Ingram Micro Inc. (IM)

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Ingram Micro (IM)

Q1 2011 Earnings Call

April 28, 2011 5:00 pm ET

Executives

Ria Carlson - Senior Vice President of Communications and Brand Management

William Humes - Chief Financial Officer, Principal Accounting Officer and Senior Executive Vice President

Gregory Spierkel - Chief Executive Officer, Director and Member of Executive Committee

Analysts

Brian Alexander - Raymond James & Associates, Inc.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc.

Benjamin Reitzes - Barclays Capital

Richard Gardner - Citigroup Inc

Ananda Baruah - Brean Murray, Carret & Co., LLC

Shaw Wu - Sterne Agee & Leach Inc.

Scott Craig

Presentation

Operator

Welcome to the Ingram Micro First Quarter Earnings Report Conference Call. [Operator Instructions] Now I'll turn the meeting over to Ms. Ria Carlson, Chief Strategy and Communications Officer.

Ria Carlson

Thank you, Angie, and good afternoon, everyone. Joining me today are Greg Spierkel, our Chief Executive Officer; and Bill Humes, our Chief Financial Officer. Greg will present a brief overview and then Bill will provide a financial review of the first quarter. 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 the call that are not historical facts are subject to a number of risks and uncertainties. Please refer 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 1, 2011 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’ll now turn the call over to Greg Spierkel, our Chief Executive Officer. Greg?

Gregory Spierkel

Thank you, Ria, and good afternoon, everyone. After delivering one of the best years in our history in 2010, the new year delivered challenges that created mixed results for the first quarter. Although sales were solid, hitting a first quarter record, income did not meet our expectations. The income shortfall was primarily attributable to disruptions caused by the transitions in our new Enterprise system in Australia. As many of you know, our operations are migrating to SAP systems in a phased, country-by-country approach over several years. We began this journey more than 3 years ago, understanding the strategic need to replace our proprietary system that was developed in the late 1980s. The new system, once fully implemented, will create a consistent global platform that generates robust data in realtime and with greater automation. We'll be able to make better informed decisions more quickly, enabling us to drive efficiencies in our operations, improve service for our customers and leverage our global advantage.

Following about a year of intense work in the design and testing of the new system, we completed our first deployment in Singapore in 2009. New Zealand, Indonesia, Chile and Belgium have also been deployed, as well as SAP financial modules in North America. These conversions have been completed within our expectations. The total costs related to the system conversion program from the initial design and planning to the implementations completed and planned so far have been absorbed in our results. Through our phased deployment approach, we were able to apply the lessons learned from each conversion to future implementations.

The deployment in Australia, one of our largest operations, was somewhat unique. Australia has operated on Tech Pacific's legacy Enterprise systems since 2005, and 2 years ago, it implemented Ingram Micro's warehouse management system, designed for our largest, most sophisticated distribution centers. These features made the Australia conversion more complex those in previous countries. Conductivity between the new system and those with our warehouse and partners, as well as the ramp up of effective order process was not as smooth as we anticipated, resulting in order delays that diminished sales and margins. We are seeing progress since the deployment began in February, but it will take the balance of the second quarter to completely address the system issues, followed by additional time re-engaging with our customers. We may well be in the third quarter before we return to normal. We are evaluating the lessons learned from Australia and are developing improvements to help mitigate similar impacts in future deployments.

Without the complications of Australia, results for the quarter came in generally as we expected. Worldwide sales grew 8%, with every region growing from last year's strong base. Sales reached a first quarter record in Asia-Pacific, a 10-year high in North America and return to pre-recession levels in Latin America. Operating expenses improved versus the prior year on a percentage of revenue basis. Operating income in Australia, which was down approximately $21 million compared to the prior year, clouded what otherwise would have been solid results. Outside of Australia, many of our operations did well. The United States, Canada, Mexico and Germany generated sales growth and strong operating leverage in the first quarter. China and India continued growing at a double-digit pace. At the regional level, North America was a standout with operating income increasing at a much greater pace than sales growth.

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