Shares of Ingram Micro Inc. (IM) went down 5.8% in after-hours trading yesterday, after the company issued tepid first-quarter 2015 earnings guidance.
The company reported fourth-quarter 2014 non-GAAP earnings (excluding amortization of intangible assets, reorganization charges and other one-time items) of 98 cents per share, in line with the Zacks Consensus Estimate. On a year-over-year basis, earnings increased 11.4%.
Revenues
Ingram Micro’s fourth-quarter revenues of $13.96 billion beat the Zacks Consensus Estimate of $12.86 billion and increased 17.9% from the year-ago quarter. The year-over-year increase was primarily attributed to robust demand across all regions coupled with better-than-expected growth in mobility business, supply chain solutions and cloud.
The company’s Technology and other solutions revenues increased 10% year over year to $11.2 billion, while its mobility business generated revenues of $2.8 billion, a marked year-over-year improvement of 60%.
Geographically, revenues from North America increased 28% from fourth-quarter 2013 to $6 billion. Revenues from Europe increased 3% year over year to $4.2 billion. Moreover, revenues from Latin America (up 12% year over year) and Asia-Pacific (up 24% year over year) came in at $760 million and $3 billion, respectively.
Operating Results
Ingram Micro’s gross margin came in at 5.6% compared with 6% in the year-ago quarter. The decline was primarily due to lower-than-expected demand from Europe, unfavorable business mix and competitive pricing environment.
The company’s operating expenses increased 6.9% year over year to $574.3 million. However, as a percentage of revenues, expenses were down 42 basis points (bps), primarily due to cost savings as a result of operational efficiencies and higher investment in strategic initiatives.
The company also recorded 17% increase in non-GAAP operating income which came in at $246.5 million, primarily due to higher revenue base and better-than-expected growth in North America, Asia Pacific and Latin America. Operating margins, on the other hand, were approximately flat year over year at 1.8%.
Ingram Micro reported non-GAAP net income of $119.1 million or 98 cents per share compared with $112.1 million or 88 cents in the year-ago quarter. Non-GAAP net income excludes the effect of intangible assets, reorganization charges and other one-time items.
Balance Sheet & Cash Flow
Ingram Micro exited the fourth quarter with cash and cash equivalents of $692.8 million compared with $49.8 million in the previous quarter. Accounts receivable were $6.12 billion. Total debt (including current portion) was $1.47 billion as against $1.13 billion in the last quarter. The company used $490.1 million in cash flow from operations in full-year 2014.
Guidance
For the first quarter of 2015, Ingram Micro expects revenues to be flat to up 3% year over year and non-GAAP earnings per share to range between 40 cents and 47 cents, lower than the Zacks Consensus Estimate of 53 cents.
Conclusion
Ingram Micro reported modest fourth-quarter results, with the bottom line matching the Zacks Consensus Estimate but the top line beating the same. The company saw year-over-year improvement on both the counts, primarily attributed to robust demand across all regions coupled with better-than-expected growth in mobility business, supply chain solutions and cloud. However, the company provided tepid first-quarter earnings guidance.
We believe that an improving IT spending trend will help Ingram post better results, going forward. Moreover, the company’s focus on the high-margin market and strategic acquisitions to increase market share are encouraging.
Ingram Micro has been striking distribution deals with a number of original equipment manufacturers, thereby expanding the product portfolio. Moreover, Ingram Micro’s exposure in cloud computing products is expected to drive growth.
Going forward, we remain fairly optimistic about Ingram Micro’s strategic relationship with network giants such as Juniper Networks Inc. (JNPR) and International Business Machines (IBM). The company’s growing small and Medium Business (SMB) exposure and improving profitability are encouraging. However, its significant European exposure and debt burden remain the concerns.
Currently, Ingram Micro has a Zacks Rank #4 (Sell).
Investors can consider a better-ranked technology stock, Cirrus Logic Inc. (CRUS), sporting a Zacks Rank #1 (Strong Buy).
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