Ingram Micro Inc. (NYSE: IM), the world's largest wholesale technology distributor and a global leader in supply-chain and mobile device lifecycle services, today announced financial results for the second quarter ended June 29, 2013.
"I am pleased with our performance in the second quarter, as we executed well against our key objectives for the year, resulting in significant improvements across several important financial metrics," said Alain Monie, Ingram Micro president and CEO. "We continued to improve in Australia, benefited from accretion to adjusted earnings per diluted share of 10 cents from our new mobility business and saw gross margins expand, due in part to the investments we have made in areas such as advanced solutions, mobility, logistics services and cloud. We also strengthened our balance sheet as we drove strong cash flow from operations. We are managing our growth well and we believe continued execution on our strategic initiatives to increase the ratio of our higher-margin, and better-returns businesses will result in above market growth rates, while also improving profitability and generating better shareholder returns."
Worldwide sales were $10.3 billion, up 17 percent in U.S. dollars, when compared with $8.8 billion in the second quarter last year. The translation effect of foreign currencies had a de minimis influence on worldwide sales as compared with the prior year. The company's 2012 fourth quarter acquisitions of Brightpoint, Inc. (also referred to as the mobility business) and Aptec Holdings Ltd. added $1.2 billion and $90 million, respectively, to 2013 second quarter revenue, contributing 15 percentage points to the growth.
Worldwide gross profit was $596 million (5.78 percent of total sales), compared with $453 million (5.16 percent of total sales) in the 2012 second quarter. 2013 second quarter gross margin benefited by 58 basis points from the addition of higher gross margin revenue from the company's mobility business, driven largely by its services business.
Operating income was $114 million (1.10 percent of total sales), compared with 2012 second quarter operating income of $98 million (1.11 percent of total sales). 2013 second quarter net income was $70 million, or 45 cents per diluted share. This compares with 2012 second quarter net income of $61 million, or 40 cents per diluted share.
Adjusted operating income for the 2013 second quarter was $136 million (1.32 percent of total sales). This compares with adjusted operating income for the 2012 second quarter of $107 million (1.22 percent of total sales). 2013 second quarter adjusted net income was $86 million, or 55 cents per diluted share, compared with adjusted net income of $67 million, or 43 cents per diluted share, in the 2012 second quarter, which included a discrete tax benefit of $4.4 million, or approximately 3 cents per diluted share.
2013 second quarter net income and adjusted net income benefited from $5.8 million of discrete tax benefits, which resulted in an effective tax rate of 25.6 percent, primarily related to a change in estimate of the amount of mobility business acquisition costs deductible for tax purposes. The discrete tax benefits in the quarter benefited earnings per diluted share and adjusted earnings per diluted share by 3 cents.
Adjusted operating income, adjusted operating margin, adjusted net income and adjusted earnings per diluted share are non-GAAP financial measures that are defined in the footnotes to this release and are reconciled to their most directly comparable GAAP measures in the Supplementary Information section of this release.
Key 2013 second quarter highlights:
For the 2013 third quarter, the company currently expects to maintain its consolidated gross margin rate, with worldwide revenue expected to be flat to slightly up sequentially, in line with historic seasonality. In addition, 2013 third quarter net income and adjusted net income are expected to benefit from income of approximately $18 million after-tax, or 11 cents per diluted share, related to a settlement from a class action proceeding seeking damages from certain manufacturers of LCD flat panel displays.
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) 437-9445 (toll-free within the United States and Canada) or (719) 325-2469 (other countries), passcode "5113706."
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 (888) 203-1112 or (719) 457-0820 outside the United States and Canada, passcode "5113706."
Footnotes to Press Release
This press release includes financial results prepared in accordance with generally accepted accounting principles ("GAAP"). In addition to GAAP results, Ingram Micro is reporting non-GAAP adjusted operating income, adjusted operating margin, adjusted net income and adjusted earnings per diluted share. These non-GAAP measures exclude the amortization of intangible assets and items not expected to recur, including charges associated with restructuring, integration and transition costs and other expense reduction programs. Adjusted net income and adjusted earnings per diluted share also exclude the benefit or impact of foreign exchange gains or losses related to the translation effect on Euro-based inventory purchases in Ingram Micro's pan-European entity and a discrete tax benefit recognized in the first quarter of 2012 associated with the write-off of the historical tax basis of the investment we had maintained in one of our Latin American subsidiary holding companies.
Adjusted operating income, adjusted operating margin, adjusted net income and adjusted earnings per diluted share are primary indicators that Ingram Micro's management uses internally to conduct and measure its business and evaluate the performance of its consolidated operations and operating segments. Ingram Micro's management believes these non-GAAP financial measures are useful because they provide meaningful comparisons to prior periods and an alternate view of the impact of acquired businesses. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting Ingram Micro's business. A material limitation associated with the use of these non-GAAP measures as compared to the GAAP measures is that they may not be comparable to other companies with similar items that present related charges differently. In this regard, the non-GAAP measures should be considered as a supplement to, and not as a substitute for or superior to, the corresponding measures calculated in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.
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 forward-looking statements 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 forward-looking statements. Important risk factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, without limitation: (1) we have made and expect to continue to make investments in new businesses and initiatives, including acquisitions, which could disrupt our business and have an adverse effect on our operating results; (2) we are dependent on a variety of information systems, which, if not properly functioning, or unavailable, or if we experience system security breaches, data protection breaches or other cyber-attacks, could adversely disrupt our business and harm our reputation and earnings; (3) changes in macro-economic conditions may negatively impact a number of risk factors which, individually or in the aggregate, could adversely affect our results of operations, financial condition and cash flows; (4) we continually experience intense competition across all markets for our products and services; (5) we operate a global business that exposes us to risks associated with conducting business in multiple jurisdictions; (6) our failure to adequately adapt to IT industry changes could negatively impact our future operating results; (7) 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; (8) substantial defaults by our customers or the loss of significant customers could have a negative impact on our business, results of operations, financial condition or liquidity; (9) changes in, or interpretations of, tax rules and regulations, changes in the mix of our business amongst different tax jurisdictions, and deterioration of the performance of our business may adversely affect our effective income tax rates or operating margins and we may be required to pay additional taxes and/or tax assessments, as well as record valuation allowances relating to our deferred tax assets; (10) changes in our credit rating or other market factors such as adverse capital and credit market conditions or reductions in cash flow from operations may affect our ability to meet liquidity needs, reduce access to capital, and/or increase our costs of borrowing; (11) failure to retain and recruit key personnel would harm our ability to meet key objectives; (12) we cannot predict with certainty what losses we may incur as a result of litigation matters and contingencies that we may be involved with from time to time; (13) we may incur material litigation, regulatory or operational costs or expenses, and may be frustrated in our marketing efforts, as a result of environmental regulations or private intellectual property enforcement disputes; (14) we face a variety of risks in our reliance on third-party service companies, including shipping companies for the delivery of our products and outsourcing arrangements; (15) changes in accounting rules could adversely affect our future operating results; and (16) our quarterly results have fluctuated significantly. We also face a variety of risks associated with our acquisitions of Brightpoint, Inc., Aptec and Promark, and any other acquisitions we may make, including: management's ability to execute its plans, strategies and objectives for future operations, including the execution of integration plans; growth of the mobility industry, the government contracts business, and in new and untapped markets in geographies outside the U.S.; and other uncertainties or unknown, underestimated and/or undisclosed commitments or liabilities; and our ability to achieve the expected benefits and manage the costs of the integrations of our acquisitions.
Ingram Micro has instituted in the past and continues to institute changes to its strategies, operations and processes to address these risk factors and seek 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 forward-looking statements concerning Ingram Micro, reference is made to Item 1A Risk Factors of Ingram Micro's Annual Report on Form 10-K for the fiscal year ended December 29, 2012; other risks or uncertainties may be detailed from time to time in Ingram Micro's future SEC filings.
"I am pleased with our performance in the second quarter, as we executed well against our key objectives for the year, resulting in significant improvements across several important financial metrics," said Alain Monie, Ingram Micro president and CEO. "We continued to improve in Australia, benefited from accretion to adjusted earnings per diluted share of 10 cents from our new mobility business and saw gross margins expand, due in part to the investments we have made in areas such as advanced solutions, mobility, logistics services and cloud. We also strengthened our balance sheet as we drove strong cash flow from operations. We are managing our growth well and we believe continued execution on our strategic initiatives to increase the ratio of our higher-margin, and better-returns businesses will result in above market growth rates, while also improving profitability and generating better shareholder returns."
Worldwide sales were $10.3 billion, up 17 percent in U.S. dollars, when compared with $8.8 billion in the second quarter last year. The translation effect of foreign currencies had a de minimis influence on worldwide sales as compared with the prior year. The company's 2012 fourth quarter acquisitions of Brightpoint, Inc. (also referred to as the mobility business) and Aptec Holdings Ltd. added $1.2 billion and $90 million, respectively, to 2013 second quarter revenue, contributing 15 percentage points to the growth.
Worldwide gross profit was $596 million (5.78 percent of total sales), compared with $453 million (5.16 percent of total sales) in the 2012 second quarter. 2013 second quarter gross margin benefited by 58 basis points from the addition of higher gross margin revenue from the company's mobility business, driven largely by its services business.
Operating income was $114 million (1.10 percent of total sales), compared with 2012 second quarter operating income of $98 million (1.11 percent of total sales). 2013 second quarter net income was $70 million, or 45 cents per diluted share. This compares with 2012 second quarter net income of $61 million, or 40 cents per diluted share.
Adjusted operating income for the 2013 second quarter was $136 million (1.32 percent of total sales). This compares with adjusted operating income for the 2012 second quarter of $107 million (1.22 percent of total sales). 2013 second quarter adjusted net income was $86 million, or 55 cents per diluted share, compared with adjusted net income of $67 million, or 43 cents per diluted share, in the 2012 second quarter, which included a discrete tax benefit of $4.4 million, or approximately 3 cents per diluted share.
2013 second quarter net income and adjusted net income benefited from $5.8 million of discrete tax benefits, which resulted in an effective tax rate of 25.6 percent, primarily related to a change in estimate of the amount of mobility business acquisition costs deductible for tax purposes. The discrete tax benefits in the quarter benefited earnings per diluted share and adjusted earnings per diluted share by 3 cents.
Adjusted operating income, adjusted operating margin, adjusted net income and adjusted earnings per diluted share are non-GAAP financial measures that are defined in the footnotes to this release and are reconciled to their most directly comparable GAAP measures in the Supplementary Information section of this release.
Key 2013 second quarter highlights:
- Australia's revenue grew for the second quarter in a row and the country reduced its operating loss to less than $3 million, a significant improvement from the operating loss of $9 million in last year's second quarter and the operating loss of more than $5 million in the 2013 first quarter.
- The company's mobility business was accretive to 2013 second quarter adjusted earnings per diluted share by 10 cents.
- Second quarter cash flow from operations was $510 million, driven by improved profitability and a 4 day sequential improvement in working capital. This resulted in cash flow from operations of $328 million for the six months ended June 29, 2013.
- Working capital days of 24 were within the company's targeted range of 22 to 26 days. Working capital days improved by 1 day when compared to the 2012 second quarter and improved sequentially by 4 days when compared to the 2013 first quarter.
For the 2013 third quarter, the company currently expects to maintain its consolidated gross margin rate, with worldwide revenue expected to be flat to slightly up sequentially, in line with historic seasonality. In addition, 2013 third quarter net income and adjusted net income are expected to benefit from income of approximately $18 million after-tax, or 11 cents per diluted share, related to a settlement from a class action proceeding seeking damages from certain manufacturers of LCD flat panel displays.
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) 437-9445 (toll-free within the United States and Canada) or (719) 325-2469 (other countries), passcode "5113706."
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 (888) 203-1112 or (719) 457-0820 outside the United States and Canada, passcode "5113706."
Footnotes to Press Release
This press release includes financial results prepared in accordance with generally accepted accounting principles ("GAAP"). In addition to GAAP results, Ingram Micro is reporting non-GAAP adjusted operating income, adjusted operating margin, adjusted net income and adjusted earnings per diluted share. These non-GAAP measures exclude the amortization of intangible assets and items not expected to recur, including charges associated with restructuring, integration and transition costs and other expense reduction programs. Adjusted net income and adjusted earnings per diluted share also exclude the benefit or impact of foreign exchange gains or losses related to the translation effect on Euro-based inventory purchases in Ingram Micro's pan-European entity and a discrete tax benefit recognized in the first quarter of 2012 associated with the write-off of the historical tax basis of the investment we had maintained in one of our Latin American subsidiary holding companies.
Adjusted operating income, adjusted operating margin, adjusted net income and adjusted earnings per diluted share are primary indicators that Ingram Micro's management uses internally to conduct and measure its business and evaluate the performance of its consolidated operations and operating segments. Ingram Micro's management believes these non-GAAP financial measures are useful because they provide meaningful comparisons to prior periods and an alternate view of the impact of acquired businesses. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting Ingram Micro's business. A material limitation associated with the use of these non-GAAP measures as compared to the GAAP measures is that they may not be comparable to other companies with similar items that present related charges differently. In this regard, the non-GAAP measures should be considered as a supplement to, and not as a substitute for or superior to, the corresponding measures calculated in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.
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 forward-looking statements 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 forward-looking statements. Important risk factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, without limitation: (1) we have made and expect to continue to make investments in new businesses and initiatives, including acquisitions, which could disrupt our business and have an adverse effect on our operating results; (2) we are dependent on a variety of information systems, which, if not properly functioning, or unavailable, or if we experience system security breaches, data protection breaches or other cyber-attacks, could adversely disrupt our business and harm our reputation and earnings; (3) changes in macro-economic conditions may negatively impact a number of risk factors which, individually or in the aggregate, could adversely affect our results of operations, financial condition and cash flows; (4) we continually experience intense competition across all markets for our products and services; (5) we operate a global business that exposes us to risks associated with conducting business in multiple jurisdictions; (6) our failure to adequately adapt to IT industry changes could negatively impact our future operating results; (7) 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; (8) substantial defaults by our customers or the loss of significant customers could have a negative impact on our business, results of operations, financial condition or liquidity; (9) changes in, or interpretations of, tax rules and regulations, changes in the mix of our business amongst different tax jurisdictions, and deterioration of the performance of our business may adversely affect our effective income tax rates or operating margins and we may be required to pay additional taxes and/or tax assessments, as well as record valuation allowances relating to our deferred tax assets; (10) changes in our credit rating or other market factors such as adverse capital and credit market conditions or reductions in cash flow from operations may affect our ability to meet liquidity needs, reduce access to capital, and/or increase our costs of borrowing; (11) failure to retain and recruit key personnel would harm our ability to meet key objectives; (12) we cannot predict with certainty what losses we may incur as a result of litigation matters and contingencies that we may be involved with from time to time; (13) we may incur material litigation, regulatory or operational costs or expenses, and may be frustrated in our marketing efforts, as a result of environmental regulations or private intellectual property enforcement disputes; (14) we face a variety of risks in our reliance on third-party service companies, including shipping companies for the delivery of our products and outsourcing arrangements; (15) changes in accounting rules could adversely affect our future operating results; and (16) our quarterly results have fluctuated significantly. We also face a variety of risks associated with our acquisitions of Brightpoint, Inc., Aptec and Promark, and any other acquisitions we may make, including: management's ability to execute its plans, strategies and objectives for future operations, including the execution of integration plans; growth of the mobility industry, the government contracts business, and in new and untapped markets in geographies outside the U.S.; and other uncertainties or unknown, underestimated and/or undisclosed commitments or liabilities; and our ability to achieve the expected benefits and manage the costs of the integrations of our acquisitions.
Ingram Micro has instituted in the past and continues to institute changes to its strategies, operations and processes to address these risk factors and seek 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 forward-looking statements concerning Ingram Micro, reference is made to Item 1A Risk Factors of Ingram Micro's Annual Report on Form 10-K for the fiscal year ended December 29, 2012; other risks or uncertainties may be detailed from time to time in Ingram Micro's future SEC filings.
