Ingram Micro (IM) Delivers Solid 2Q

Ingram Micro Inc. (IM) reported second-quarter 2010 earnings per share of 41 cents, exceeding the Zacks Consensus Estimate of 36 cents.

Revenues

Ingram Micro reported second-quarter 2010 revenues of $8.16 billion, up 24% from $6.58 billion in the year-ago quarter. The year-over-year increase in revenues may be attributed to strong sales growth across all geographical regions. Foreign currency translation had a neutral impact as a weakening Euro was offset by strong currency in Asia-Pacific and Latin America.

Revenue contribution from North America increased 30% year over year to $3.56 billion. Europe, Middle East and Africa (EMEA) contributed $2.37 billion, up 18% from the year-ago quarter. The economic turmoil prevailing in Europe led to a negative currency impact of 7%.

Sales in the Asia-Pacific region were $1.87 billion, up 24% from $1.50 billion in the second quarter of 2009. Foreign currency translation had a positive impact of 7% on revenues. Latin America sales were $360.0 million, up 12% year over year, benefiting from a positive translation impact of 6% from relatively stronger regional currencies.

Operating Results

Gross margin was 5.4%, down 50 basis points from 5.9% in the year-earlier quarter. This decline in gross margin may be attributed to a greater mix of lower-margin products.

Selling, general and administrative expenses in the second quarter were $333.1 million, down 1% from $336.3 million in the year-ago quarter. Operating margin in the quarter surged 70 basis points year over year to 1.3%.

Ingram Micro reported net income of $67.7 million, or 41 cents per share, compared to $25.3 million, or 15 cents in the year-ago quarter.

Balance Sheet and Cash Flow

Ingram Micro exited the second quarter with cash and cash equivalents of $762.0 million, down from $911.2 million in the previous quarter. Total debt balance was $351.0 million, a decrease of $19.5 million from the previous quarter.

During the quarter, Ingram Micro repurchased approximately 9 million shares worth $152.0 million. With the repurchase, both its share authorization programs (November 2007 and May 2010) ceased.

Ingram Micro incurred total capital expenditure of $18.4 million, compared to $16.3 million in the previous quarter.

Guidance

Ingram Micro did not provide any numerical guidance for the third quarter but expects sales to remain flat sequentially, in line with seasonal trends. The company also expects the gross margin to remain stable.

Conclusion

Ingram Micro is dependent on the strength in IT spending, which is expected to moderate over the next few quarters, being impacted by softening consumer demand. Consequently, the company’s clout at customers and position in the distribution channel will not be of much use in the current environment.

Of course, we remain positive about corporate IT spending, which should see a slow but steady recovery through the rest of the year and into 2011 and mitigate the negative effects of consumer spending.

Ingram Micro’s significant European exposure and debt burden are also causes for concern.

We currently have a short-term Sell rating (Zacks #4 Rank) on Ingram Micro.

INGRAM MICRO (IM): Free Stock Analysis Report

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