Ingram Micro Inc. (NYSE: IM), the world’s largest technology distributor, today announced financial results for the first quarter of 2007 (ended March 31, 2007).
Worldwide sales for the quarter were $8.25 billion, a 9 percent increase from $7.60 billion in the prior-year period. The translation impact of the relatively stronger European currencies had an approximate
3 percentage-point positive effect on comparisons to the prior year.
Net income for the first quarter was $37.0 million, or $0.21 per diluted share which is at the high end of the company’s earnings guidance issued on March 1, 2007. As previously announced, a first-quarter charge of $33.8 million, or $0.19 per diluted share, was recorded to cost of sales for commercial taxes on software imports in Brazil, reflecting tax legislation enacted on February 28, 2007. In addition, the first quarter included a benefit of approximately $0.02 per diluted share from the favorable resolution of a U.S. tax audit. First-quarter net income in the year ago period was $61.7 million, or $0.36 per diluted share.
“The technology markets in all our regions are generally solid, driving another first quarter sales record,” said Gregory M. Spierkel, chief executive officer, Ingram Micro Inc. “We are also especially pleased with the performances of North America and Asia-Pacific, where operating income grew at more than twice the rate of sales, reflecting our successful efforts toward diversification into adjacencies and geographies. The Brazilian tax charge and our efforts to gain share in Germany dampened income in the other two regions, but we believe these markets will generate more fruitful results in the months ahead.”
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:
o North American sales were $3.28 billion (40 percent of total revenues), an increase of 2 percent versus the $3.21 billion posted a year ago.
European sales were $3.05 billion (37 percent of total revenues) versus $2.70 billion in the year-ago period. Sales in U.S. dollars were up 13 percent over the prior-year period. The translation impact of the relatively stronger European currencies had an approximate 10 percentage-point positive impact on comparisons to the prior year.
o Asia-Pacific sales were $1.57 billion (19 percent of total revenues) versus $1.33 billion in the prior-year period – an increase of 18 percent.
o Latin American sales were $346 million (4 percent of total revenues), a decrease of 3 percent compared to the $357 million posted a year ago.
Gross margin
The charge related to Brazilian commercial taxes adversely affected the gross margin by approximately 41 basis points, resulting in a gross margin of 4.96 percent versus 5.34 percent in the year-ago quarter. The negative impact was partially mitigated by general enhancements in the gross margin in certain regions over the prior year.
Operating expenses
Total operating expenses were $335.1 million or 4.06 percent of revenues versus $306.6 million or 4.04 percent of revenues in the year-ago quarter. The percentage-of-sales increase is largely attributable to increased European costs associated with the previously disclosed warehouse management system upgrade in Germany.
Operating income
Worldwide operating income was $73.7 million or 0.89 percent of revenues, which includes the Brazilian tax charge of approximately $33.8 million or 41 basis points. In the year-ago quarter, operating income was $98.9 million or 1.30 percent of revenues.
o North American operating income was $57.0 million or 1.74 percent of revenues, an increase of 10 percent or 12 basis points versus the $51.9 million or 1.62 percent of revenues in the year-ago quarter.
o European operating income was $35.0 million or 1.15 percent of revenues versus $34.5 million or 1.28 percent of revenues in the year-ago quarter. The additional operating expenses related to improving service levels and regaining market share that suffered from the transition to the upgraded warehouse management system in Germany had a negative impact on European operating income compared to the prior year.
o Asia-Pacific operating income increased 45 percent to $19.7 million, or 1.25 percent of revenues, compared to $13.5 million or 1.02 percent of revenues in the previous-year period.
o Latin America recorded an operating loss of $28.4 million or 8.20 percent of revenues due to the previously mentioned $33.8 million commercial tax charge in Brazil, which was approximately 9.76 percent of revenues. In the year ago quarter, operating income was $7.0 million or 1.95 percent of revenues.
o Stock-based compensation expense, which amounted to $9.6 million in the current quarter and $8.0 million in the prior year quarter, is presented as a separate reconciling amount in the company’s segment reporting in both periods. As such, these expenses are not included in the regional operating results, but are included in the worldwide operating results.
§ Other income and expense for the quarter was $15.4 million versus $13.2 million in the year-ago period, primarily driven by higher market interest rates and additional working capital needs associated with the higher volume of business.
§ The effective tax rate for the quarter was 36.6 percent, which was negatively impacted by the $33.8 million Brazilian commercial tax charge, for which the company did not recognize an income tax benefit. This was partially offset by the positive impact resulting from the company’s reversal of certain income tax reserves following the favorable resolution of a U.S. tax audit. The effective rate in the prior year period was 28 percent.
§ Total depreciation and amortization was $15.2 million.
§ Capital expenditures were approximately $16.4 million.
Balance Sheet
§ The cash balance at the end of the quarter was $300 million, a decrease of $33 million from the year-end balance. Total debt was $607 million, an increase of $97 million from year-end. Debt-to-capitalization was 17 percent versus 15 percent at the year-end.
§ Inventory was $2.50 billion or 29 days on hand compared to $2.68 billion or 29 days on hand at the end of the year.
§ Working capital days were 26, an increase of four days from year-end primarily due to higher receivable days resulting from slight changes to the company’s revenue mix, particularly greater sales into the retail sector, as well as the timing of customer payments.
“There were bright spots in every region,” said William D. Humes, executive vice president and chief financial officer. “Nearly every country in Europe generated year-over-year growth. In Germany, the operational complications with the upgraded warehouse management system are largely behind us, and we’re concentrating on recapturing sales. In Asia Pacific, we continue to take advantage of the growing markets and process improvements to hit record sales and operating income levels. North America is leveraging its efficient infrastructure and higher-margin specialty units to deliver strong operating income. While changes in Brazilian tax law caused us to record a charge for taxes on past software sales, the same legislation could result in greater opportunities for software sales in the future.”
Outlook for the Second Quarter
The following statements are based on the company’s current expectations and internal forecasts. These statements are forward-looking and actual results may differ materially, as outlined in the company's periodic filings with the Securities and Exchange Commission.
According to the company’s guidance for the second quarter ending June 30, 2007:
· Sales are expected to range from $8.00 billion to $8.25 billion.
· Net income is expected to range from $59 million to $65 million, or $0.34 to $0.37 per diluted share.
· The weighted average shares outstanding is expected to be approximately 176 million and an effective tax rate of 28 percent is estimated for the second quarter and subsequent quarters of 2007.
“Our second-quarter guidance reflects good year-over-year sales growth of 8 to 12 percent, with demand generally stable in all regions,” said Spierkel. “The modest sequential sales decline is in line with normal historical trends, as the second and third quarters are seasonally softer. In the second quarter, we are poised to move beyond the one-time challenges we’ve faced in Germany and Brazil, and are excited by the opportunities and growth we see throughout the Asia Pacific region, through our expanded reach into South Africa, and in our growing specialty businesses -- including consumer electronics, managed services, and the network security distribution and training company we recently acquired in North America.”
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. EDT. To listen to the conference call webcast and view the accompanying presentation slides, visit the company’s Web site at www.ingrammicro.com (Investor Relations section). The conference call is also accessible by telephone at (888) 455-0750 (toll-free within the United States and Canada) or (517) 308-9002 (other countries).
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.
Worldwide sales for the quarter were $8.25 billion, a 9 percent increase from $7.60 billion in the prior-year period. The translation impact of the relatively stronger European currencies had an approximate
3 percentage-point positive effect on comparisons to the prior year.
Net income for the first quarter was $37.0 million, or $0.21 per diluted share which is at the high end of the company’s earnings guidance issued on March 1, 2007. As previously announced, a first-quarter charge of $33.8 million, or $0.19 per diluted share, was recorded to cost of sales for commercial taxes on software imports in Brazil, reflecting tax legislation enacted on February 28, 2007. In addition, the first quarter included a benefit of approximately $0.02 per diluted share from the favorable resolution of a U.S. tax audit. First-quarter net income in the year ago period was $61.7 million, or $0.36 per diluted share.
“The technology markets in all our regions are generally solid, driving another first quarter sales record,” said Gregory M. Spierkel, chief executive officer, Ingram Micro Inc. “We are also especially pleased with the performances of North America and Asia-Pacific, where operating income grew at more than twice the rate of sales, reflecting our successful efforts toward diversification into adjacencies and geographies. The Brazilian tax charge and our efforts to gain share in Germany dampened income in the other two regions, but we believe these markets will generate more fruitful results in the months ahead.”
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:
o North American sales were $3.28 billion (40 percent of total revenues), an increase of 2 percent versus the $3.21 billion posted a year ago.
European sales were $3.05 billion (37 percent of total revenues) versus $2.70 billion in the year-ago period. Sales in U.S. dollars were up 13 percent over the prior-year period. The translation impact of the relatively stronger European currencies had an approximate 10 percentage-point positive impact on comparisons to the prior year.
o Asia-Pacific sales were $1.57 billion (19 percent of total revenues) versus $1.33 billion in the prior-year period – an increase of 18 percent.
o Latin American sales were $346 million (4 percent of total revenues), a decrease of 3 percent compared to the $357 million posted a year ago.
Gross margin
The charge related to Brazilian commercial taxes adversely affected the gross margin by approximately 41 basis points, resulting in a gross margin of 4.96 percent versus 5.34 percent in the year-ago quarter. The negative impact was partially mitigated by general enhancements in the gross margin in certain regions over the prior year.
Operating expenses
Total operating expenses were $335.1 million or 4.06 percent of revenues versus $306.6 million or 4.04 percent of revenues in the year-ago quarter. The percentage-of-sales increase is largely attributable to increased European costs associated with the previously disclosed warehouse management system upgrade in Germany.
Operating income
Worldwide operating income was $73.7 million or 0.89 percent of revenues, which includes the Brazilian tax charge of approximately $33.8 million or 41 basis points. In the year-ago quarter, operating income was $98.9 million or 1.30 percent of revenues.
o North American operating income was $57.0 million or 1.74 percent of revenues, an increase of 10 percent or 12 basis points versus the $51.9 million or 1.62 percent of revenues in the year-ago quarter.
o European operating income was $35.0 million or 1.15 percent of revenues versus $34.5 million or 1.28 percent of revenues in the year-ago quarter. The additional operating expenses related to improving service levels and regaining market share that suffered from the transition to the upgraded warehouse management system in Germany had a negative impact on European operating income compared to the prior year.
o Asia-Pacific operating income increased 45 percent to $19.7 million, or 1.25 percent of revenues, compared to $13.5 million or 1.02 percent of revenues in the previous-year period.
o Latin America recorded an operating loss of $28.4 million or 8.20 percent of revenues due to the previously mentioned $33.8 million commercial tax charge in Brazil, which was approximately 9.76 percent of revenues. In the year ago quarter, operating income was $7.0 million or 1.95 percent of revenues.
o Stock-based compensation expense, which amounted to $9.6 million in the current quarter and $8.0 million in the prior year quarter, is presented as a separate reconciling amount in the company’s segment reporting in both periods. As such, these expenses are not included in the regional operating results, but are included in the worldwide operating results.
§ Other income and expense for the quarter was $15.4 million versus $13.2 million in the year-ago period, primarily driven by higher market interest rates and additional working capital needs associated with the higher volume of business.
§ The effective tax rate for the quarter was 36.6 percent, which was negatively impacted by the $33.8 million Brazilian commercial tax charge, for which the company did not recognize an income tax benefit. This was partially offset by the positive impact resulting from the company’s reversal of certain income tax reserves following the favorable resolution of a U.S. tax audit. The effective rate in the prior year period was 28 percent.
§ Total depreciation and amortization was $15.2 million.
§ Capital expenditures were approximately $16.4 million.
Balance Sheet
§ The cash balance at the end of the quarter was $300 million, a decrease of $33 million from the year-end balance. Total debt was $607 million, an increase of $97 million from year-end. Debt-to-capitalization was 17 percent versus 15 percent at the year-end.
§ Inventory was $2.50 billion or 29 days on hand compared to $2.68 billion or 29 days on hand at the end of the year.
§ Working capital days were 26, an increase of four days from year-end primarily due to higher receivable days resulting from slight changes to the company’s revenue mix, particularly greater sales into the retail sector, as well as the timing of customer payments.
“There were bright spots in every region,” said William D. Humes, executive vice president and chief financial officer. “Nearly every country in Europe generated year-over-year growth. In Germany, the operational complications with the upgraded warehouse management system are largely behind us, and we’re concentrating on recapturing sales. In Asia Pacific, we continue to take advantage of the growing markets and process improvements to hit record sales and operating income levels. North America is leveraging its efficient infrastructure and higher-margin specialty units to deliver strong operating income. While changes in Brazilian tax law caused us to record a charge for taxes on past software sales, the same legislation could result in greater opportunities for software sales in the future.”
Outlook for the Second Quarter
The following statements are based on the company’s current expectations and internal forecasts. These statements are forward-looking and actual results may differ materially, as outlined in the company's periodic filings with the Securities and Exchange Commission.
According to the company’s guidance for the second quarter ending June 30, 2007:
· Sales are expected to range from $8.00 billion to $8.25 billion.
· Net income is expected to range from $59 million to $65 million, or $0.34 to $0.37 per diluted share.
· The weighted average shares outstanding is expected to be approximately 176 million and an effective tax rate of 28 percent is estimated for the second quarter and subsequent quarters of 2007.
“Our second-quarter guidance reflects good year-over-year sales growth of 8 to 12 percent, with demand generally stable in all regions,” said Spierkel. “The modest sequential sales decline is in line with normal historical trends, as the second and third quarters are seasonally softer. In the second quarter, we are poised to move beyond the one-time challenges we’ve faced in Germany and Brazil, and are excited by the opportunities and growth we see throughout the Asia Pacific region, through our expanded reach into South Africa, and in our growing specialty businesses -- including consumer electronics, managed services, and the network security distribution and training company we recently acquired in North America.”
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. EDT. To listen to the conference call webcast and view the accompanying presentation slides, visit the company’s Web site at www.ingrammicro.com (Investor Relations section). The conference call is also accessible by telephone at (888) 455-0750 (toll-free within the United States and Canada) or (517) 308-9002 (other countries).
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.
