Ingram Posts Decent 2Q

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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