Ingram Micro Inc. (IM) reported adjusted fourth-quarter 2010 earnings per share of 72 cents, exceeding the Zacks Consensus Estimate of 67 cents. Despite the beat, shares slid 3.7% in the after-market trade, which could be due to Euro headwinds.
Ingram Micro reported fourth-quarter 2010 revenues of $9.88 billion, up 12.2% from $8.81 billion in the year-ago quarter. The quarter’s revenue also surpassed the Zacks Consensus Estimate of $9.55 billion.
The year-over-year increase may be attributed to robust sales growth across all geographical regions and strong demand for technology products worldwide. Foreign currency translation had a neutral impact as a weakening Euro was offset by strong currencies in Asia-Pacific and Latin America.
Revenue contribution from North America increased 12.8% year over year to $4.05 billion. Europe, Middle East and Africa (EMEA) contributed $3.35 billion, up 9.9% from the year-ago quarter. The economic turmoil prevailing in Europe led to a negative currency impact of 8%.
Sales in the Asia-Pacific region were $1.98 billion, up 15.3% from $1.72 billion in the fourth quarter of 2009. Foreign currency translation had a positive impact of 5% on revenues. Latin America sales were $496.4 million, up 11.4% year over year, benefiting from a positive translation impact of 4% from relatively stronger regional currencies.
Operating Results
Gross profit was $559.9 million, up 11.7% from $501.2 million in the year-ago quarter. However, gross margin remained unchanged year over year at 5.7%.
Selling, general and administrative expenses in the fourth quarter were $391.1 million, up 12.5% from $347.7 million in the year-ago quarter. The increase in total operating expenses was due to investments in system enhancements and growth initiatives.
Excluding the impact of reorganization costs, adjusted operating profit was $168.8 million, compared to $153.5 million in the prior-year quarter. Operating margin in the quarter remained flat year over year at 1.7%.
Ingram Micro reported net income of $115.0 million, or 71 cents per share, compared to $107.0 million, or 64 cents in the year-ago quarter. Excluding the impact of reorganization costs, adjusted net income was $116.5 million or 72 cents, compared to $114.0 million or 68 cents in the prior-year quarter.
Balance Sheet and Cash Flow
Ingram Micro exited the fourth quarter with cash and cash equivalents of $1.16 billion, up from $1.11 billion in the previous quarter. Accounts receivables increased 12.6% sequentially to $4.14 billion. Inventories were $2.91 billion, up from $2.88 billion in the prior quarter. Total debt balance was $636.4 million, down from $709.4 million from the previous quarter.
Ingram Micro did not buy back any outstanding shares during the quarter, since its share authorization programs (November 2007 and May 2010) ceased during the third quarter. However, the company intends to resume the program going forward, to return shareholders’ values and strengthen its leadership and market positions.
Ingram Micro incurred total capital expenditure of $30.9 million, compared to $10.7 million in the previous quarter.
Guidance
Ingram Micro did not provide any numerical guidance for first quarter 2011 but expects sales to fall sequentially and grow modestly year over year, in line with historical seasonal trends.
The company also expects the gross margin to decline sequentially following the same seasonal trend. Ingram Micro also stated that operating expenses may fluctuate, despite cost control measures, due to continuous strategic investments.
Conclusion
We are encouraged by Ingram Micro’s fourth quarter results, which modestly beat the Zacks Consensus Estimates. However, we remain apprehensive about the weak sequential guidance.
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 2011 and mitigate the negative effects of consumer spending. Though Ingram Micro’s significant European exposure and debt burden are concerns, we believe increasing demand for its products will support its share price, going forward.
Moreover, its strategic partnerships with tech giants such as Hewlett-Packard Company (HPQ), International Business Machines Inc. (IBM) and Microsoft Corp. (MSFT) are catalysts.
Currently, Ingram Micro has a Zacks #2 Rank implying a short-term Buy rating.
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
INGRAM MICRO (IM): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
Zacks Investment Research
