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Ingram Micro reports fourth quarter figures

by Stuart Wilson, Friday 20 February 2009

Global distribution giant Ingram Micro saw fourth quarter sales slide13% year-on-year to US$8.68 billion. The company posted a fourth quarter net loss of US$564.3 million including a goodwill impairment charge of US$742.6m. EMEA fourth quarter sales accounted for 34% of global sales, bringing in US$2.95 billion – down 21% year-on-year.

According to Ingram Micro, the impact of the relatively weaker European currencies had an approximate 10% negative effect on sales comparisons to the previous year. In its results statement, the company declared: “Efforts in the second half of 2008 to deliberately exit or turn away unprofitable business, coupled with weak demand for technology products, contributed to the year-over-year decline in sales [in EMEA].”

Fourth quarter EMEA operating profit was US$4.3 million, including a US$24.1 million goodwill impairment charge. Non-GAAP operating income excluding this charge was US$28.4 million or 0.96% of sales, which includes US$6.5 million in expense-reduction programme costs. In the year-ago quarter, operating income was $64.7 million or 1.72% of revenues.

Ingram’s global sales for full year 2008 slipped 2% year-on-year to US$34.36 billion. The company attributed the global fourth quarter sales decline to currency exchange rates and softer demand due to the weaker economic climate. Net profits for the quarter – excluding the impairment charge – hit US$95.5m. Ingram’s fourth quarter costs included US$6.8m related to expense reduction programmes primarily in North America and Europe.

"While the economy continued to challenge us in the fourth quarter, our focus on enhancing gross margin and reducing expenses helped us deliver solid operational results," said Greg Spierkel, CEO at Ingram Micro.

"Every region concentrated on driving profitability. The results were evident. Excluding goodwill impairment charges, our non-GAAP operating margin in Asia Pacific hit a record high, EMEA’s improved more than 100 basis points sequentially and North America’s 168 basis points approached fourth-quarter levels of recent years. I’m pleased with our ability to adapt to changing market conditions," he added.

Ingram’s US$742.6m goodwill impairment charge reflected the decline of the company’s market capitalisation in the fourth quarter. In its financial statement, the company stated: “Similar to the experience of many companies, Ingram Micro’s market capitalization eroded in the fourth quarter when compared to previous periods and was significantly below book value, primarily due to the depressed macroeconomic environment and volatility in the equity markets. As a result of the company’s impairment tests, a charge was recorded for all of its goodwill.”

“The company’s reporting units under Statement of Financial Accounting Standards No. 142 are its geographic segments and the goodwill impairment charges totalled US$243.2 million, US$24.1 million and US$475.3 million in North America, EMEA and Asia Pacific, respectively. There is no recorded goodwill in Latin America. This non-cash charge does not impact the company’s ongoing business operations, liquidity or covenants for its credit facilities,” the statement continued.

Ingram Micro ended 2008 with inventory of US$2.31 billion compared to US$2.77 billion at the end of 2007. Days of inventory outstanding were 28, an increase of one day compared to year-end 2007. Working capital days stood at 22 - flat in comparison to a year earlier.

"Earning the decade’s highest gross margin level in this economic climate, in addition to reducing our selling, general and administrative expenses, demonstrates our efforts to tightly manage gross margin and control costs," said William D. Humes, executive VP and CFO at Ingram Micro.

"Our balance sheet remains a bright spot. We ended 2008 with cash exceeding debt, while cash flow from operations was more than US$550 million for the year, a significant increase over the nearly US$330 million generated in 2007, which provides a strong foundation for these uncertain economic times. Ingram Micro’s financial strength is an attractive choice for our vendor partners that may have concerns doing business with competitors with challenged liquidity and capital resources,” Humes added.

Spierkel commented: "Our team drove sales to the second-highest level in our history and delivered one of the best operational performances of this decade, despite the economy. I’m proud of their achievements, but our work is far from over. We expect 2009 to be even more challenging. Demand continues to soften across most of the countries in which we operate and the stronger dollar is also creating a translation headwind, affecting prior-year sales comparisons. Based on our sales figures to date, we expect first-quarter sales to experience a year-over-year percentage decline in the low-to-mid twenties, which includes the translation impact of relatively weaker foreign currencies."

"We continue to make adjustments to improve profitability and position us for the future. We’ve made good progress on our expense-reduction programme. However, we expect it will be difficult to reduce expenses in line with the pace of the current sales decline. We are taking additional actions in the first half of 2009 to accelerate this alignment, including further restructuring actions in Europe and North America. These actions are expected to generate savings of approximately US$100 million to US$120 million annually, reaching the full run-rate at the end of 200,” Spierkel continued.

“Total restructuring and other related costs associated with these actions are expected to range from approximately US$45 million to US$65 million. We will continue to pursue opportunities to enhance gross margin - such as the improvement of unprofitable business relationships and a greater mix of higher-margin businesses - to partially offset the lag in expense reductions,” he added.

"This company has proven that it can excel in challenging times," Spierkel claimed. "We have what it takes to continue our track record of achievement - a strong financial position, outstanding relationships with vendors and reseller customers, breadth of expertise and geographies, and an outstanding team. The near-term will be bumpy for most companies, including Ingram Micro. Fortunately, our fiscal conservatism will serve us well as we tackle the difficulties of the current recession."

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