Ingram Micro Management Discusses Q2 2012 Results - Earnings Call Transcript

Ingram Micro (IM)

Q2 2012 Earnings Call

July 26, 2012 5:00 pm ET

Executives

Damon S. Wright - Senior Director of Investor Relations

William D. Humes - Chief Operating and Financial Officer

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

Analysts

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

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division

Benjamin A. Reitzes - Barclays Capital, Research Division

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

Osten Bernardez - Cross Research LLC

Louis R. Miscioscia - Collins Stewart LLC, Research Division

Shaw Wu - Sterne Agee & Leach Inc., Research Division

Richard Kugele - Needham & Company, LLC, Research Division

Presentation

Operator

Welcome to the Ingram Micro Second 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, Executive Director of Investor Relations.

Damon S. Wright

Thank you, Gabriel, and good afternoon to all of you on the call and joining us on the webcast. Joining me today are Alain Monie, our President and Chief Executive Officer; and Bill Humes, our Chief Operating and Financial Officer. Bill will start off today's call by providing details around our financial results, followed by Alain, who will comment on regional performance, demand trends and our outlook. The call will then be open for a question-and-answer session. We have also prepared presentation slides to highlight key aspects of our financial performance, which may be found with today's news release at the Investor Relations section of Ingram Micro's website at ingrammicro.com.

During today's discussions, 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 SEC, specifically the Risk Factors listed in Item 1A of both our Form 10-K for the fiscal year ended December 31, 2011, and our Form 10-Q for the fiscal quarter ended March 31, 2012, 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 1 week on the company's website or by calling (888) 562-2781.

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

William D. Humes

Thank you, Damon, and good afternoon, everyone. We reported another solid quarter with relatively strong organic sales growth in local currencies, particularly in light of the overall IT spending environment. We also maintained a sharp focus on aligning our core structure with both the level in mix of revenues in each region. This help provide good levels of profitability and returns on invested capital that exceeded our weighted average cost of capital by approximately 150 basis points.

Turning to some specifics of our second quarter performance. Worldwide sales were essentially flat in U.S. dollars at $8.78 billion when compared to Q2 last year. The translation effect of foreign currencies had a negative impact of 5 percentage points.

North America sales were the highest for a second quarter in more than 10 years, increasing 2% to $3.8 billion. The increase was driven in part by strong growth in our specialty and enterprise technology value businesses, as well as a solid increase in our U.S. broad line business. This growth was somewhat offset by decline in our Canadian broad line business, as the year earlier quarter benefited from a significant new product launch from a large vendor.

Europe sales of $2.5 billion were down by 7% in U.S. dollars, but up by more than 3% in local currency, led by double-digit growth in Germany and the U.K.

Asia-Pacific sales grew year-over-year for the second consecutive quarter, increasing 4% in dollars and 9% in local currency to $2 million, an all-time second quarter high. Sales grew 16% local currency, excluding Australia, which continues to face challenging economic conditions in a highly competitive selling environment.

Led by a robust growth in many countries, Latin America sales also hit a high for a second quarter, increasing 14% to $442 million, despite local currency headwinds of 13 percentage points. Worldwide gross margin was 5.16% compared with 5.25% in the year ago quarter. The overall selling environment continues to be competitive.

Additionally, gross margin was impacted by a larger mix of high-volume, lower margin product sales in our broad line business, including more sales into e-tail and retail customer space in international markets.

Although lower gross margin, each sale generated require relatively low incremental operating expenses, which helped via the acceptable returns on investment. The regional teams did a great job of managing costs, resulting in an excellent operating leverage.

Q2 operator expense was $355 million, or 404 basis points, which included charges of $6 million or 7 basis points, primarily associated with acquisition-related costs and asset impairments related to the shutdown of our Argentina operations.

Worldwide operating income was $98 million, or 111 basis points of sales, which includes the $6 million or 7 basis points in charges I just described. On a regional basis, North America operating income was the highest for a second quarter in over a decade, coming in at $69 million or 139 basis points of sales, which includes charges totaling approximately $4 million or 10 basis points associated with acquisition-related costs.

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