Ingram Beats, Outlook Cautious - Analyst Blog
October 29 2012 - 4:30AM
Zacks
Ingram Micro Inc.
(IM) has reported third-quarter 2012 earnings per share of 40 cents
that beat the Zacks Consensus Estimate by 2 cents. The results were
21.2% higher than 33 cents reported in the year-earlier
quarter.
Revenues
Ingram Micro’s third quarter
revenue of $9.03 billion increased 1.5% from $8.90 billion in the
year-ago quarter and was above the Zacks Consensus Estimate of
$8.79 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 5.4% year over year to $3.97 billion on the back
of solid growth in the U.S. broad line business and double-digit
growth in high margin Specialty and Logistics divisions. But this
was slightly offset by a soft Canadian business. Europe, Middle
East and Africa (EMEA) contributed $2.42 billion, down 8.8% 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
$2.17 billion in sales, up 5.6% from $2.06 billion in the year-ago
quarter. The slight improvement was attributed to strong regional
performances in India and China. Latin America sales grew 11.1%
year over year to $467.1 million. Currency translation had an 8.0%
negative impact.
Operating
Results
Gross profit increased 3.0% to
$453.9 million in the reported quarter from $440.7 million in the
year-ago quarter. The improvement was mainly attributable to solid
performances in the Specialty business and Logistics business in
North America. But this was offset by high volume sales of tablets
and other personal devices, which carry a low margin due to pricing
pressure. Hence, gross margin remained unchanged year over year at
5.0%.
Selling, general and administrative
expenses increased 0.5% year over year to $356.0 million. Operating
margin was flat year over year at 1.0%.
Ingram Micro reported net income of
$53.3 million, or 35 cents per share, compared with $23.3
million or 15 cents in the year-ago quarter. Excluding certain
pre-tax one-time items, adjusted net income was 40 cents per share,
compared with 33 cents in the year-ago quarter.
Balance Sheet and Share
Repurchase
Ingram Micro exited the third
quarter with cash and cash equivalents of $1.16 billion, up from
$981.2 million in the previous quarter. Accounts receivable
increased 2.4% sequentially to $3.78 billion. Inventories were
$3.34 billion, up from $3.19 billion in the prior quarter. Total
debt balance was $770.7 million, up from $463.9 million in the
previous quarter.
Guidance
For the fourth quarter of 2012, the
IT distributor expects revenue to be flat year over year. The
company expects gross margin to increase sequentially, although
benefits arising from higher hard disk drive pricing will be
missing.
The company also expects
BrightPoint to contribute around $900.0 million toward revenue and
to be breakeven to slightly accretive to earnings per share in the
fourth quarter. It also expects to record roughly $9 million for
amortization of intangibles related to the BrightPoint
acquisition.
Conclusion
We find Ingram Micro’s third
quarter results decent with both the top and bottom lines beating
the Zacks Consensus Estimates. The company has provided a cautious
fourth 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 on 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).
However, the company’s significant
European exposure, debt burden, concerns relating to Brightpoint’s
major customer loss and its high debt burden forces us to have a
bearish view on the stock.
Currently, Ingram Micro has a Zacks
#4 Rank, implying a short-term “Sell” rating.
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
INGRAM MICRO (IM): Free Stock Analysis Report
JUNIPER NETWRKS (JNPR): Free Stock Analysis Report
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