Ingram Micro's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Ingram Micro (IM)

Q1 2012 Earnings Call

April 26, 2012 5:00 pm ET

Executives

Damon S. Wright - Senior Director of Investor Relations

Alain Moni - Chief Executive Officer, President, Director and Member of Executive Committee

William D. Humes - Chief Financial Officer, Principal Accounting Officer and Senior Executive Vice President

Analysts

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Osten Bernardez - Cross Research LLC

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Tina Zhu

Presentation

Operator

Welcome to the Ingram Micro First Quarter Earnings Report Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Mr. Damon Wright, Head of Investor Relations.

Damon S. Wright

Thank you, Tim, and good afternoon, everyone. Joining me today are Alain Moni, our President and Chief Executive Officer; and Bill Humes, our Chief Operating and Financial Officer. Alain will provide some opening comments along with his view of the business and plans for the future, while Bill will provide additional details around our financial results. The call will then be open for a question-and-answer session.

The financial portion of this call is accompanied by presentation slides, which can be found with today's news release at the Investor Relations section of our website at ingrammicro.com or by calling (714) 382-2015.

During today's discussion, we will make statements that are forward-looking. These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties. Please refer to today's news release and documents filed with the Securities and Exchange Commission, specifically the Risk Factors listed in Item 1A of our Form 10-K for the fiscal year ended December 31, 2011, for more information on the risks that could cause actual results to differ materially.

In addition, this conference call is the property of Ingram Micro and may not be recorded or rebroadcast without specific written permission from the company. The presentation slides and a replay of the call will be available for one week on the company's website or by calling (866) 465-0333.

I'd now like to turn the call over to Alain. Alain?

Alain Moni

Thank you, Damon, and good afternoon, everyone. I'm pleased to report that we opened 2012 with a solid quarter, maintaining the positive momentum generated towards the end of 2011.

Sales were just below last year's record first quarter despite the slightly negative impact of weaker foreign currencies. Profitability increased significantly over last year as we benefited from residual favorable hard disk drive pricing, and more importantly, strong contribution from our higher-margin specialty businesses.

Our associates throughout the world responded well to the challenge put forth to accelerate the execution of our strategic plan. We're beginning to see initial progress on many fronts.

Over the past several months, we have worked hard to rightsize our fee-for-service Logistics business. We eliminated unprofitable lines of business, restructured selected contracts and added new customers. These efforts yielded positive results in Q1 as IM revenue and profitability grew for the quarter. Our pipeline for capturing new business is robust and encouraging.

Our Data Capture/Point-Of-Sale business had another strong quarter, posting double-digit sales growth, with gross margins meaningfully above the overall company average. The demand for these products is strong throughout the world as businesses look to Enterprise Mobility solutions to boost productivity and customer service, which we expect will help continue to drive strong growth rates.

Our focus on establishing Ingram Micro as a significant partner in the mobility space continues to generate strong revenues as we're capturing the high-growth profile of this market. The operating margins are in line with company averages, and the solid return on working capital and low cost to serve more than offset the relatively lower gross margin profile. We're making organic investments here to ensure we have the expertise and infrastructure required to generate significantly greater future returns. These investments will let us leverage the excellent relationship we are building to augment our current mobility revenue streams with higher-margin products, services and solutions.

We're also channeling investments into the Enterprise technology space, data center expansion and the multitude of other opportunities to capitalize on what is now referred to as Big Data, promise to keep this a rapidly growing marketplace for years to come. We already have a large Enterprise footprint, and we know the vendors and customers well. The opportunities to leverage our significant market presence to further move up the stack into higher-value products and services, while also improving our ability to be fully recognized as a technology solutions provider.

We continue to build on our established cloud leadership position to ensure we're delivering our growing variety of efficient, effective solutions for our customers. Already this year, we have added new solutions around data protection, unified communications, business continuity and disaster recovery from partners including CA Technologies, Siemens Enterprise Communications, Descaler and Accent. Today, we have 48 cloud solutions from 27 vendors such as VMC, IBM, McAfee, Symantec and Trend Micro, which we believe is the broadest selection available by any distributor.

Turning to some regional highlights. North America kicked off 2012 with an excellent quarter. Sales grew year-over-year for the 9th consecutive quarter, and the region drove excellent leverage as operating income increased at multiples of sales growth.

The traditional broad line business was solid, and we drove improved profitability, benefiting from favorable hard disk drive component pricing as well as stronger contribution from higher-margin Enterprise technology sales and solid IM logistics profitability.

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