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Ingram Micro Inc. (IM - Analyst Report) reported second-quarter 2014 non-GAAP earnings (excluding amortization of intangible assets and reorganization charges) of 54 cents per share, beating the Zacks Consensus Estimate of 53 cents.

 

Revenues

Ingram Micro’s second-quarter revenues of $10.9 billion beat the Zacks Consensus Estimate of $10.6 billion and increased 5.8% from the year-ago quarter. The company’s Technology and other solutions revenues increased 5% year over year to $9.2 billion while Ingram’s mobility business generated revenues of $1.7 billion, a year-over-year increase of 13.0%,   

Geographically, revenues from North America increased 8.0% on a year-over-year basis and came in at $4.61 billion. Revenues from Europe increased 12.8% on a year-over-year basis to $3.42 billion. Moreover, revenues from Latin America were up 13.4% year over year to $521.6 million. However, revenues from Asia-Pacific decreased 7.5% year over year to $2.36 billion.

The company also reported that 16.0% of total revenue came from Hewlett-Packard Company (HPQ - Analyst Report) and 7.0% from Apple Inc. (AAPL - Analyst Report).

Operating Results

Ingram Micro’s gross margin improved marginally on a year-over-year basis to 5.8%. The improvement was primarily due to favorable product mix.

Ingram Micro’s operating expenses increased 1.7% year over year to $497.6 million. However, as a percentage of revenues, expenses were down 19 basis points. The company also witnessed a marginal uptick in operating margins year over year, which came in at 1.3%, aided by contribution from high-margin businesses.

Ingram Micro reported non-GAAP net income of $86.4 million or 54 cents per share compared with $85.7 million or 55 cents in the year-ago quarter. Non-GAAP net income excludes the effect of intangible assets and reorganization charges.

Balance Sheet & Cash Flow

Ingram Micro exited the second quarter with cash and cash equivalents of $470.7 million compared with $424.5 million in the previous quarter. Accounts receivable were $4.81 billion. Total debt (including current portion) was $1.16 billion, up from $1.02 billion in the previous quarter.

Guidance

For the third quarter of 2014, Ingram Micro expects its revenues to increase in high single digits on a year-over-year basis. Management expects operating expenses, as a percentage of revenues, to be positively impacted by the implementation of cost savings initiatives.

Conclusion

Ingram Micro reported better-than-expected second-quarter results and guided affirmatively. We believe that an improving IT spending trend will help Ingram post better results, going forward. Moreover, the company’s focus on the high-margin market and strategic acquisitions to increase market share are encouraging.

Ingram Micro has been striking distribution deals with a number of original equipment manufacturers thus expanding its product portfolio. Moreover, Ingram Micro’s exposure in cloud computing products is expected to drive growth.

Though Ingram Micro’s significant European exposure and a high debt burden are concerns, we remain fairly optimistic about its strategic relationships with network giants such as Juniper Networks Inc. (JNPR - Analyst Report), Cisco and International Business Machines Corp.

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

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