Ingram Micro Inc. (IM) reported second-quarter 2014 non-GAAP earnings (excluding amortization of intangible assets and reorganization charges) of 54 cents per share, beating the Zacks Consensus Estimate of 53 cents.
Revenues
Ingram Micro’s second-quarter revenues of $10.9 billion beat the Zacks Consensus Estimate of $10.6 billion and increased 5.8% from the year-ago quarter. The company’s Technology and other solutions revenues increased 5% year over year to $9.2 billion while Ingram’s mobility business generated revenues of $1.7 billion, a year-over-year increase of 13.0%,
Geographically, revenues from North America increased 8.0% on a year-over-year basis and came in at $4.61 billion. Revenues from Europe increased 12.8% on a year-over-year basis to $3.42 billion. Moreover, revenues from Latin America were up 13.4% year over year to $521.6 million. However, revenues from Asia-Pacific decreased 7.5% year over year to $2.36 billion.
The company also reported that 16.0% of total revenue came from Hewlett-Packard Company (HPQ) and 7.0% from Apple Inc. (AAPL).
Operating Results
Ingram Micro’s gross margin improved marginally on a year-over-year basis to 5.8%. The improvement was primarily due to favorable product mix.
Ingram Micro’s operating expenses increased 1.7% year over year to $497.6 million. However, as a percentage of revenues, expenses were down 19 basis points. The company also witnessed a marginal uptick in operating margins year over year, which came in at 1.3%, aided by contribution from high-margin businesses.
Ingram Micro reported non-GAAP net income of $86.4 million or 54 cents per share compared with $85.7 million or 55 cents in the year-ago quarter. Non-GAAP net income excludes the effect of intangible assets and reorganization charges.
Balance Sheet & Cash Flow
Ingram Micro exited the second quarter with cash and cash equivalents of $470.7 million compared with $424.5 million in the previous quarter. Accounts receivable were $4.81 billion. Total debt (including current portion) was $1.16 billion, up from $1.02 billion in the previous quarter.
Guidance
For the third quarter of 2014, Ingram Micro expects its revenues to increase in high single digits on a year-over-year basis. Management expects operating expenses, as a percentage of revenues, to be positively impacted by the implementation of cost savings initiatives.
Conclusion
Ingram Micro reported better-than-expected second-quarter results and guided affirmatively. 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 thus expanding its product portfolio. Moreover, Ingram Micro’s exposure in cloud computing products is expected to drive growth.
Though Ingram Micro’s significant European exposure and a high debt burden are concerns, we remain fairly optimistic about its strategic relationships with network giants such as Juniper Networks Inc. (JNPR), Cisco and International Business Machines Corp.
Currently, Ingram Micro has a Zacks Rank #2 (Buy).
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