We downgrade our recommendation on Brightpoint Inc. (CELL) to Underperform based on two reasons – (1) loss of a major client of the company’s high-margin Logistics segment in the U.S. (2) broader global macro-economic volatility. The company reported mixed financial results for the first quarter of 2012. Revenue surpassed the Zacks Consensus Estimate, but earnings per share fell significantly below it.
In the previous quarter, gross margin, operating margin, and net margin dropped 1.5%, 0.5%, and 0.6% year over year, respectively. Meanwhile, management was forced to revise its financial outlook downward twice for fiscal 2012 in the last two months due to the negative developments already mentioned. Recent consolidation trend among wireless operators may become a long-term negative for the company. The market has become intensely competitive and we do not find any near-term catalyst for Brightpoint.
Precipitous fluctuations in the global macro-economic conditions are a major cause of concern for Brightpoint. Global economic volatility may result in demand fluctuations for mobile devices, which in turn, will affect the company’s future financial results. The situation is most severe in the European region, where several countries are facing sovereign debt crisis. Brightpoint’s European operation was volatile for the last couple of years. Current debt crisis may further worsen the company’s future financial results.
Brightpoint has a solid global customer base. Management continues to seek new operational initiatives that foster improved customer handling of handsets, in particular PDA’s, data cards and 3G wireless devices.The company entered into agreements with large telecom equipment and services corporations, such as Research In Motion Ltd. (RIMM), HTC Corp, Apple Inc. (AAPL), and Nokia Corp. (NOK), for the distribution of handheld devices.
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