Ingram Micro Reports Q4 and Year-End Results

Net sales for the company's fourth quarter were $6.14 billion, and while that's a 5 percent sequential increase, it's also nearly $2 billion less than the same period a year ago. Net income tells a similar story. Net income for the fourth quarter was $14.4 million before reorganization costs and special items, which reduced it to $5.7 million for the quarter, compared with net income of $57.9 million in the same period a year ago. Income from operations was $37.4 million, a sequential increase of 47 percent, but scant in comparison to the same period in 2000 in which operational income was $119.4 million.

What Ingram has done well of late is manage its costs. Operating costs were $36.4 million less than fourth quarter a year ago. Days of inventory on hand were reduced to 25.5 vs 27 in Q3 and 35 a year ago, resulting in inventory costs that are 44 percent lower than they were at the end of 2000. And the company reduced its debt to $680 million, a 53 percent reduction from the $1.5 billion that it held at the end of 2000. Mike Grainger, president and COO, says cost reduction efforts were a significant focus for Ingram in 2001, but will be the No. 1 priority for the company in 2002.

"We are constantly working to identify processes we do, whether manual or automated, that we need to quit doing--either because we're not being paid to do them, not getting paid enough to do them, or because there's a better way to do them," Grainger says. Putting additional cost reduction processes into place will take time, Grainger says, because the company doesn't want to forget customer service or associate metrics and it wants to keep a sharp eye on accounting controls.

Managing costs is certainly the key to survival in an economic downturn, and it's something the best distributors do very well. But cost reductions don't take the place of revenue generation, and despite the modest 5 percent sequential increase in sales in the fourth quarter, which is a positive sign given the difficult year and the national tragedy that occurred at the end of Q3, it is not yet time to breathe a sigh of relief.

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As a result, a second initiative for Ingram Micro in 2002 will be in providing more fee-based services. The company hopes to turn its core competencies in areas like managing credit facilities, for example, into profit centers by allowing companies without the same core competencies to outsource their needs to Ingram for a fee.

The company expects growth in Asia to be a focus for 2002 as well. China, in particular, Foster says, holds promise. Ingram entered into an agreement with a new sub-distributor in China recently, which provides Ingram with a greater degree of influence over the supply chain, but Foster told analysts to expect controlled growth to continue in that region throughout the year, and Tom Madden, executive vice president and CFO, said Ingram does expect the company's Asia-Pacific region to turn a profit this year. Executives have not pegged which quarter that may occur, but Madden suggests third or fourth quarter is most likely.

Foster also told analysts that Ingram expects its logistics business, IM Logistics, to offer expanded growth opportunities this year.

"Logistics does not result in the same revenues as traditional distribution," he says, "but the returns on capital are higher."

Finally, Ingram executives pointed to emerging technologies as another area of focus for 2002, including wireless, security, convergence and game hardware like Microsoft's Xbox.

Xbox was a significant contributor to the distributor's Canadian revenue for the quarter, though the company expects Xbox-driven sales to be lower in the first quarter now that the holiday buying season has ended. Overall, retail contributed significantly to the company's fourth quarter results. The corporate reseller segment fared the least well.

When asked about the possible effects of the proposed HP/Compaq merger, Grainger told analysts the merger will have a significant effect on the entire industry as a whole, as well as on Ingram Micro. He says Ingram's relationship with both companies is strong. "Whether the end answer is a net-plus or a net-minus, we don't know. No one can predict [that yet." But Grainger went on to say that Ingram also has a strong business with IBM, pointing out to analysts that the company has "a lot of revenue not tied to HP and Compaq."

While Ingram's executives agree that there are no signs of an imminent IT recovery, Grainger says things have been stable for a while now. "For a long time, every time you turned around, there were indications of revenue falling. But it's reached a point now where it's relatively stable and that says it's just a matter of time before it comes back."