Ingram Micro Inc. (NYSE: IM), the world's largest technology distributor, today announced doubledigit increases in sales and profits for the first quarter ended April 3, 2010.
Worldwide sales for the first quarter were $8.10 billion, an increase of 20 percent compared with sales of $6.75 billion in the prioryear first quarter. The translation of relatively stronger foreign currencies had a positive effect of approximately six percentage points.
Net income grew at greater rate than sales, reaching $70.3 million, or $0.42 per diluted share, which includes approximately $1.7 million (net of tax) or $0.01 per diluted share related to a gain on the sale of real estate in Germany. Net income in the prioryear quarter was $27.5 million, or $0.17 per diluted share, which included costs of $14.2 million, or approximately $0.06 per diluted share, related to expensereduction programs.
"We're pleased to be back in growth mode," said Gregory Spierkel, chief executive officer, Ingram Micro Inc. "We're even happier to generate strong operating leverage, with the increase in operating income significantly outpacing sales growth. Our initiatives to reenergize sales and diligently manage expenses, combined with a better demand environment, drove our results this quarter. Every region contributed to the company's strong performance. North America's operating income more than doubled on 19percent sales growth, while EMEA produced its highest firstquarter operating margin since 2005 with 18percent sales growth. Asia-Pacific sales grew 28 percent, the highest of the regions, and Latin America delivered the highest operating margin. The improvements we made during the recessionary months are paying off and should continue to deliver benefits throughout the year."
Additional First Quarter Highlights
For additional detail regarding the results outlined below, please refer to the financial statements and schedules attached to this news release or visit www.ingrammicro.com.
Regional Sales
- North America sales were $3.29 billion (41 percent of total sales), an increase of 19 percent versus $2.77 billion reported in the yearago quarter.
- Europe, Middle East and Africa (EMEA) sales grew 18 percent to $2.67 billion (33 percent of total sales) versus $2.27 billion in the prioryear period. The translation impact of relatively stronger European currencies had a positive effect of approximately eight percentage points.
- Asia-Pacific sales increased 28 percent to $1.77 billion (22 percent of total sales) versus $1.38 billion reported in the yearago quarter. The translation impact of relatively stronger regional currencies had a positive effect of approximately 14 percentage points.
- Latin America sales were $370.2 million (4 percent of total sales) versus $321.5 million reported one year ago. The translation impact of relatively stronger local currencies had a positive impact of approximately 12 percentage points.
Gross Margin
Gross margin was 5.45 percent, a decrease of 20 basis points from the 5.65 percent in the prioryear quarter but above the company's intended floor of 5.40 percent. Yearoveryear comparisons are impacted primarily by softer volumes in the feeforservice division and a greater mix of lowermargin products and geographies.
Operating Expenses
Total operating expenses in the quarter were $335.8 million or 4.15 percent of total sales, which includes a benefit of $2.4 million (0.03 percent of total sales) related to the gain on the sale of real estate in Germany. In the first quarter of 2009, operating expenses were $335.8 million or 4.98 percent of total sales, which included $14.2 million (0.21 percent of total sales) in costs associated with the company's expensereduction programs. The impact of stronger foreign currencies increased operating expenses by approximately $17 million, which was largely offset by the savings from previously completed expensereduction actions and continued cost controls in 2010.
Operating Income
Worldwide operating income was $105.7 million (1.31 percent of total sales), which includes a $2.4 million benefit (0.03 percent of total sales) related to the real estate sale in Germany, as noted above. In the prioryear quarter, operating income was $45.2 million (0.67 percent of total sales), which included the $14.2 million in expensereduction program costs referenced above.
- North America operating income was $41.9 million or 1.27 percent of North America sales, compared with $12.8 million or 0.46 percent of sales in the yearago quarter, which included $6.2 million (0.22 percent of North America sales) in costs related to the company's expensereductions programs.
- EMEA operating income was $34.9 million or 1.31 percent of EMEA sales, which includes $2.4 million (0.09 percent of EMEA sales) related to the sale of real estate in Germany. In the 2009 first quarter, EMEA's operating income was $15.1 million (0.67 percent of sales), which included $6.1 million (0.27 percent of EMEA sales) in expensereduction program costs.
- Asia-Pacific operating income was $26.5 million or 1.50 percent of Asia-Pacific sales. In the comparable prioryear period, Asia-Pacific posted operating income of $13.8 million or 1.00 percent of sales, which included $1.7 million in costs (0.13 percent of Asia-Pacific sales) associated with the company's expense reduction programs.
- Latin America operating income was $6.4 million or 1.73 percent of Latin America sales, compared with $5.1 million or 1.57 percent of sales in the yearago quarter, which included $0.2 million (0.06 percent of Latin America sales) in expensereduction program costs.
- Stockbased compensation expense was $4.0 million versus $1.5 million in the prioryear period. Stockbased compensation impacts are presented as a separate reconciling amount in the company's segment reporting in both periods and are not included in the regional operating results, but are included in the total worldwide operating results.
Other expense for the quarter was $8.5 million versus $7.6 million in the yearago period.
The effective tax rate was 27.7 percent compared to 27.0 percent in first quarter 2009.
Total depreciation and amortization was $16.0 million.
Capital expenditures were $16.3 million.
Balance Sheet Highlights
- The cash and cash equivalents balance at April 3, 2010, was $911 million, which is flat with the 2009 yearend balance.
- Total debt was $370 million, a decrease of $9 million from yearend 2009. Debttocapitalization was 11 percent, which is also consistent with the end of 2009.
- Inventory was $2.6 billion, or 31 days on hand, compared with $2.5 billion, or 27 days on hand, at the end of 2009.
- Working capital days were 24 versus 21 at yearend 2009.
"We're driving the right balance of growth, profitability and working capital to improve returns," said William Humes, senior executive vice president and chief financial officer. "Gross margins and working capital were within our expectations in this highergrowth environment, while operating expenses as a percentage of sales improved significantly due to our diligent control of costs and the benefits from our prior streamlining efforts. Our cash and debt positions remain solid and we've generated strong yearoveryear improvement in return on invested capital. Our business is on a strong footing, ready to support increasing demand from a recovering economy."
Outlook
"For the second quarter, we expect strong yearoveryear growth to continue," said Spierkel. "The second quarter is seasonally softer than the first due to spring holidays, with history pointing to a mild, singledigit sequential decline. We expect continued solid operating leverage on our yearoveryear growth as our recent improvements and careful expense management continue to deliver results."
Spierkel added: "I'm looking forward to this year. The economic recovery is becoming more tangible and our business improvements have set the stage for continued success. We are focused on driving profitable sales growth while investing in systems enhancements and expansion opportunities that will improve our competitive position and, ultimately, shareholder returns. The team is energized and working toward making 2010 one of the best years in our history."
Conference Call and Webcast Additional information about Ingram Micro's financial results will be presented in a conference call with presentation slides today at 5 p.m. ET. To listen to the conference call webcast and view the accompanying presentation slides, visit the company's website at www.ingrammicro.com (Investor Relations section). The conference call is also accessible by telephone at (888) 455-0750 (tollfree within the United States and Canada) or (210) 839-8501 (other countries), passcode "Ingram Micro."
The replay of the conference call with presentation slides will be available for one week at www.ingrammicro.com (Investor Relations section) or by calling (800) 678-3180 or (402) 220-3063 outside the United States and Canada.
Cautionary Statement for the Purpose of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 The matters in this press release that are forwardlooking statements, including but not limited to statements about economic conditions, capital resources, cost reduction actions, revenues, operating income, margins, expenses, integration costs, operating efficiencies, profitability, market share and rates of return, are based on current management expectations. Certain risks may cause such expectations to not be achieved and, in turn, may have a material adverse effect on Ingram Micro's business, financial condition and results of operations. Ingram Micro disclaims any duty to update any forwardlooking statements. Important risk factors that could cause actual results to differ materially from those discussed in the forwardlooking statements include, without limitation: (1) difficult conditions in the global economy in general have affected our business and results of operations and these conditions are not expected to improve in the near future and may worsen; (2) changes in our credit rating or other market factors such as continued adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs through reduced access to capital, or it may increase our cost of borrowing; (3) our failure to adequately adapt to economic and industry changes and to manage prolonged contractions could negatively impact our future operating results; (4) if our business does not perform well, we may be required to recognize further impairments of our intangible or other longlived assets or establish a valuation allowance against our deferred income tax assets, which could adversely affect our results of operations or financial condition; (5) we continually experience intense competition across all markets for our products and services, which may intensify in a more difficult global economy; (6) we operate a global business that exposes us to risks associated with international activities; (7) we have made and expect to continue to make investments in new business strategies and initiatives, including acquisitions and continued enhancements to information systems, processes and procedures and infrastructure on a global basis, which could disrupt our business and have an adverse effect on our operating results; (8) we are dependent on a variety of information systems and a failure of these systems could disrupt our business and harm our reputation and net sales; (9) terminations of a supply or services agreement or a significant change in supplier terms or conditions of sale could negatively affect our operating margins, revenue or the level of capital required to fund our operations; (10) changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates or operating margins and we may be required to pay additional tax assessments; (11) we cannot predict with certainty what loss we might incur as a result of the SEC inquiry we have received as well as other litigation matters and contingencies that we may be involved with from time to time; (12) we may incur material litigation, regulatory or operating costs or expenses, and may be frustrated in our marketing efforts, as a result of new environmental regulations or private intellectual property enforcement disputes; (13) future terrorist or military actions could result in disruption to our operations or loss of assets, in certain markets or globally; (14) the loss of a key executive officer or other key employees, or changes affecting the work force such as government regulations, collective bargaining agreements or the limited availability of qualified personnel, could disrupt operations or increase our cost structure; (15) we face a variety of risks with outsourcing arrangements; (16) changes in accounting rules could adversely affect our future operating results; (17) our quarterly results have fluctuated significantly; and (18) we are dependent on thirdparty shipping companies for the delivery of our products.
Ingram Micro has instituted in the past and continues to institute changes to its strategies, operations and processes to address these risk factors and to mitigate their impact on Ingram Micro's results of operations and financial condition. However, no assurances can be given that Ingram Micro will be successful in these efforts. For a further discussion of significant factors to consider in connection with forwardlooking statements concerning Ingram Micro, reference is made to Item 1A Risk Factors of Ingram Micro's Annual Report on Form 10-K for the year ended January 2, 2010; other risks or uncertainties may be detailed from time to time in Ingram Micro's future SEC filings.
Worldwide sales for the first quarter were $8.10 billion, an increase of 20 percent compared with sales of $6.75 billion in the prioryear first quarter. The translation of relatively stronger foreign currencies had a positive effect of approximately six percentage points.
Net income grew at greater rate than sales, reaching $70.3 million, or $0.42 per diluted share, which includes approximately $1.7 million (net of tax) or $0.01 per diluted share related to a gain on the sale of real estate in Germany. Net income in the prioryear quarter was $27.5 million, or $0.17 per diluted share, which included costs of $14.2 million, or approximately $0.06 per diluted share, related to expensereduction programs.
"We're pleased to be back in growth mode," said Gregory Spierkel, chief executive officer, Ingram Micro Inc. "We're even happier to generate strong operating leverage, with the increase in operating income significantly outpacing sales growth. Our initiatives to reenergize sales and diligently manage expenses, combined with a better demand environment, drove our results this quarter. Every region contributed to the company's strong performance. North America's operating income more than doubled on 19percent sales growth, while EMEA produced its highest firstquarter operating margin since 2005 with 18percent sales growth. Asia-Pacific sales grew 28 percent, the highest of the regions, and Latin America delivered the highest operating margin. The improvements we made during the recessionary months are paying off and should continue to deliver benefits throughout the year."
Additional First Quarter Highlights
For additional detail regarding the results outlined below, please refer to the financial statements and schedules attached to this news release or visit www.ingrammicro.com.
Regional Sales
- North America sales were $3.29 billion (41 percent of total sales), an increase of 19 percent versus $2.77 billion reported in the yearago quarter.
- Europe, Middle East and Africa (EMEA) sales grew 18 percent to $2.67 billion (33 percent of total sales) versus $2.27 billion in the prioryear period. The translation impact of relatively stronger European currencies had a positive effect of approximately eight percentage points.
- Asia-Pacific sales increased 28 percent to $1.77 billion (22 percent of total sales) versus $1.38 billion reported in the yearago quarter. The translation impact of relatively stronger regional currencies had a positive effect of approximately 14 percentage points.
- Latin America sales were $370.2 million (4 percent of total sales) versus $321.5 million reported one year ago. The translation impact of relatively stronger local currencies had a positive impact of approximately 12 percentage points.
Gross Margin
Gross margin was 5.45 percent, a decrease of 20 basis points from the 5.65 percent in the prioryear quarter but above the company's intended floor of 5.40 percent. Yearoveryear comparisons are impacted primarily by softer volumes in the feeforservice division and a greater mix of lowermargin products and geographies.
Operating Expenses
Total operating expenses in the quarter were $335.8 million or 4.15 percent of total sales, which includes a benefit of $2.4 million (0.03 percent of total sales) related to the gain on the sale of real estate in Germany. In the first quarter of 2009, operating expenses were $335.8 million or 4.98 percent of total sales, which included $14.2 million (0.21 percent of total sales) in costs associated with the company's expensereduction programs. The impact of stronger foreign currencies increased operating expenses by approximately $17 million, which was largely offset by the savings from previously completed expensereduction actions and continued cost controls in 2010.
Operating Income
Worldwide operating income was $105.7 million (1.31 percent of total sales), which includes a $2.4 million benefit (0.03 percent of total sales) related to the real estate sale in Germany, as noted above. In the prioryear quarter, operating income was $45.2 million (0.67 percent of total sales), which included the $14.2 million in expensereduction program costs referenced above.
- North America operating income was $41.9 million or 1.27 percent of North America sales, compared with $12.8 million or 0.46 percent of sales in the yearago quarter, which included $6.2 million (0.22 percent of North America sales) in costs related to the company's expensereductions programs.
- EMEA operating income was $34.9 million or 1.31 percent of EMEA sales, which includes $2.4 million (0.09 percent of EMEA sales) related to the sale of real estate in Germany. In the 2009 first quarter, EMEA's operating income was $15.1 million (0.67 percent of sales), which included $6.1 million (0.27 percent of EMEA sales) in expensereduction program costs.
- Asia-Pacific operating income was $26.5 million or 1.50 percent of Asia-Pacific sales. In the comparable prioryear period, Asia-Pacific posted operating income of $13.8 million or 1.00 percent of sales, which included $1.7 million in costs (0.13 percent of Asia-Pacific sales) associated with the company's expense reduction programs.
- Latin America operating income was $6.4 million or 1.73 percent of Latin America sales, compared with $5.1 million or 1.57 percent of sales in the yearago quarter, which included $0.2 million (0.06 percent of Latin America sales) in expensereduction program costs.
- Stockbased compensation expense was $4.0 million versus $1.5 million in the prioryear period. Stockbased compensation impacts are presented as a separate reconciling amount in the company's segment reporting in both periods and are not included in the regional operating results, but are included in the total worldwide operating results.
Other expense for the quarter was $8.5 million versus $7.6 million in the yearago period.
The effective tax rate was 27.7 percent compared to 27.0 percent in first quarter 2009.
Total depreciation and amortization was $16.0 million.
Capital expenditures were $16.3 million.
Balance Sheet Highlights
- The cash and cash equivalents balance at April 3, 2010, was $911 million, which is flat with the 2009 yearend balance.
- Total debt was $370 million, a decrease of $9 million from yearend 2009. Debttocapitalization was 11 percent, which is also consistent with the end of 2009.
- Inventory was $2.6 billion, or 31 days on hand, compared with $2.5 billion, or 27 days on hand, at the end of 2009.
- Working capital days were 24 versus 21 at yearend 2009.
"We're driving the right balance of growth, profitability and working capital to improve returns," said William Humes, senior executive vice president and chief financial officer. "Gross margins and working capital were within our expectations in this highergrowth environment, while operating expenses as a percentage of sales improved significantly due to our diligent control of costs and the benefits from our prior streamlining efforts. Our cash and debt positions remain solid and we've generated strong yearoveryear improvement in return on invested capital. Our business is on a strong footing, ready to support increasing demand from a recovering economy."
Outlook
"For the second quarter, we expect strong yearoveryear growth to continue," said Spierkel. "The second quarter is seasonally softer than the first due to spring holidays, with history pointing to a mild, singledigit sequential decline. We expect continued solid operating leverage on our yearoveryear growth as our recent improvements and careful expense management continue to deliver results."
Spierkel added: "I'm looking forward to this year. The economic recovery is becoming more tangible and our business improvements have set the stage for continued success. We are focused on driving profitable sales growth while investing in systems enhancements and expansion opportunities that will improve our competitive position and, ultimately, shareholder returns. The team is energized and working toward making 2010 one of the best years in our history."
Conference Call and Webcast Additional information about Ingram Micro's financial results will be presented in a conference call with presentation slides today at 5 p.m. ET. To listen to the conference call webcast and view the accompanying presentation slides, visit the company's website at www.ingrammicro.com (Investor Relations section). The conference call is also accessible by telephone at (888) 455-0750 (tollfree within the United States and Canada) or (210) 839-8501 (other countries), passcode "Ingram Micro."
The replay of the conference call with presentation slides will be available for one week at www.ingrammicro.com (Investor Relations section) or by calling (800) 678-3180 or (402) 220-3063 outside the United States and Canada.
Cautionary Statement for the Purpose of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 The matters in this press release that are forwardlooking statements, including but not limited to statements about economic conditions, capital resources, cost reduction actions, revenues, operating income, margins, expenses, integration costs, operating efficiencies, profitability, market share and rates of return, are based on current management expectations. Certain risks may cause such expectations to not be achieved and, in turn, may have a material adverse effect on Ingram Micro's business, financial condition and results of operations. Ingram Micro disclaims any duty to update any forwardlooking statements. Important risk factors that could cause actual results to differ materially from those discussed in the forwardlooking statements include, without limitation: (1) difficult conditions in the global economy in general have affected our business and results of operations and these conditions are not expected to improve in the near future and may worsen; (2) changes in our credit rating or other market factors such as continued adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs through reduced access to capital, or it may increase our cost of borrowing; (3) our failure to adequately adapt to economic and industry changes and to manage prolonged contractions could negatively impact our future operating results; (4) if our business does not perform well, we may be required to recognize further impairments of our intangible or other longlived assets or establish a valuation allowance against our deferred income tax assets, which could adversely affect our results of operations or financial condition; (5) we continually experience intense competition across all markets for our products and services, which may intensify in a more difficult global economy; (6) we operate a global business that exposes us to risks associated with international activities; (7) we have made and expect to continue to make investments in new business strategies and initiatives, including acquisitions and continued enhancements to information systems, processes and procedures and infrastructure on a global basis, which could disrupt our business and have an adverse effect on our operating results; (8) we are dependent on a variety of information systems and a failure of these systems could disrupt our business and harm our reputation and net sales; (9) terminations of a supply or services agreement or a significant change in supplier terms or conditions of sale could negatively affect our operating margins, revenue or the level of capital required to fund our operations; (10) changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates or operating margins and we may be required to pay additional tax assessments; (11) we cannot predict with certainty what loss we might incur as a result of the SEC inquiry we have received as well as other litigation matters and contingencies that we may be involved with from time to time; (12) we may incur material litigation, regulatory or operating costs or expenses, and may be frustrated in our marketing efforts, as a result of new environmental regulations or private intellectual property enforcement disputes; (13) future terrorist or military actions could result in disruption to our operations or loss of assets, in certain markets or globally; (14) the loss of a key executive officer or other key employees, or changes affecting the work force such as government regulations, collective bargaining agreements or the limited availability of qualified personnel, could disrupt operations or increase our cost structure; (15) we face a variety of risks with outsourcing arrangements; (16) changes in accounting rules could adversely affect our future operating results; (17) our quarterly results have fluctuated significantly; and (18) we are dependent on thirdparty shipping companies for the delivery of our products.
Ingram Micro has instituted in the past and continues to institute changes to its strategies, operations and processes to address these risk factors and to mitigate their impact on Ingram Micro's results of operations and financial condition. However, no assurances can be given that Ingram Micro will be successful in these efforts. For a further discussion of significant factors to consider in connection with forwardlooking statements concerning Ingram Micro, reference is made to Item 1A Risk Factors of Ingram Micro's Annual Report on Form 10-K for the year ended January 2, 2010; other risks or uncertainties may be detailed from time to time in Ingram Micro's future SEC filings.
