Enterprise Technology Drives Ingram Micro's Q2 Results

Ingram Micro reported sales and earnings slightly above analysts' expectations for the second quarter, with North America sales continuing to outperform European operations, particularly due to a weaker dollar exchange.

"I'm pleased with our performance in what continues to be a challenging macroeconomic and selling environment throughout much of the world," said Ingram Micro President and CEO Alain Monie on a conference call with analysts.

The Santa Ana, Calif.-based distributor earned $61.3 million, or 40 cents per diluted share, on $8.78 billion in sales for the quarter. The numbers compare to $59.7 million in net income, or 37 cents per diluted share, on $8.75 billion in sales in the year-ago quarter.

Sales in North America were $3.84 billion, up 2 percent from $3.76 billion in the year-ago quarter. Revenue from Europe was $2.46 billion, down from $2.64 billion in the second quarter last year. Meanwhile, Asia-Pacific and Latin America sales increased 4 percent and 14 percent, respectively.

A consensus of Wall Street estimates expected earnings of 38 cents per share on sales of $3.74 billion.

It marked the 10th consecutive quarterly increase in sales in North America, which was driven by double-digit percentage growth in DBL electronics accessories, data capture/point-of-sale and physical security solutions, as well as "solid sales increases" in enterprise technology, according to Ingram Micro.

William Humes, CFO of Ingram Micro, said on the analysts' call that pricing pressure has impacted performance and likely will continue to do so in the third quarter.

"Going forward in at least in Q3, we believe it's relatively constant in the sense of the margin impact of both pressure and mix. So not further worsening from where we're at today in this second quarter," Humes said.

Humes added that the pricing pressure is "in pockets" but he did not elaborate on where the pockets were. "It probably got a little bit more aggressive in certain areas. But in other pockets, it was pretty stable.

"Overall, I think, the majority of the impact really comes from the mix and volume of the business, the type of business. And then there's probably some pockets in Europe and Asia that may be a little bit more competitive, but not tremendously so from Q1," Humes said.

As far as products, tablets continue to be a steadily growing area with no constrained supplies, Monie said. "That's been one of the drivers in growth in many of our geographies. As far as the segments, we don't have an analysis on whether there are major shifts there. But it's obviously, both enterprise and education are becoming much more solid markets for the tablets, and we're seeing that as well," he said.

NEXT: Networking Strongest Area In North America

In addition, enterprise products were very strong, Monie added. "We have good growth in that segment. In fact, it's one of the segments that we had the best growth in North America. We're starting to see the results of our investments there and that includes, not only what you mentioned, enterprise, computing and storage, but also in networking. Networking was probably the area that grew the strongest in North America this quarter."

In Europe, Ingram reported double-digit growth in local currencies in Germany and the U.K., but the overall environment is still not strong, particularly converted to U.S. dollars, Monie said. The second-quarter growth in those regions also will be difficult to sustain long term, he said.

"I think we've been successful at capturing opportunities, particularly when they came in e-tail and retail business, as well as capitalizing on our SMB success there. If you asked whether we should continue looking at that kind of growth in the future, I think that would not be very prudent. And I would expect that to come back to a more normal environment, although the U.K. and Germany had been the two engines that have been performing the best in Europe," he said.

Meanwhile, Ingram Micro expects to see solid financial performance from its recent acquisition of mobility specialist BrightPoint, Humes said.

"Given the profitability and the performance of BrightPoint alone, they're already a very well-performing business unit. But combined with us and then driving some of the synergies we talked about, I would say there are opportunities for cost synergies. But there's also opportunities for volume and revenue," Humes said on the analysts' call. "There's probably some low-hanging fruit to start with, and then there's some longer-term service capability revenues and fees and margins that we can capitalize on. But that will take a little bit more time."

Brian Alexander, managing director of equity research at Raymond James & Associates, noted that "all is not terrible in tech" given Ingram Micro's performance and global footprint.

"It grew in local currency in every region. While gross margin of 5.16 percent was below our estimate of 5.25 percent, management attributed most of the weakness to mix (product, regional, and customer)," Alexander wrote in an an analysis of Ingram Micro's earnings. "With shares down 9 percent in the last month and 15 percent year to date, we expect relatively in-line results and modestly lower outlook to cause a relief rally in IM shares."

Ingram Micro shares were trading at $15.25 Friday morning, down 18 cents, or 1 percent.

PUBLISHED JULY 27, 2012