Ingram Micro Inc. (IM)

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Ingram Micro Inc. (IM)

Q3 2010 Earnings Call

October 28, 2010 05:00 pm ET

Executives

Ria Carlson - SVP, Communications and Brand Management

Greg Spierkel - CEO

Bill Humes - SEVP & CFO

Analysts

Ben Reitzes - Barclays Capital

Craig Hettenbach - Goldman Sachs

Brian Alexander - Raymond James

Matt Sheerin - Stifel Nicolaus

Bill Fearnley - Janney Capital Markets

Ananda Baruah - Brean, Murray

Shaw Wu - Kaufman Brothers

Presentation

Operator

Welcome to the Ingram Micro Third Quarter Earnings Report Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

Now, I will turn the meeting over to Ria Carlson, Senior Vice President. Thank you. You may begin.

Ria Carlson

Thank you very much, Ashley, and good afternoon everyone. Joining me today are Greg Spierkel, our Chief Executive Officer, and Bill Humes, our Chief Financial Officer.

Greg will present an overview of the third quarter and then Bill will provide the financial review. Greg will come back to discuss business highlights and plans for the future, followed by a question-and-answer session.

The financial portion of this call is accompanied by presentation slides, which can be found with today’s news release at the Investor Relations section of our website at ingrammicro.com or by calling 714-382-2015.

Before we get started, I have a safe harbor announcement. During today’s discussion, we will make statements that are forward-looking. These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties.

Please prefer to today’s news release and documents filed with the Securities and Exchange Commission, specifically the risk factors listed in Item 1A of our Form 10-K for the fiscal year ended January 2, 2010, for more information on the risks that could cause actual results to differ materially.

In addition, this conference call is the property of Ingram Micro and may not be recorded or rebroadcast without specific written permission from the company. The presentation slides and a replay of the call will be available for one week on the company’s website at ingrammicro.com or by calling 800-678-3180.

I’d now like to turn the call over to Greg Spierkel, our Chief Executive Officer. Greg?

Greg Spierkel

Thank you, Ria, and good afternoon, everyone. Our third quarter performance continued to demonstrate the strength of our business model. It was the third consecutive period of sales and income growth at double-digit rates or greater, as well as the fifth consecutive quarter of ROIC exceeding the cost of capital. I am pleased with our progress and optimistic about the path ahead.

Our regions delivered solid results. The three largest regions generated outstanding top-line growth with Asia-Pacific sales reaching a historic high and North America hitting the highest third quarter sales level in 10 years. This helped drive excellent operating leverage, with worldwide operating income growing more than three times the rate of sales and operating margin returning to pre-recession levels.

North American operating margin was at the highest third quarter level in over a decade. Gross margin was relatively stable at 5.36%. We continue to manage gross margins within a targeted range, while leveraging them to drive sales, profitability, and returns. We review transactions holistically with a bias towards operating income and returns on working capital. At the same time we continue to hold the line on operating expenses.

The results speak for themselves. Year-to-date, sales were up 19%, while operating income grew at multiples of that rate. Return on invested capital reached a healthy 12.1% in the third quarter and is 12% year-to-date.

There are still plenty of opportunities to improve our performance. Demand for technology remains solid and we continue to create more efficient and powerful infrastructure to successfully support our growth. Our higher margin specialty businesses, fee-for-service logistics, data capture/point-of-sale, value-added enterprise solutions, and services are expanding globally and are expected to become a greater portion of our business mix in the years ahead.

We’re upbeat about our business and dedicated to converting this optimism into a greater value that our shareholders deserve. We believe in Ingram Micro so much so that we’ve repurchased 24 million shares in the past three years. Today, we announced another repurchase authorization of $400 million over the next three years, demonstrating our confidence in our company and its future.

Now I’ll turn the call over to Bill for a financial review.

Bill Humes

Thanks, Greg. I’ll start my discussion with sales, which can be found on slide 3. In the third quarter, worldwide sales rose 14% to 8.45 billion. Foreign currency exchange negatively impacted sales by 2 percentage points. Regionally, North American sales totaled 3.65 billion, increasing 13% from the prior year. EMEA sales were 2.48 billion, increasing 15%. The translation of weaker European currencies had an 11 percentage point negative impact on our revenue growth. Asia-Pacific sales were 1.95 billion, an increase of 19%. The translation of stronger local currencies had a 5 percentage point positive impact on revenue growth. Latin America sales were 372 million, roughly equal with last year. The translation of stronger local currencies had a 3 percentage point positive impact on year-over-year comparisons.

Gross margin on slide 4 was 5.36% compared with 5.44% in the prior year. The 8-basis-point decline was attributable to the mix of business in the quarter, more competitive environments in specific markets and, as Greg mentioned, the selective use of gross margin to drive sales.

Read the rest of this transcript for free on seekingalpha.com