Ingram Micro Inc. (IM)

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Ingram Micro (IM)

Q2 2011 Earnings Call

July 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.

Craig Hettenbach - Goldman Sachs Group Inc.

Presentation

Operator

Welcome to the Ingram Micro Second Quarter Earnings Report Conference Call. [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 Ms. Ria Carlson, Senior Vice President. You may begin.

Ria Carlson

Thank you very much, Rose, 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 second 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 this 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. In the second quarter, we delivered strong growth from many of our anchor countries, including the U.S., Germany, China and Mexico, which outweighed the consumer softness in some markets in Europe and Asia Pacific. Demand for commercial products remained stable, particularly in the small and medium business segment. The disparity of local markets highlights the benefits of our diversified business mix, allowing us to capture opportunities for multiple geographies, technologies and customer sets.

We also made progress on our global ERP migration. The system continue -- the system issues that we encountered in Australia last quarter have largely been resolved, and we are actively winning back share. We expect the country to deliver incremental improvements to the remainder of the year, narrowing the year-over-year performance gap.

The new system was also successfully implemented in the Netherlands during the quarter. The Brazilian implementation, which we mentioned last quarter, was moved to a later date to accommodate continued focus on the country's operational improvement program currently underway.

Gross margin improved sequentially but remained below our preferred range due to the negative impacts and effects of the system implementation in Australia and the softer consumer markets in Europe and Asia Pacific. These factors also contributed to year-over-year declines in gross margin and operating income. The business disruptions in Australia alone had a negative impact of approximately 5 basis points on worldwide gross margin and 18 basis points in worldwide operating income in the second quarter. We expect operating and gross margins to improve over time as we begin to experience the benefits of our system's improvements and our high-margin strategic initiatives become a greater portion of our overall mix.

Net income improved sequentially, primarily due to foreign currency benefits from our Pan-European business unit. This gain reflected the reversal of a large portion of the foreign currency loss we recognized in the first quarter. We also actively repurchased shares during the quarter. As of today, we have repurchased over 8 million shares for approximately $151 million through our 3-year $400 million authorization announced in late October of last year.

In our regions, North America achieved the second highest quarter sales in more than 10 years and boosted operating margins 26 basis points compared to the prior year, an excellent illustration of the leverage our business model can generate.

Latin America's operating margins improved 34 basis points on strong performances in Mexico and the Miami export business.

In Europe and Asia, robust demand in some countries was offset by weak economies elsewhere. I'll provide more graphical detail later in the call.

While our ERP investments have tempered our results in the first half, we're confident they will serve us well in the future. The new system is now in 7 countries, along with the financial module for North America. When fully implemented, it will help us make quicker, more informed decisions and provide support for the business expansions we are developing today.

For example, our cloud marketplace was -- it launched in June, an exciting step into a new route to market for our industry. We're building data center and mobility capabilities in more countries and would become a global force in Data Capture/Point-Of-Sale.

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