Ingram Posts Record Revenues in 4Q

Zacks

Ingram Micro Inc. (IM) has reported fourth-quarter 2012 earnings per share of 73 cents that beat the Zacks Consensus Estimate of 59 cents. The results were 4.3% higher than 70 cents reported in the year-earlier quarter.

Revenues

Ingram Micro’s fourth quarter revenues of $11.4 billion increased 14.3% from $9.95 billion in the year-ago quarter and were above the Zacks Consensus Estimate of $10.9 billion. The quarter’s result was affected by a 1.0% negative impact of currency translation. Geographical contributions were decent barring Europe. Apart from this, additional contributions from the Brightpoint and Aptec Holdings acquisitions were the quarter’s differentiators.

Revenue contribution from North America increased 5.9% year over year to $4.46 billion The improvement can be attributed to double-digit growth in revenues from the small and medium business (SMB) sector and the higher-margin Specialty business. Europe, Middle East and Africa (:EMEA) contributed $3.09 billion, down 3.6% from the year-ago quarter. The decline was primarily due to the difficult macro environment and competitive pressures. However, management believes that the result was better than expected.

The Asia-Pacific region generated $2.18 billion in sales, up 11.2% from $1.96 billion in the year-ago quarter. The improvement was attributed to strong regional performances in India and China and contribution from Aptec Holdings. Latin America sales grew 5.3% year over year to $602.7 million.

Operating Results

Gross profit increased 19.3% to $661.2 million in the reported quarter from $554.3 million in the year-ago quarter. The improvement was mainly attributable to solid performances in the Specialty business and BrightPoint contribution.

Selling, general and administrative expenses increased 28.8% year over year to $477.8 million. Operating margin of 1.5% dropped 30 basis points year over year.

Ingram Micro reported net income of $101.4 million, or 6 cents per share, compared with $104.9 million or 68 cents in the year-ago quarter. Excluding certain pre-tax one-time items, adjusted net income was 73 cents per share compared with 70 cents in the year-ago quarter.

Balance Sheet and Share Repurchase

Ingram Micro exited the fourth quarter with cash and cash equivalents of $595.1 million, down from $5.56 billion in the previous quarter. Accounts receivable increased 44.4% sequentially to $3.78 billion. Inventories were $3.59 billion, up from $3.34 billion in the prior quarter. Total debt balance was $1.05 billion, up from $770.7 million in the previous quarter.

Guidance

For the first quarter of 2013, the IT distributor expects revenues to be down sequentially, due to seasonality. The company expects gross margin to decrease sequentially due to lower contribution from the Logistics business.

For fiscal 2013, the company expects revenues to grow in low teens with support from BrightPoint.

The company seems very positive about BrightPoint. It expects the same to drive annual cost synergies of at least $55.0 million for 2014 and accretion to non-GAAP earnings per share of at least 18 cents in 2013 and 35 cents in 2014.

Apart from this, the company sees returns from its strategic investments in areas such as enterprise computing and Logistics space. It will also focus on increasing profitability and share in the Australian market.

Conclusion

We find Ingram Micro’s fourth quarter results decent with both the top and bottom lines beating the Zacks Consensus Estimates. The company has provided a cautious first 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.

The ongoing integration of BrightPoint seems to be pretty quick and the contribution is encouraging. Expected cost synergies and sizable contributions going forward could make BrightPoint a key driver for growth.

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, high debt burden and uncertainty in Logistics business force us to have a bearish view on the stock.

Currently, Ingram Micro has a Zacks Rank #4 (Sell).

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