Ingram Micro Inc. (IM)

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Ingram Micro (IM)

Q3 2012 Earnings Call

October 25, 2012 5:00 pm ET

Executives

Damon S. Wright - Senior Director of Investor Relations

William D. Humes - Chief Operating and Financial Officer

Alain MoniƩ - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

Robbie Wilkins - Goldman Sachs Group Inc., Research Division

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

Jim Suva - Citigroup Inc, Research Division

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

Louis R. Miscioscia - Collins Stewart LLC, Research Division

Osten Bernardez - Cross Research LLC

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

Keith M. Housum - Northcoast Research

Presentation

Operator

Good day and welcome to the Ingram Micro Third Quarter Fiscal Year 2012 Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Mr. Damon Wright. Please go ahead, sir.

Damon S. Wright

[Audio Gap] Chief Executive Officer; and Bill Humes, our Chief Operating and Financial Officer. Bill will start off today's call by providing details around our financial results, followed by Alain, who will comment on regional performance, demand trends and our outlook. The call will then be opened up for a question-and-answer session. We've also prepared presentation slides to highlight key aspects of our financial performance, which may be found with today's news release at the Investor Relations section of Ingram Micro's website at ingrammicro.com.

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 both our Form 10-K for the fiscal year ended December 31, 2011, and our Form 10-Q for the fiscal quarter ended June 30, 2012, for more information on the risks that could cause actual results to differ materially.

In addition, this conference call is a 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 or by calling (888) 203-1112 and using password 8549320.

I'd now like to turn the call over to Bill. Bill?

William D. Humes

Thank you, Damon, and good afternoon, everyone. It was a busy and successful quarter. We now have 2 highly strategic acquisitions to support our long-term growth strategy, both of which are now complete. BrightPoint expands our Mobility expertise, geographic reach and product portfolio, while significantly enhancing our logistic services capabilities.

All much smaller, Aptec broadens our reach in Middle East and Africa, focusing on providing higher value products and services that complement this growing market.

During the quarter, we also continued to invest organically in the business to further build out our capabilities in higher growth and better margin markets.

In addition to these more strategic endeavors, we are executing well despite continued macroeconomic headwinds.

Turning to some specifics of our third quarter performance. Worldwide sales of $9 billion were up 1% in U.S. dollars, when compared to Q3 last year. The translation effects of foreign currencies had a negative impact of 5 percentage points. North America sales were up 5% to $4 billion, the solid growth in the U.S. broadline business and double-digit growth in our high margins Specialty division.

Europe sales of $2.4 billion were down 9% in U.S. dollars, but up by 1% in local currency as we grew revenues in our 3 largest countries. Asia-Pacific performed well with sales increasing 6% in dollars and 10% in local currency to $2.2 billion.

Latin America continues to be a standout with sales increasing 11% to a third quarter record of $467 million despite local currency headwinds of 8 percentage points.

HP accounted for 21% of the quarter's revenues, with Cisco contributing 10%. For the first time, more than 10% of our quarter's revenues came from the sale of Apple products. Worldwide gross margin was 5.02%, compared with 4.95% in the year-ago quarter.

The overall selling environment reigns competitive, particularly in more commoditized product lines of our broadline business, which continues to place pressure on margins.

Q3 operating expense was $361 million, or 400 basis points, which includes charges of $7.6 million or 8 basis points, consisting primarily of $5.3 million related to restructuring in Australia, New Zealand and Europe, and $2.3 million in BrightPoint acquisition costs. In conjunction with these cost-cutting actions, we have also expanded our capabilities in lower cost shared service centers serving each region.

The combination of these Q3 actions are expected to result in annualized cost savings of more than $10 million in 2013, more than half of which will benefit Australia's operating expense run rate. Worldwide operating income was $93 million or 103 basis points of sales, which includes a $7.6 million or 8 basis points in charges I just described.

On a regional basis, North America operating income was $67 million or 169 basis points of sales, which included $2.3 million or 6 basis points associated with the BrightPoint acquisition-related costs. Europe's operating income was $14 million, or 60 basis points of sales, which included $1.6 million or 6 basis points of sales primarily related to restructuring costs mentioned earlier.

Asia-Pacific operating income was $9 million, or 42 basis points of sales, including the impact of $3.8 million or 18 basis points of sales related to restructuring in that region.

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