Ingram Micro reports improved third quarter 29 October, 2009 By Mark Cox

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Worldwide sales for the 2009 third quarter were $7.38 billion, an 11 percent decrease from $8.28 billion in the 2008 third quarter, and primarily reflect the ongoing soft economic environment. On a sequential basis, worldwide sales increased 12 percent from the 2009 second quarter -- which is better than the normal 2-9 percent increase for this quarter.

Net income for the 2009 third quarter was $42.3 million, or $0.25 per diluted share, which includes costs of approximately $0.04 per diluted share related to expense-reduction programs. In the 2008 third quarter, net income was $46.4 million, or $0.27 per diluted share, which also included $0.02 per diluted share of costs related to expense-reduction programs.

"We are very happy about a solid quarter, said Gregory Spierkel, Ingram Micro's chief executive officer. "We are coming out of this thing. We need to continue to execute well and I think we are in a position to do that. We are looking to next year with a sense of optimism, and even if conditions next year are flat, flat is a lot better than it was this year."

"I'm especially pleased with our progress toward greater profitability over the last few months," added Spierkel. "Sequential growth was the greatest in nine years, despite the third quarter's typical weakness due to seasonality. Operating income and earnings per share hit the year's highest levels, leveraging a more streamlined infrastructure. We held the line on costs, reducing operating expenses compared to second quarter despite the better-than-seasonal increase in sales. Gross margin declined sequentially from its six-year high in the second quarter, as expected, but it was near prior-year levels. There is more room to improve, but our initiatives over the past four quarters are clearly delivering results."

We were pleased with the market showing some signs of improvement," Spierkel said. "We were more cautious as we entered the quarter. We felt double digit down would be with us for a while and that wasn't the case."

Spierkel stressed that their improvements in operating income were critical in taking advantage of those improving conditions. Worldwide operating income for the nine-month period was $149.4 million (0.72 percent of total sales), a big improvement from the year-ago period when operating income was $265.0 million (1.03 percent of sales).

"That was important in us beating the street on earnings per share. Sales were better than anticipated, partly because of our efforts in broadening our customer base with customers, and also the market improving. We also had a good performance in OpEx (Operating Expenditures). OpEx was actually flat quarter to quarter, so it was the changes we made in the three quarters before that made a difference."

The company also stressed its' solid financial position as being important. The balance of cash and cash equivalents at the end of the quarter was more than $1.2 billion, an increase of $466 million over the 2008 year-end balance. Total debt was $436 million, a decrease of $43 million from 2008 year-end. Debt-to-capitalization was reduced to 13 percent versus 15 percent at the end of 2008.

"Our strong balance sheet is an important competitive factor in this environment," said William Humes, senior executive vice president and chief financial officer.

North America sales were $3.22 billion (44 percent of total sales) versus $3.59 billion reported a year ago, reflecting a 10 percent decrease. On a sequential basis, North American sales increased 17 percent.

Spierkel said they saw very healthy growth in PCs and servers, which were up substantially double units. Unfortunately, this segment also saw double digit price compression. The netbook phenomena was a key part of both metrics there. It is particularly important for Ingram Micro in Europe, where the consumer market makes up a quarter of their sales, compared to 15 percent in North America.

In terms of what else was 'hot' -- meaning as Spierkel said, 'down less' -- everything around virtualization still remained pretty solid for them, as well as POS data capture (although not so much in North America, and security software.

On the down side -- or more appropriately the 'down more side' -- were larger high-end standalone servers, some software categories, consumer electronics outside the PC space, and the high end home entertainment business, patterns that Spierkel said were consistent for the past three quarters.

Looking toward the balance of the year, we anticipate year-over-year sales declines to be reduced to single-digit percentages, aided by improving demand and our emphasis on a better customer engagement," said Spierkel. "We expect a sequential uptick in gross margin coming largely from our seasonally strong fee-for-service business. Careful control of operating expenses will continue, but we will also consider investments that will improve our competitive position. Our two expense-reduction programs will be completed by year-end, generating aggregate annualized savings of approximately $140 million compared to the first quarter of 2008."

"With our internal focus on improving operations lately completed, our strong balance sheet gives us flexibility, the mood has changed, the demand for IT is improving and our team is energized," Spierkel said.