IM Ingram Micro Inc. (delisted)

Brightpoint Inc. (CELL) declared mixed financial results for the second quarter of 2012. Quarterly GAAP net loss from continuing operations was $4.2 million or 6 cents per share compared to a net income of $11.8 million or 18 cents per share in the prior-year quarter. However, adjusted (excluding special items) earnings per share in the reported quarter were 10 cents, exactly in line with the Zacks Consensus Estimate. Quarterly total revenue was $1,266.3 million, an improvement of 2.54% year over year, but well below the Zacks Consensus Estimate of $1,325 million.

Segment wise, Distribution revenue was $1,140.6 million in the second quarter of 2012 compared with $1,050.4 million in the year-ago quarter. Logistics Services revenue was $125.7 million compared with $142.9 million in the prior-year quarter.

In the reported quarter, on a GAAP basis, gross margin was 6.2% compared with 7.5% in the prior-year quarter.  SG&A expenses were $62.6 million as opposed to $69.0 million in the year-ago quarter. Quarterly EBITDA came in at $15.4 million compared with $27.2 million in the year-ago quarter.

During the second quarter of 2012, Brightpoint used approximately $114.2 million of cash for operations compared with $78.3 million in the year-ago quarter. Free cash flow (cash flow from operation less capital expenditure) in the second quarter of 2012 was a negative $105.1 million compared with $40.6 million in the prior-year quarter.

At the end of the second quarter of 2012, Brightpoint had $30.0 million of cash & marketable securities on its balance sheet at the reported quarter end compared with $40.8 million at the end of 2011. Total debt was $195.0 million at the end of the second quarter of 2012 compared with $253 million at the end of 2011. Alongside, debt-to-capitalization ratio, at the end of the second quarter of 2012, was 0.40 compared with 0.46 at the end of 2011.

Acquisition Agreement

Information technology distributor Ingram Micro Inc. (IM) has entered into an agreement to acquire the leading wireless distributor, Brightpoint Inc. for a cash consideration of $840.0 million. Ingram Micro will pay $9 per share for Brightpoint and will take up its debt burden of $140.0 million. However, the acquisition is subjected to certain terms and conditions and is expected to be completed before the end of the year.      

Recommendation

In early 2012, Brightpoint suffered a major blow when one of its major customers in the U.S. decided to terminate its existing contract with the company from April 2012. This customer will complete its transition to a new vendor by the end of 2012. Brightpoint managed 6.8 million wireless devices for this particular client in 2011.The company continue to face challenges due to the macro economic environment in the EMEA region. Additionally, reduction in average selling price in Southeast Asia and increased competition in the North American market remain the causes of concern for Brightpoint.   

We maintain our long-term Neutral recommendation on Brightpoint. Currently, it holds a short-term Zacks #4 Rank (Sell) on the stock.

 
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