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Ingram Micro Inc. (IM - Analyst Report) reported second-quarter 2013 earnings per share of 55 cents, beating the Zacks Consensus Estimate of 46 cents. The results were 27.9% higher than 43 cents reported in the year-earlier quarter.

Revenues

Ingram Micro’s second quarter revenues of $10.3 billion increased 17.4% from $8.8 billion in the year-ago quarter but were marginally below the Zacks Consensus Estimate of $10.4 billion. The effect of currency translation was nominal. Geographical contributions were decent barring Europe. Apart from this, additional contributions from the Brightpoint and Aptec Holdings acquisitions were the quarter’s differentiators.

Revenue contribution from North America increased 5.3% year over year to $4.04 billion. The improvement can be attributed to strong performances in all the U.S. divisions (especially in small and medium business (SMB) market, storage, networking and security markets and specialty divisions) and strength in the Canadian business. Europe, Middle East and Africa (EMEA) contributed $2.43 billion, down 1.2% from the year-ago quarter. Difficult macro environment and competitive pressures continued to count on European revenue contributions. Strength in U.K., France and the Netherlands was more than offset by weakness in Germany, Belgium and Spain.

The Asia-Pacific region generated $2.13 billion in sales, up 4.5% from $2.04 billion in the year-ago quarter. The improvement was attributed to strong regional performances in India and Australia as well as strong contribution from Aptec Holdings. The results were somewhat offset by weakness in China. Latin America sales grew 3.9% year over year to $459.8 million, with support from sales growth in Brazil.

Brightpoint contributed $1.25 billion, a significant surge from $1.04 billion in the prior quarter.

Operating Results

Gross profit increased 31.6% from the year-ago quarter to $595.8 million. Gross margin was 5.8%, up from 5.2% in the year-ago quarter. The improvement was mainly attributable to solid performances in the mobility business, which was inherited from Brightpoint. This was partially offset by an adverse effect of a higher mix of lower margin products (such as tablets).

Selling, general and administrative expenses increased 32.4% year over year to $465.3 million. Operating margin of 1.1% was flat compared to the year-ago period.

Ingram Micro reported net income of $69.7 million or 45 cents per share compared with $61.3 million or 40 cents in the year-ago quarter. Excluding certain pre-tax one-time items, adjusted earnings were 55 cents per share compared with 43 cents in the year-ago quarter.

Balance Sheet

Ingram Micro exited the second quarter with cash and cash equivalents of $726.9 million, up from $562.6 million in the previous quarter. Accounts receivable decreased 2.7% sequentially to $4.39 billion. Inventories were $3.70 billion, down from $3.81 billion in the prior quarter. Total debt balance was $884.6 million, down from $1.20 billion in the previous quarter.

Guidance

For the third quarter of 2013, Ingram expects revenues to be flat to slightly up sequentially, following the seasonal trend. The company expects gross margin to be flat sequentially. The company also expects third quarter adjusted earnings per share to benefit from a damage charge received from the LCD flat panel display manufacturers.

Conclusion

We find Ingram Micro’s second quarter results mixed with the bottom line surpassing the Zacks Consensus Estimate and the top line missing the same. The company has provided a cautious third quarter outlook. But we believe that the improving IT spending trend will help Ingram to post better results ahead. Moreover, management’s commentary of focusing more on the high-margin market and on strategic acquisitions to grow market share is encouraging.

The ongoing integration of BrightPoint seems to be pretty quick and the contribution is encouraging. Expected cost synergies and sizable contributions could make BrightPoint a key driver for growth.

Though the company’s significant European exposure and a high debt burden are concerns, we remain fairly optimistic about Ingram Micro’s strategic relationship with network giant Juniper Networks Inc. (JNPR - Analyst Report), as well as tech giants such as Hewlett-Packard Company (HPQ - Analyst Report), IBM Corp. (IBM - Analyst Report) and Microsoft Corp.

Currently, Ingram Micro has a Zacks Rank #2 (Buy).

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