the Zacks Consensus Estimate by a penny. The
results were 8.6% higher than 36 cents reported in the earlier-year
quarter.
Revenues
Ingram Micro’s second quarter revenue of $8.78 billion increased
0.3% from $8.75 billion in the year-ago quarter and was above the
Zacks Consensus Estimate of $8.71 billion. The quarter’s result was
affected by a 5.0% negative impact of currency translation.
Geographical contributions were solid barring Europe.
Revenue contribution from North America increased 2.0% year over
year to $3.84 billion, mainly on solid performances by the
specialty as well as enterprise technology businesses. The increase
can also be attributed to strong U.S. broad line business,
partially offset by weak Canadian broad line business. Europe,
Middle East and Africa (EMEA) contributed $2.46 billion, down 6.8%
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 $2.04 billion in sales, up 3.9%
from $1.96 billion in the year-ago quarter. The slight improvement
was attributed to strong regional performances in India and China.
Latin America sales grew 14.4% year over year to $442.4 million.
Though currency translation had a 13.0% negative impact, solid
performance in Mexico, Miami, Brazil and Peru turned the table.
Operating Results
Gross profit decreased 1.4% to $452.7 million in the reported
quarter from $459.2 million in the year-ago quarter. The
deceleration was mainly due to an unfavorable product mix and a
competitive selling environment. Gross margin remained unchanged
year over year at 5.2%.
Selling, general and administrative expenses decreased 2.2% year
over year to $354.1 million. Operating margin decreased 10 bps year
over year to 4.0%.
Ingram Micro reported net income of $61.3 million, or 40 cents per
share, compared to $59.7 million, or 37 cents in the year-ago
quarter. Excluding certain pre-tax one-time items, adjusted net
income was 39 cents per share, compared with 36 cents in the
year-ago quarter.
Balance Sheet and Share Repurchase
Ingram Micro exited the second quarter with cash and cash
equivalents of $981.2 million, down from $991.2 million in the
previous quarter. Accounts receivable decreased 4.9% sequentially
to $3.69 billion. Inventories were $3.19 billion, up from $3.18
billion in the prior quarter. Total debt balance was $463.9
million, up from $388.3 million in the previous quarter.
During the quarter, Ingram bought back 2.7 million shares for $50.0
million.
Guidance
For the third quarter of 2012, the IT distributor expects revenue
to be flat sequentially. Though the company expects gross margin to
lack luster, it believes that expenses could be controlled. The
company also expects an additional interest burden of roughly $2.0
million owing to a debt facility taken to fund the Brightpoint
acquisition.
The company expects a boost in its revenue and profitability with
synergies from the acquisition of Brightpoint Inc., going
forward.
Conclusion
We find Ingram Micro’s second quarter results decent with both the
top and bottom lines surpassing the Zacks Consensus Estimates. The
company has provided a cautious third quarter outlook. But we
believe that the improving IT spending trend will help Ingram to
post better results ahead. Moreover, management’s commentary of
focusing more on the high-margin market and strategic acquisitions
to grow market share is encouraging.
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 #3 Rank, implying a short-term
“Hold” rating.
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