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Ingram Micro Inc. (IM - Analyst Report) reported third-quarter 2013 non-GAAP earnings of 53 cents per share, beating the Zacks Consensus Estimate by a penny. Earnings also improved 29.5% on a year-over-year basis.

Revenues

Ingram Micro’s third-quarter revenues of $10.2 billion lagged the Zacks Consensus Estimate of $10.5 billion despite increasing 12.4% from the year-ago quarter. Hewlett Packard (HPQ - Analyst Report) represented 14% of Ingram Micro’s total revenue.

Geographically, revenues from North America increased 2.3% year over year to $4.1 billion. Revenues from Europe remained almost flat on a year- over-year basis, to $2.43 billion. However, revenues from Asia-Pacific and Latin America were down 1.1% and 4%, on a year-over-year basis, to $2.2 billion and $448.6 million, respectively. Brightpoint contributed $1.06 billion to the quarterly revenues.

The North American revenues were positively impacted by new client additions and higher demand for storage and infrastructure systems. Moreover, strong performances from Australia and India driven by growth across different product lines supported revenues. Additionally, strong performance of its mobility business helped revenues. Ingram Micro’s mobility business contributed $1.1 billion to the quarterly revenues.

Operating Results

Ingram Micro’s gross margins improved 88 basis points (bps) on a year-over-year basis to 5.9%. The improvement was mainly attributable to solid performances in the mobility business, which was inherited from Brightpoint.

Selling, general and administrative expenses increased 19.6% year over year to $422.8 million. Ingram Micro reported an increasing operating expense as a percentage of revenues (up 68 bps on a year-over-year basis) primarily due to continued investments across all of its operating regions. The company’s non-GAAP operating margins increased 19 bps from the year-ago quarter to 1.3%.  

Ingram Micro reported non-GAAP net income of $83.1 million or 53 cents per share compared with $62.3 million or 41 cents in the year-ago quarter.

Balance Sheet

Ingram Micro exited the third quarter with cash and cash equivalents of $501.6 million, down from $726.9 million in the previous quarter. Accounts receivable were $4.39 billion. Total debt (including current portion) was $890.6 million, up from $884.6 billion in the previous quarter.

Conclusion

We find Ingram Micro’s third-quarter results mixed with the bottom line surpassing the Zacks Consensus Estimate but the top line missing the same. We believe that the improving IT spending trend will help Ingram to post better results going forward. Moreover, the company’s focus on the high-margin market and strategic acquisitions to grow market share is encouraging. The Brightpoint acquisition is also expected to remain a key growth driver for the company.

Though Ingram Micro’s significant European exposure and a high debt burden are concerns, we remain fairly optimistic about the company’s strategic relationship with network giant Juniper Networks Inc. (JNPR - Analyst Report), Cisco (CSCO - Analyst Report) and International Business Machines Corp.

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

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