Ingram Micro Reports Third Quarter Earnings

Revenue Grows 11%; Drives Strong Operating Leverage

Resulting in 19% Increase in Non-GAAP Operating Income

SANTA ANA, Calif., Oct. 23, 2014 /PRNewswire/ -- Ingram Micro Inc. (NYSE: IM) today announced financial results for the third quarter ended Sept. 27, 2014.

 

(US$ in millions, except EPS and diluted shares)


Third Quarter Ended



September 27, 2014


September 28, 2013


Change








Net Sales


$

11,238


$

10,151


11%








Non-GAAP operating income


$

161


$

135


19%

Non-GAAP operating margin



1.43%



1.33%


10 bps








Operating income


$

120


$

138


(13)%

Operating margin



1.07%



1.36%


-29 bps








Non-GAAP earnings per diluted share


$

0.62


$

0.53


17%

Earnings per diluted share


$

0.45


$

0.50


10%








Diluted shares outstanding (millions)


159.5


157.1



             

A reconciliation of GAAP financial measures to non-GAAP financial measures is presented in the Supplementary Information section in this press release.

Alain Monié, Ingram Micro CEO, commented, "We delivered strong third quarter financial results as we continue to take advantage of market opportunities to drive very solid revenue growth, improved returns and robust earnings growth and leverage. Revenue grew 11% and strong operating leverage led to a 19% increase in non-GAAP operating income. We are benefiting from new wins and strong market share and we are enhancing earnings power through disciplined cost management and execution on our global organizational effectiveness program. We also maintained our focus on optimizing the balance sheet, generating cash flow from operations for the quarter while growing the business significantly. I am very pleased with our third quarter performance, which reflects the strength of our diversified geographic reach, solutions portfolio, world class partnerships and strong execution."

Worldwide sales increased by more than $1 billion to $11.2 billion from $10.2 billion in the third quarter last year.

Worldwide gross profit was $646 million, compared with $599 million in the 2013 third quarter. Gross profit increased by 8 percent year-over-year benefiting from strong sales across most regions. Gross margin was down versus last year as revenue growth was led by a greater mix of high volume sales, particularly in mobility and systems.

The company drove strong operating leverage, with non-GAAP operating income for the 2014 third quarter increasing 19 percent - nearly double the company's revenue growth - to $161 million.  This compares with non-GAAP operating income for the 2013 third quarter of $135 million.

2014 third quarter non-GAAP net income also benefited from strong operating leverage, increasing 18 percent to $98 million, or 62 cents per diluted share, compared with non-GAAP net income of $83 million, or 53 cents per diluted share, in the 2013 third quarter.

On a GAAP basis, operating income was $120 million and net income was $72 million, or 45 cents per diluted share.  2013 third quarter operating income was $138 million and net income was $79 million, or 50 cents per diluted share. 2014 and 2013 third quarter operating income were affected by $27 million and $11 million, respectively, of pre-tax charges for reorganization, integration and transition costs and by $15 million and $12 million, respectively, of amortization of intangible assets. 2013 third quarter non-GAAP financial measures also exclude a benefit related to the receipt of $29.5 million from a LCD flat panel class action settlement and the impact of a $5.0 million reserve recorded for estimated charges related to indirect tax declarations in Europe.

The company generated approximately $60 million in cash flow from operations in the 2014 third quarter compared to cash used in operations of more than $200 million in the year-earlier period.

Key 2014 third quarter business highlights:

  • The company signed a definitive share purchase agreement to acquire a majority interest in Armada, the largest value-add technology distributor in Turkey.
  • Ingram Micro expanded its relationship with IBM and now offers IBM SoftLayer cloud services - the foundation for IBM's cloud portfolio.
  • The company partnered with Microsoft to rollout Microsoft's Cloud Service Provider, a new cloud service delivery platform for Microsoft's cloud services.
  • CloudBlue, the company's IT asset disposal business, was awarded a contract with an existing Fortune 100 financial services company to provide IT asset disposal in India.
  • The company went live with Shipwire's web-based logistics platform fully integrated into Ingram Micro's Sydney warehouse.
  • Ingram Micro expanded its device-recovery service operations at a key returns center in Plainfield, Ind. to help support the refurbishment or recycling of more than 40,000 mobile devices every day in North America.  
  • The company added Google's Chromebook to its portfolio line, reaching agreements with 65 channel partners to resell Google Chrome solutions into the K-12 student market in the U.S.
  • Ingram Micro added Alcatel One Touch range of handsets to its offerings in India.

Outlook 

The following statement is based on the Company's current expectations for the 2014 fourth quarter and excludes the amortization of intangible assets, charges associated with reorganization, integration and transition costs and other expense reduction programs and the impact of foreign exchange gains or losses related to the translation effect on Euro-based inventory purchases in Ingram Micro's pan-European entity. These statements are forward-looking and actual results may differ materially.

For the 2014 fourth quarter, the company currently expects worldwide revenue to increase between 8 to 12 percent over the 2013 fourth quarter, with non-GAAP earnings per diluted share of $0.95 to $1.02.

Non-GAAP Disclosures

In addition to GAAP results, Ingram Micro is reporting non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share. These non-GAAP measures exclude the amortization of intangible assets, and charges associated with reorganization, integration and transition costs and other expense reduction programs, including those associated with the company's previously announced organizational effectiveness program. These non-GAAP financial measures also exclude a benefit related to the receipt of an LCD flat panel class action settlement and the impact of a reserve recorded for estimated potential charges related to indirect tax declarations in Europe in certain historical periods.  Non-GAAP net income and non-GAAP earnings per diluted share also exclude the impact of foreign exchange gains or losses related to the translation effect on Euro-based inventory purchases in Ingram Micro's pan-European entity.

The non-GAAP measures noted above are primary indicators that Ingram Micro's management uses internally to conduct and measure its business and evaluate the performance of its consolidated operations and operating segments. Ingram Micro's management believes these non-GAAP financial measures are useful because they provide meaningful comparisons to prior periods and an alternate view of the impact of acquired businesses. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting Ingram Micro's business. A material limitation associated with these non-GAAP measures as compared to the GAAP measures is that they may not be comparable to other companies with similar items that present related measures differently.  The non-GAAP measures should be considered as a supplement to, and not as a substitute for or superior to, the corresponding measures calculated in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.

Reconciliation of GAAP to non-GAAP financial measures for the periods presented are attached to the press release.

Conference Call and Webcast

Additional information about Ingram Micro's financial results will be presented in a conference call with presentation slides today at 5 p.m. ET.  To listen to the conference call webcast and view the accompanying presentation slides, visit the company's website at www.ingrammicro.com (Investor Relations section). The conference call is also accessible by telephone at (877) 869-3847 (toll-free within the United States and Canada) or (201) 689-8261 (other countries).

The replay of the conference call with presentation slides will be available for one week at www.ingrammicro.com (Investor Relations section) or by calling (877) 660-6853, conference ID "13591022."

About Ingram Micro Inc.

Ingram Micro helps businesses realize the promise of technology. It delivers a full spectrum of global technology and supply chain services to businesses around the world. Deep expertise in technology solutions, mobility, cloud, and supply chain solutions enables its business partners to operate efficiently and successfully in the markets they serve. More at www.ingrammicro.com.

Cautionary Statement for the Purpose of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

The matters in this press release that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including statements relating to the expected benefits from new wins and market share and our ability to enhance earnings power, are based on current management expectations. Certain risks may cause such expectations to not be achieved and, in turn, may have a material adverse effect on Ingram Micro's business, financial condition and results of operations. Ingram Micro disclaims any duty to update any forward-looking statements. Important risk factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, without limitation: (1) we have made and expect to continue to make investments in new businesses and initiatives, including acquisitions, which could disrupt our business and have an adverse effect on our operating results; (2) we are dependent on a variety of information systems, which, if not properly functioning, or unavailable, or if we experience system security breaches, data protection breaches or other cyber-attacks, could adversely disrupt our business and harm our reputation and earnings; (3) changes in macro-economic conditions may negatively impact a number of risk factors which, individually or in the aggregate, could adversely affect our results of operations, financial condition and cash flows; (4) we continually experience intense competition across all markets for our products and services; (5) we operate a global business that exposes us to risks associated with conducting business in multiple jurisdictions; (6) our failure to adequately adapt to IT industry changes could negatively impact our future operating results; (7) terminations of a supply or services agreement or a significant change in supplier terms or conditions of sale could negatively affect our operating margins, revenue or the level of capital required to fund our operations; (8) substantial defaults by our customers or the loss of significant customers could have a negative impact on our business, results of operations, financial condition or liquidity; (9) changes in, or interpretations of, tax rules and regulations, changes in the mix of our business amongst different tax jurisdictions, and deterioration of the performance of our business may adversely affect our effective income tax rates or operating margins and we may be required to pay additional taxes and/or tax assessments, as well as record valuation allowances relating to our deferred tax assets; (10) changes in our credit rating or other market factors such as adverse capital and credit market conditions or reductions in cash flow from operations may affect our ability to meet liquidity needs, reduce access to capital, and/or increase our costs of borrowing; (11) failure to retain and recruit key personnel would harm our ability to meet key objectives; (12) we cannot predict with certainty what losses we may incur as a result of litigation matters and contingencies that we may be involved with from time to time; (13) we may incur material litigation, regulatory or operational costs or expenses, and may be frustrated in our marketing efforts, as a result of environmental regulations or private intellectual property enforcement disputes; (14) we face a variety of risks in our reliance on third-party service companies, including shipping companies for the delivery of our products and outsourcing arrangements; (15) changes in accounting rules could adversely affect our future operating results; and (16) our quarterly results have fluctuated significantly.  We also face a variety of risks associated with our acquisitions and any other acquisitions we may make, including: management's ability to execute its plans, strategies and objectives for future operations, including the execution of integration plans and our organizational effectiveness programs, and to realize the expected benefits of our acquisitions or our organizational effectiveness programs; growth of the mobility industry, the government contracts business, and in new and untapped markets in geographies outside the U.S.; and other uncertainties or unknown, underestimated and/or undisclosed commitments or liabilities; and our ability to achieve the expected benefits and manage the costs of the integrations of our acquisitions.

Ingram Micro has instituted in the past and continues to institute changes to its strategies, operations and processes to address these risk factors and seek to mitigate their impact on Ingram Micro's results of operations and financial condition. However, no assurances can be given that Ingram Micro will be successful in these efforts. For a further discussion of significant factors to consider in connection with forward-looking statements concerning Ingram Micro, reference is made to Item 1A Risk Factors of Ingram Micro's Annual Report on Form 10-K for the fiscal year ended Dec. 28, 2013; other risks or uncertainties may be detailed from time to time in Ingram Micro's future SEC filings.

© 2014 Ingram Micro Inc.  All rights reserved. Ingram Micro and the registered Ingram Micro logo are trademarks used under license by Ingram Micro Inc.

 

Ingram Micro Inc.

Consolidated Balance Sheet

(Amounts in 000s)

(Unaudited)










September 27,


December 28,


2014


2013





ASSETS




Current assets:




Cash and cash equivalents

$        497,820


$       674,390

Trade accounts receivable, net

4,858,259


5,454,832

Inventory

4,253,181


3,724,447

Other current assets

561,766


521,902





Total current assets

10,171,026


10,375,571





Property and equipment, net

472,609


488,699

Goodwill

530,051


527,526

Intangible assets, net

343,202


375,423

Other assets

44,967


23,976





Total assets

$    11,561,855


$  11,791,195





LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$     5,706,528


$    6,175,604

Accrued expenses

530,419


710,040

Short-term debt and current maturities of long-term debt

143,558


48,772





Total current liabilities

6,380,505


6,934,416





Long-term debt, less current maturities

984,603


797,454

Other liabilities

99,719


109,700





Total liabilities

7,464,827


7,841,570





Stockholders' equity

4,097,028


3,949,625





Total liabilities and stockholders' equity

$    11,561,855


$  11,791,195

 

Ingram Micro Inc.

Consolidated Statement of Income

(Amounts in 000s, except per share data)

(Unaudited)










Thirteen Weeks Ended


September 27, 2014


September 28, 2013





Net sales

$            11,237,840


$            10,150,615

Cost of sales

10,591,751


9,551,782

Gross profit

646,089


598,833





Operating expenses:




Selling, general and administrative

494,507


442,756

Amortization of intangible assets

14,567


11,638

Reorganization costs 

17,300


6,748


526,374


461,142





Income from operations

119,715


137,691





Other expense (income):




Interest income

(1,045)


(2,031)

Interest expense

16,659


16,032

Net foreign currency exchange loss (gain)

(3,323)


8,117

Other

4,467


2,070


16,758


24,188





Income before income taxes

102,957


113,503





Provision for income taxes

30,723


34,565





Net income

$                  72,234


$                  78,938





Diluted earnings per share

$                      0.45


$                      0.50









Diluted weighted average shares outstanding

159,543


157,144

 

Ingram Micro Inc.

Consolidated Statement of Income

(Amounts in 000s, except per share data)

(Unaudited)










Thirty-nine Weeks Ended


September 27, 2014


September 28, 2013





Net sales

$            32,531,208


$            30,721,074

Cost of sales

30,640,794


28,941,182

Gross profit

1,890,414


1,779,892





Operating expenses:




Selling, general and administrative

1,481,743


1,382,159

Amortization of intangible assets

43,140


35,400

Reorganization costs 

79,237


20,050


1,604,120


1,437,609





Income from operations

286,294


342,283





Other expense (income):




Interest income

(3,782)


(5,886)

Interest expense

54,406


45,973

Net foreign currency exchange loss (gain)

(1,153)


9,865

Other

13,011


9,150


62,482


59,102





Income before income taxes

223,812


283,181





Provision for income taxes

76,132


84,798





Net income

$                147,680


$                198,383





Diluted earnings per share

$                      0.93


$                      1.27





Diluted weighted average shares outstanding

159,181


155,629

 

Ingram Micro Inc.

Consolidated Statement of Cash Flows

(Amounts in 000s)

(Unaudited)






















 

Thirty-nine Weeks Ended






September 27, 2014


September 28, 2013









Cash flows from operating activities:





Net income

$                147,680


$                198,383


Adjustments to reconcile net income to cash provided (used) by operating activities:






Depreciation and amortization

108,202


94,359



Stock-based compensation 

24,761


21,649



Excess tax benefit from stock-based compensation

(4,338)


(1,787)



Write-off of assets

8,302


5,875



Gain on sale of land and building

-


(1,045)



Noncash charges for interest and bond discount amortization

1,769


1,842



Deferred income taxes

(30,973)


10,154


     Changes in operating assets and liabilities, net of effects of acquisitions:






Trade accounts receivable

566,097


1,010,692



Inventory

(551,609)


(199,279)



Other current assets

(30,350)


(42,667)



Accounts payable

(603,481)


(1,005,513)



Change in book overdrafts

166,361


53,840



Accrued expenses

(196,364)


(33,102)





Cash provided (used) by operating activities

(393,943)


113,401









Cash flows from investing activities:





Capital expenditures

(52,369)


(66,423)


Sale of marketable securities, net

1,100


542


Proceeds from sale of land and building

-


1,169


Cost-based investment

(10,000)


-


Acquisitions and earn-out payment, net of cash acquired

(18,880)


(14,408)





Cash used by investing activities

(80,149)


(79,120)









Cash flows from financing activities:





Proceeds from exercise of stock options

16,943


39,517


Excess tax benefit from stock-based compensation

4,338


1,787


Fees associated with the amendment and extension of credit facilities

-


(1,086)


Net proceeds from (repayments of) revolving credit facilities

283,133


(155,272)





Cash provided (used) by financing activities

304,414


(115,054)









Effect of exchange rate changes on cash and cash equivalents

(6,892)


(12,748)









Decrease in cash and cash equivalents

(176,570)


(93,521)









Cash and cash equivalents, beginning of period

674,390


595,147









Cash and cash equivalents, end of period

$                497,820


$                501,626

 

Ingram Micro Inc.

Supplementary Information

Income from Operations - Reconciliation of GAAP to Non-GAAP Information

(Amounts in Millions)

(Unaudited)





























Thirteen Weeks Ended September 27, 2014



North America


Europe


Asia-Pacific


Latin America


Stock-based
compensation


Consolidated
Total














Net Sales


$         5,134.3


$3,200.4


$    2,378.2


$           524.9


$                  -


$     11,237.8














GAAP Operating Income


$              85.7


$       2.1


$         31.0


$              9.2


$             (8.3)


$          119.7

Reorganization, integration and transition costs


9.9


15.4


0.7


0.5


-


26.5

Amortization of intangible assets


10.0


3.0


1.4


0.2


-


14.6














Non-GAAP Operating Income


$           105.6


$     20.5


$         33.1


$              9.9


$             (8.3)


$         160.8








































GAAP Operating Margin


1.67%


0.07%


1.30%


1.75%




1.07%

Non-GAAP Operating Margin


2.06%


0.64%


1.39%


1.89%




1.43%





























Thirteen Weeks Ended September 28, 2013



North America


Europe


Asia-Pacific


Latin America


Stock-based
compensation


Consolidated
Total














Net Sales


$         4,305.3


$2,927.3


$    2,469.4


$           448.6


$                  -


$     10,150.6














GAAP Operating Income


$            107.1


$      6.2


$         22.4


$               9.6


$             (7.7)


$          137.7

Reorganization, integration and transition costs


4.1


5.0


1.5


-


-


10.6

Amortization of intangible assets


7.3


2.7


1.4


0.2


-


11.6

LCD class action settlement


(28.5)


-


-


(1.0)


-


(29.5)

European indirect tax declarations charge


-


5.0


-


-


-


5.0














Non-GAAP Operating Income


$             90.0


$     18.9


$         25.3


$              8.9


$             (7.7)


$         135.4








































GAAP Operating Margin


2.49%


0.21%


0.91%


2.15%




1.36%

Non-GAAP Operating Margin


2.09%


0.65%


1.02%


1.97%




1.33%

 

Ingram Micro Inc.

Supplementary Information

Income from Operations - Reconciliation of GAAP to Non-GAAP Information

(Amounts in Millions)

(Unaudited)





























Thirty-nine Weeks Ended September 27, 2014



North America


Europe


Asia-Pacific


Latin America


Stock-based
compensation


Consolidated
Total














Net Sales


$       13,887.4


$10,077.4


$    7,026.4


$        1,540.0


$                   -


$     32,531.2














GAAP Operating Income


$            219.5


$       (6.0)


$         71.4


$             26.2


$            (24.8)


$          286.3

Reorganization, integration and transition costs


39.7


61.6


4.5


1.1


-


106.9

Amortization of intangible assets


29.6


8.7


4.3


0.6


-


43.2

LCD class action settlement


(6.6)


-


-


-


-


(6.6)














Non-GAAP Operating Income


$           282.2


$      64.3


$         80.2


$             27.9


$            (24.8)


$         429.8








































GAAP Operating Margin


1.58%


(0.06%)


1.02%


1.70%




0.88%

Non-GAAP Operating Margin


2.03%


0.64%


1.14%


1.81%




1.32%





























Thirty-nine Weeks Ended September 28, 2013



North America


Europe


Asia-Pacific


Latin America


Stock-based
compensation


Consolidated
Total














Net Sales


$       12,647.1


$  9,137.2


$    7,566.4


$        1,370.4


$                   -


$     30,721.1














GAAP Operating Income


$            243.8


$       30.7


$         64.7


$             24.7


$            (21.6)


$          342.3

Reorganization, integration and transition costs


15.2


12.4


6.8


-


-


34.4

Amortization of intangible assets


21.9


8.5


4.4


0.7


-


35.4

LCD class action settlement


(28.5)


-


-


(1.0)


-


(29.5)

European indirect tax declarations charge


-


5.0


-


-


-


5.0














Non-GAAP Operating Income


$           252.4


$      56.6


$         75.9


$             24.3


$            (21.6)


$         387.6








































GAAP Operating Margin


1.93%


0.34%


0.86%


1.80%




1.11%

Non-GAAP Operating Margin


2.00%


0.62%


1.00%


1.78%




1.26%

 

Ingram Micro Inc.

Supplementary Information

Reconciliation of GAAP to Non-GAAP Financial Measures

(Amounts in Millions, except per share data)

(Unaudited)





















Thirteen Weeks Ended September 27, 2014






Diluted




Net Income


Earnings per Share (a)








As Reported Under GAAP


$        72.2


$                          0.45


Reorganization, integration and transition costs


20.3


0.13


Amortization of intangible assets


10.2


0.06


Pan-Europe foreign exchange gain


(4.4)


(0.02)








Non-GAAP Financial Measure


$        98.3


$                          0.62
















Thirteen Weeks Ended September 28, 2013






Diluted




Net Income


Earnings per Share (a)








As Reported Under GAAP


$        78.9


$                          0.50


Reorganization, integration and transition costs


7.4


0.05


Amortization of intangible assets


8.1


0.05


Pan-Europe foreign exchange loss


3.2


0.02


LCD class action settlement


(18.0)


(0.11)


European indirect tax declarations charge


3.5


0.02








Non-GAAP Financial Measure


$        83.1


$                          0.53














(a)

Per share impact is calculated by dividing net income amount by the diluted weighted average shares outstanding of 159.5 and 157.1 for the thirteen weeks ended September 27, 2014 and September 28, 2013, respectively.



 

Ingram Micro Inc.

Supplementary Information

Reconciliation of GAAP to Non-GAAP Financial Measures

(Amounts in Millions, except per share data)

(Unaudited)





















Thirty-nine Weeks Ended September 27, 2014






Diluted




Net Income


Earnings per Share (a)








As Reported Under GAAP


$      147.7


$                          0.93


Reorganization, integration and transition costs


85.1


0.54


Amortization of intangible assets


30.6


0.19


LCD class action settlement


(4.7)


(0.03)


Pan-Europe foreign exchange gain


(6.1)


(0.04)








Non-GAAP Financial Measure


$      252.6


$                          1.59
















Thirty-nine Weeks Ended September 28, 2013






Diluted




Net Income


Earnings per Share (a)








As Reported Under GAAP


$      198.4


$                          1.27


Reorganization, integration and transition costs


24.1


0.16


Amortization of intangible assets


24.8


0.16


Pan-Europe foreign exchange loss


0.7


0.00


LCD class action settlement


(18.0)


(0.11)


European indirect tax declarations charge


3.5


0.02








Non-GAAP Financial Measure


$      233.5


$                          1.50














(a)

Per share impact is calculated by dividing net income amount by the diluted weighted average shares outstanding of 159.2 and 155.6 for the thirty-nine weeks ended September 27, 2014 and September 28, 2013, respectively.



 

Ingram Micro Inc.

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SOURCE Ingram Micro Inc.