Distributors Share 3Q Pain, Lower 4Q Forecasts

Avnet and ScanSource reported earnings Thursday that did not meet analysts' expectations and Ingram Micro surpassed its own forecast but it had cut its outlook last month. Meanwhile, all three companies offered lower guidance than Wall Street was forecasting for the last quarter of 2008. In other words, it's tough all over.

"Unfortunately, the stock markets are taking it on the chin for the last six to eight weeks. It's got a lot to do with everybody's concerns about the short-term financial crisis and rolling into an economic weakness in the marketplace. How deep it is and how long it lasts are questions hanging over everybody. Nobody has an answer," said Greg Spierkel, CEO of Ingram Micro, Santa Ana, Calif. "Here's a situation where we're all in a potential one-time event in terms of what's been happening. Oil, commodities, housing, the banking/financial community, are all [pain points]. We've never seen a combination of all these things at the same time."

Ingram Micro earned $46.4 million, or 27 cents per share on $8.28 billion in sales for its third quarter ended Sept. 27. In the year-ago quarter, the distributor earned $72.4 million, or 41 cents per share, on $8.61 billion in sales.

Ingram's numbers for the third quarter came in above analysts' expectations of 23 cents per share on $8.44 billion in sales, but Ingram had cut its own forecast on Sept. 16 to 18 cents to 23 cents per share, down from 31 cents to 36 cents per share.

Ingram Micro did not provide fourth-quarter sales or earnings guidance Thursday (it historically has done so), but the company said softening demand due to global macroeconomic forces is expected to have a negative impact into 2009. The company said steps to walk away from unprofitable business and to recover increased freight charges also impacted sales growth. Analysts were forecasting earnings of 48 cents per share on $9.53 billion for the December quarter.

Spierkel noted that the future is just too murky to publicly come out with sales and earnings guidance.

"Calling a number right now is tricky. As a public company, if you call a number and you're off, you have some risk and liability. We said why not give qualitative guidance," Spierkel said. "Most of the analysts that cover us have a feel for our business model. That was our basis for the decision. It was a decision we did not take lightly and it may be one we hold over several quarters or even several years. At this stage with the murkiness it's better not to put out numbers and be off."

ScanSource saw its revenue fall 3 percent to $539.8 million in its first fiscal quarter ended Sept. 30, from $553.7 million in the year-ago quarter. Net income fell 15 percent to $12.4 million, 47 cents per share, compared to earnings of $14.7 million, or 56 cents per share, in the same period last year.

The Greenville, S.C.-based distributor said its results were impacted by specific vendor issues in its Catalyst Telecom business unit, which focuses on Avaya products.

"In addition, we experienced overall slower revenue growth in most of our business units," Baur said in a statement.

For the current quarter, ScanSource expects revenue between $515 million to $535 million, which is below analysts' expectations of $557 million.

Meanwhile, Avnet reported a 12 percent decrease in net income in its first fiscal fiscal quarter ended Sept. 27, to $92.8 million (61 cents per share) from $105.5 million in the year-ago period (69 cents per share). Revenue in the quarter was $4.49 billion, up from $4.10 billion from last year. Analysts were expecting earnings of 70 cents per share on $4.54 billion in sales.

For the second fiscal quarter ending Dec. 27, 2008, Avnet expects "less than normal seasonality," in part because its ending four days earlier than many suppliers, according to the distributor. The company expects sales between $4.34 billion and $4.74 billion and earnings between 71 cents and 79 cents per share for the second fiscal quarter. Analysts were projecting earnings of 78 cents per share on $4.82 billion in sales for the second quarter.

"Our September quarter continued a multi-quarter trend of muted organic growth rates as sluggish demand in several end markets persisted," said Chairman and CEO Roy Vallee in a statement. "Although it is difficult to predict how macro conditions will impact tech demand over the next few quarters, we will continue to focus on achieving our financial goals by managing the things that are within our control."

Avnet Technology Solutions (TS) sales of $1.79 billion in the first quarter were up 11.5 percent year over year and 9.2 percent when adjusted to exclude the impact of changes in foreign currency exchange rates. On a pro forma basis [excluding acquisitions], Avnet TS revenue was down 3.3 percent year over year.

Avnet released its financials Thursday morning and its stock fell 6 percent to $16 per share, a 52-week low. During trading Thursday it slipped to as low as $15.62 before rebounding slightly before market close.

Both Ingram Micro and Greenville, S.C.-based ScanSource reported earnings after market close, but saw their stocks fall nonetheless. Ingram closed down 3 percent to $12.18, while ScanSource fell nearly 5 percent to $19.18. Both companies also neared 52-week lows.