Ingram Micro Misses Q1 Earnings, Revs In Line - Analyst Blog

Ingram Micro Inc. IM reported first-quarter 2014 non-GAAP earnings (excluding amortization of intangible assets, reorganization charges, LCD settlement and foreign exchange gains) of 43 cents per share, missing the Zacks Consensus Estimate of 47 cents per share. However, earnings improved 4.5% on a year-over-year basis primarily due to a higher revenue base, strategic investments and improvement in the cloud and mobility business.

Revenues

Ingram Micro's first-quarter revenues of $10.4 billion came in line with the Zacks Consensus Estimate and increased 1.2% from the year-ago quarter. The year-over-year improvement was primarily due to better-than-expected growth in Europe and Latin America, which partially offset a decline in BrightPoint revenues primarily due to lower demand in the handset.

Geographically, revenues from North America increased 1.5% on a year-over-year basis and came in at $3.92 billion. Revenues from Europe increased 12.2% on a year-over-year basis to $2.99 billion. Moreover, revenues from Latin America were up 6.8% on a year-over-year basis to $493.5 million. However, revenues from Asia-Pacific and BrightPoint decreased 2.4% and 22.4% year over year respectively, and came in at $2.14 billion and $830.1 million.

Revenues from Europe were positively impacted by higher product adoption. Moreover, strong performances from Australia and India driven by growth across different product lines supported revenues. Additionally, strong performance of its mobility business helped revenues.

The company also reported that 16.0% of total revenue came from Hewlett-Packard Company HPQ and 11.0% from Apple Inc. AAPL.

It is worth noting that Ingram Micro's acquisition of CloudBlue and Shipwire will expand its supply chain capabilities, while the acquisition of SoftCom will help to enhance its cloud-based offerings.

Operating Results

Ingram Micro's gross margin improved 18 basis points (bps) on a year-over-year basis to 5.9%. The improvement was mainly attributable to solid performances in the mobility business and higher sales. Moreover, the acquisitions of CloudBlue, Shipwire and SoftCom positively impacted gross margins.

Selling, general and administrative expenses increased 3.3% year over year to $489.6 million. Ingram Micro reported an increase in operating expense as a percentage of revenues (up 9 bps on a year-over-year basis), which came in at 4.7%, primarily due to continued investments across all of its operating regions and higher costs related to its high margin business. The company's non-GAAP operating margin increased 5 bps from the year-ago quarter to 1.2% aided by contribution from high margin businesses.

Ingram Micro reported non-GAAP net income of $67.9 million or 43 cents per share compared with $63.2 million or 41 cents in the year-ago quarter. Non-GAAP net income excludes the effect of intangible assets, reorganization charges, LCD settlement and foreign exchange gains.

Balance Sheet & Cash Flow

Ingram Micro exited the first-quarter with cash and cash equivalents of $424.5 million, down from $674.4 million in the previous quarter. Accounts receivable were $4.55 billion. Total debt (including current portion) was $1.02 billion, up from $846.2 million in the previous quarter.

The company reported cash used in operations of $426.4.0 million in the first-quarter of 2014.

Guidance

For the second-quarter of 2014, Ingram Micro expects a low to mid-single digit year-over-year increase in revenues. Gross margin is expected to grow in mid-single digit basis points on a year-over-year basis.

Conclusion

Ingram Micro's first-quarter results were tepid with the bottom line missing the Zacks Consensus Estimate and the top line matching the same. We believe that an improving IT spending trend will help Ingram to post better results going forward. Moreover, the company's focus on the high-margin market and strategic acquisitions to increase market share are encouraging. The BrightPoint acquisition is also expected to remain a key growth driver for the company.

Ingram Micro has been striking distribution deals with a number of original equipment manufacturers thus expanding its product portfolio. Moreover, Ingram Micro's exposure in cloud computing products is also expected to drive growth.

Though Ingram Micro's significant European exposure and a high debt burden are concerns, we remain fairly optimistic on the company's strategic relationships with network giants such as Juniper Networks Inc. JNPR, Cisco CSCO and IBM Corp. IBM.

Currently, Ingram Micro has a Zacks Rank #2 (Buy).