Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Ingram Micro (NYSE:IM)

Q4 2012 Earnings Call

February 13, 2013 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

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

Richard Kugele - Needham & Company, LLC, Research Division

Jim Suva - Citigroup Inc, Research Division

Osten Bernardez - Cross Research LLC

Keith M. Housum - Northcoast Research

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

Operator

Good day, and welcome to the Ingram Micro Fourth Quarter Fiscal Year 2012 Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Damon Wright, Head of Investor Relations. Please go ahead, sir.

Damon S. Wright

Thank you, and good afternoon to everyone joining us on today's call and via webcast. Joining me today are Alain Monié, our President and Chief Executive Officer; and Bill Humes, our Chief Operating and Financial Officer. Each will make opening remarks, after which the call will be opened for a question-and-answer session. We've 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 discussion, 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 Securities and Exchange Commission, 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 September 29, 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.

Presentation slides and a replay of the call will be available for 1 week on the company's website or by calling (888) 203-1112 and using password 3928426.

With that, I'd like to turn the call over to Bill. Bill?

William D. Humes

Thank you, Damon, and good afternoon, everyone. We had a strong finish to a successful year. Worldwide revenues hit all-time annual and quarterly highs, even excluding the benefit from our recent acquisitions. Although the selling environment remained challenging around the world, all regions finished well, helping to drive solid operating income contribution across the globe.

Turning to some specifics of our fourth quarter performance. Worldwide sales of $11.4 billion were up 14% in U.S. dollars when compared to Q4 last year. The translation effect of foreign currencies had a negative impact of approximately 1 percentage point. BrightPoint contributed a little over $1 billion in revenue, which reflects the stub period from October 16. The Aptec acquisition added approximately $75 million to the quarter's revenue. Combined, the 2 acquisitions contributed approximately 10 percentage points of the 14% total quarterly growth.

As we look at our regions, North America sales were up 6% to $4.5 billion, the highest in more than 10 years despite headwinds from Canada, which benefited from the previous year from a very strong product launch. Sales in our key SMB market increased at a double-digit rate as our teams are doing an excellent job of differentiating Ingram Micro. Our U.S. broadline business benefited from strong growth in our Advanced Computing and Technology divisions as we continue to move up the value stack and sell more high-end service-heavy solutions. Our higher-margin Specialty Division once again posted double-digit gains led by DBL and Avid.

Europe sales of $3.1 billion were down by 4% in U.S. dollars and 1% in local currency. Overall, the region performed relatively well given the macroeconomic climate and strong competition.

Asia Pacific performed well with very strong December helping the region hit a fourth quarter sales record of $2.2 billion, an 11% increase over last year. There was no material currency impact on the year-over-year comparison.

Aptec's business is included in our Asia Pacific region and contributed approximately 4 percentage points of growth. China and India once again registered double-digit growth led by continued robust sales of tablets in China and a higher share of organized retail and strong mobility sales in India.

While Australia continue to be a drag on the region, we made significant changes over the course of 2012, and rebuilding the business is a top priority. However, given the continued operational challenges we experienced in 2012 and the U.S. GAAP guidance on appropriately measuring the value of deferred tax assets, we have recorded a noncash valuation allowance during the quarter on the full $41.8 million of deferred tax assets we have in Australia. We are committed to the Australian market and are continuing to make the changes needed to return the business to profitability.

Latin America maintained its record pace for the year with sales hitting another all-time quarterly revenue high, increasing 5% in U.S. dollars and 4% in local currency to $600 million.

BrightPoint delivered on our expectations, adding a little over $1 billion to worldwide revenues for the period of October 16 through the end of the quarter. HP and Apple products were the largest contributors to total worldwide revenues, accounting for 18% and 10%, respectively.

Worldwide gross margin was 5.81% compared with 5.57% in the year-ago quarter, which, you will recall, benefited by approximately 30 basis points from favorable pricing on hard disk drives. All regions are beginning to benefit from our organic investment in higher-value markets with North and Latin America as obvious standouts [ph].

Despite shifts in business mix and macroeconomic pressure that continue to drive a heightened competitive environment, Asia Pacific and Europe maintained solid gross margins, coming in flat to slightly up versus last year when the hard disk drive benefit is excluded. The addition of BrightPoint's business had the biggest positive impact on Q4 worldwide gross margin and was accretive by approximately 45 basis points. Upon acquiring BrightPoint, we conform their gross margin presentation with Ingram Micro's, which moves some allocated operating expenses, including warehouse, labor and rent expense, out of cost of sales and into operating expense.

Q4 operating expenses were $493 million, or 4.34%, which includes the charges of $8.6 million, or 8 basis points, consisting of a cost associated with the acquisition of BrightPoint as well as restructuring costs associated with the other expense reduction programs.

BrightPoint added $95 million to operating expense, which included $6.6 million in acquisition-related costs. The addition of BrightPoint's higher-margin high-touch mobility logistics services increased consolidated operating expense as a percentage of revenue by 43 basis points as compared to last year, excluding acquisition-related costs. Operating expenses also include the burden of an additional $8.2 million in amortization costs related to the acquisition.

Worldwide operating income was $168 million, or 148 basis points of sales, which includes the charges I just described. On a regional basis, North America operating income was $78 million or 176 basis points of sales. North America continues to benefit from the organic investments we are making in the businesses, as illustrated by the strong sales growth in higher-margin areas.

Europe's operating income was $52 million or 158 basis points of sales. Europe did a good job maintaining solid profitability in a competitive sales environment while containing costs, which is particularly evident in light of the fact that Europe benefited the most from favorable hard disk drive pricing last year.

Asia Pacific operating income was $15 million or 69 basis points of sales. The region was impacted by revenue declines in Australia as well as additional expenses for excess and obsolete inventory as Australia's sales have lagged expectations. Excluding the impact of Australia, Asia Pacific operating income was $26 million or 141 basis points of sales. Latin America was a strong contributor to operating income, adding $17 million or 275 basis points of sales. I'm pleased to report that Brazil contributed operating income in Q4, surpassing our target of exiting the year at a break-even run rate.

For BrightPoint, we executed well on capturing low-hanging cost synergies. The business contributed $11.3 million, or 108 basis points, to Ingram Micro's overall operating income, which includes the burden of $6.6 million in charges, or 63 basis points, related to the acquisition. BrightPoint's operating contribution also included the impact of $8.2 million in amortization of intangible expense, which impacted BrightPoint and worldwide operating income by 79 and 7 basis points, respectively.

Interest and other expenses for the quarter were $18.8 million, up from recent quarters based on higher debt balances used to fund the BrightPoint acquisition.

Our effective tax rate for the fourth quarter was 32%. As covered in more detail in our press release, the effective tax rate was impacted by a net $4.7 million charge driven by the negative impact of the Australian deferred tax asset valuation allowance, positively offset by the release of valuation allowances in the U.S. and Spain as well as the realization of unrecognized tax benefits due to the expiry of statute of limitations.

Despite the large onetime impacts in the quarter, we do not expect a material change in our structural effective tax rate going forward, which we currently expect to be approximately 32% for the 2013 year.

Net income was $101 million or $0.66 per diluted share. EPS includes an aggregate negative impact of $0.07 per share, which consists of a negative impact of $8.6 million pretax, or $0.04 per share, related to acquisition and integration costs, as well as an after-tax negative impact of $4.7 million, or $0.03 per share, related to the valuation allowances and unrecognized tax benefits.

For Q4, BrightPoint was accretive by $0.04, excluding acquisition costs. BrightPoint's accretion during the quarter does also include the burden of $8.2 million, or $0.04, in additional amortization of acquired intangible assets.

Turning to some key balance sheet metrics. At quarter end, our cash balance was $600 million, and our total debt balance was $1.1 billion. This compares to cash of $1.2 billion and a total debt balance of $800 million at the end of Q3, reflecting the acquisition of BrightPoint during Q4. We ended the quarter with a debt-to-capitalization ratio of 23%.

Moving to working capital. Days of sales outstanding were 44, 3 days higher than last year and up 6 days sequentially from the 2012 third quarter. Days of inventory were 30, an increase of 2 days from the prior year quarter but down sequentially by 5 days. Days of payable were 51, up 4 days from both last year and sequentially over Q3. This brings working capital days to 23, towards the lower end of our total targeted range of 22 to 26 days. This is up 1 day from Q4 last year but down 3 days sequentially from Q3.

CapEx for the quarter was $27.7 million, depreciation was $16.1 million and amortization expense was $12.5 million. I'll now turn the call over to Alain.

Alain Monié

Thank you, Bill. Our fourth quarter financial performance confirmed our improved execution in what was a very good year. The entire company responded well to my challenge in January to drive a sense of urgency, better execution and increased profitability across the organization. We made a lot of good things happen in 2012, and it is starting to show in our numbers.

We're clearly executing better against our key strategic initiatives. Let me give you some examples. We made significant organic investments to build out higher-growth and higher-margin businesses such as data center, enterprise computing and IM Logistics. For example, we continued to add experts and programs to enable us to move up the value solutions chain to provide higher-touch and more profitable products and services. These investments are being rewarded with meaningful, new authorizations such as IBM's pSeries and enterprise storage systems and several other higher-value offerings around the world in areas such as unified communications, networking and other enterprise-class products and solutions.

Our investments also helped drive new partnerships such as our agreement with Qualcomm to provide advanced logistics, distribution and activation services for their wireless health care offerings. These are new markets for us, bringing additional growth in higher-value areas.

The vast investments we have made in expanding our Data Capture/Point-Of-Sale business globally continued to pay off as we drove worldwide annual growth of nearly 10% with operating margins more than twice the company's average. We believe we have room to further grow this business, and we expect similar returns in 2013.

We also made significant progress in improving our IM Logistics business, growing more than 10% for the year as the team did a good job adding new customers and implementing new solutions. Importantly, we gained significant traction in leveraging our strong U.S. business across other regions as we secured a number of global IML relationships with several large companies. We have high expectations for this business, so while we've had a very successful year, we're focused on continuing to maintain strong growth rates for IML. We plan to do this by continuing to leverage our strong logistics infrastructure, systems and global presence.

On the acquisition front, we added to our industry-leading geographic reach and entered the growing Middle East and North African markets through Aptec. We also further expanded our portfolio of higher-value storage solutions while providing our partners with new federal, state and other U.S. government revenue opportunities via access to the General Services Administration schedule with the acquisition of Promark. The margin profile for each of these businesses is also better than our company average.

And, of course, we rapidly accelerated our position in the highly strategic mobility market with the acquisition of BrightPoint. While only 4 months post-close, the integration is going well, and we have done an excellent job in driving early cost synergies. We maintain our target for at least $55 million in annual cost savings for 2014.

The market for mobile device life cycle services and products is continuing to develop rapidly, and we are focused on capturing revenue synergies in addition to our ongoing integration efforts. Importantly, we continue to deliver on our core competency of driving productivity and efficiency across the broadline business. For instance, for 2012 in North America, our volumes increased by 7% to more than 25 million shipments, while our cost per shipment decreased by 2%.

We made some progress in Australia, reducing our annual operating loss by more than $13 million versus 2011. But we fell well short of our goal as we still lost a little less than $40 million at the operating level for the year, excluding restructuring costs. Our 2012 performance in Australia is clearly unacceptable.

We made significant reductions to Australia's cost base towards the end of the year, and the country's information systems and ERP systems are now operating properly. We have also deployed a new team that is spending significant time outlining specific actions to further improve the business and return to profitability. Under new management, we're gaining traction, reengaging our partners and are focused on improving processes and increasing margin contribution.

The turnaround in Brazil, on the other hand, exceeded our expectations. Entering the year, our goal was to cut the country's losses in half and exit the year at a break-even run rate. We exceeded that goal as the business grew more than 50% in local currency and we cut the annual operating loss by more than $19 million, nearly hitting breakeven for the entire year. We expect Brazil to be profitable for the full 2013 year.

Since taking the helm as CEO a year ago, we have made a number of changes to our senior leadership team. Accountability to deliver results will be the hallmark of our organization, and I'm committed to ensuring that we have the team in place to meet our financial goals for 2013 and beyond. With change comes opportunity, and I'm pleased that we have been able to promote a number of highly qualified individuals who are clearly ready for the new responsibilities we asked them to take.

We have entered 2013 well positioned to drive better returns on capital and solid growth across the business. However, there are several key objectives on which we must deliver: we must get Australia on track to be a profitable and growing business; we also must continue to execute on the integration of BrightPoint and the realization of cost and revenue synergies; we will maintain our historic focus on operating execution while combining improvements and returns on invested capital with revenue growth; additionally, we will continue to examine opportunities to free up and reallocate capital from underperforming businesses into areas of better returns.

Overall, for 2013, we expect to drive worldwide consolidated revenue growth in the low teens, including contribution from BrightPoint. We're affirming our expectation for BrightPoint to be accretive to 2013 non-GAAP earnings by at least $0.18 per share, which includes absorbing $37 million, or $0.17 per diluted share, in additional amortization of intangibles. For the first quarter, we currently expect to experience a seasonal sequential decline in worldwide consolidated revenue, consistent with the past 2 years, and expect the seasonal sequential decline in gross margin due to lower contribution from IM Logistics.

At the beginning of 2012, we added a relative total shareholder return metric to our long-term performance-based executive compensation plan. Return on invested capital and growth in earnings per share are the other 2 metrics. A significant portion of executive compensation is directly tied to driving shareholder value, which is the overriding focus of our entire management team. I'll now open the call to your questions

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Brian Alexander with Raymond James.

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

Nice job in the quarter. And on BrightPoint, specifically, it looks like the revenue came in better than you thought by maybe 11%. In the $0.04 of earnings accretion, if I back out the amortization, it looks like they did over a 2% operating margin. I just wanted to make sure that the math is right there. And if it is, that also seems better than expected. Perhaps there's some seasonality embedded in that result, but I guess what I'm asking is what drove the better-than-expected results this quarter, both in terms of revenue and profitability for BrightPoint? How much of that was just the market, maybe some market share gains, earlier-than-expected synergies? And do you think you pulled forward any of the benefits from future quarters? Or are you really tracking above plan for the BrightPoint integration? And then I have a couple of follow-ups.

William D. Humes

It's Bill. Yes, overall, we're really pleased with the achievement on BrightPoint business. I would say revenue-wise, I think the combination of a couple of things. One, the distribution side of the revenue came in pretty solidly, especially towards the back end of the quarter. Plus, as we were entering into the Q4 time frame and when we gave our original estimate, it was -- the visibility was a little bit less. So in one end, it was our analysis of what we expected for the Q given that there was a couple -- there was a stub period, so we had to take some piece of the revenue out for that. So overall, though, we're pleased with the revenue. It was solid. Solid achievement across-the-board and slightly above our, I'd say, at the time, estimates. In the sense of your -- if you were to back out your overall things to get to a kind of an operating margin, excluding -- yes, so if you start with the non-GAAP operating margin of 171 basis points for BrightPoint for the stub period, the -- and then you -- that was impacted by additional 79 basis points of the amortization expense from acquired intangibles. So net-net, yes, you're in that mid-2% when you look at it that way. So very solid achievements, very solid performance. In the sense of the cost synergies, so the business at $0.01 performed better than originally expected and delivered -- and kind of overdelivered on our expectations. And then we also were able to drive good synergies, cost synergies up front. So on -- some of the low-hanging fruit -- public company costs, other types of costs, some headquarters-like costs -- were all things that we had planned for way up front before the closing of the acquisition. So we were pleased to execute that as quick as possible as we went through it. Now going forward, obviously there are more structural changes that we need to do on process, on systems and integrating businesses in the rest of the -- around the rest of the world. So that's going to take a little bit more heavy lifting. But we're making very good progress towards our overall cost level synergies. So overall, in the -- for the quarter, I think part of it, I'd say 1/3, was very solid business performance above kind of what we originally conservatively estimated when we did the earnings release, and a couple thirds was very solid traction on synergies.

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

So maybe to follow-up on that, Bill. If you could just remind us what are some of the key integration milestones that you're looking to accomplish in 2013. I know you talked about the $55 million for next year. I don't think you've given a synergy target for this year, but can you give us sort of the timing and some of the activities that you plan to achieve in 2013 so we could maybe have some signposts to look at? And then maybe a question on Australia after that.

William D. Humes

Yes, in specifics, that's going to be very hard to give in the sense of the individual detail because various different countries, systems and people haven't necessarily been notified. But what I would say is we started way before the actual closing of the acquisition doing the stuff that we could do, knowing that we were public and -- 2 public companies. But we did set -- put together and instituted a very good project management integration team obviously led and supervised ultimately by Alain but directed by Shailendra Gupta, who's got experience in integration. So we developed plans across-the-board. What we're doing now is validating some of the country plans. And it's going to be staged. Some areas will be staged more appropriately over a period of time or a couple of years. What I would say is we are very confident that we will achieve our cost synergies by the -- of $55 million in 2014 -- in the year of 2014, and we're well on that way to achieve those levels.

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

Okay. And then on Australia, I think the implied losses would be about $11 million, which is a step back from where you had been. And it sounds like you've made some more management changes there and you've taken out maybe more costs at the end of the year. So you spent some time in the prepared remarks but maybe just help us understand the magnitude of the cost savings, your confidence in returning to growth and just the time line of getting back to profitability. Is that something that we should see in 2013? Or has that been pushed out another couple of quarters?

Alain Monié

Yes, Brian, this is Alain. You've noted, I mean, we've made a -- we've taken a number of actions. So we offshored a number of back office positions out to our Manila shared services center. That gave us pretty good -- and we did that in the last quarter of last year. That gives us a much healthier cost basis, if you will, to address the different -- the new level of revenue that we have. But as you also noted, we have now fresh management there in place. Matt Sanderson, who's the new MD, knows well the Australian markets given that he was leading the vendor management organization in Australia for us a few years ago. So he knows the market, he knows the customers, he knows the vendors. And he has with him a team that he knows perfectly well. He has done a good job in the U.K. also developing our SMB market. As you've seen in the last few quarters -- several quarters in a row, he's grown the share there with SMB. So we think we have in place a management that is going to have a fresh look and accelerate the fix. Now all of that being said, when do we think we will be back into black? Definitely, this is the objective for this year. So this year is going to be the turnaround. Exactly when during that year? We'll see how things progress, but that's our commitment and that's our goal.

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

Okay. And then I guess last one for me just on IBM. It sounds like a pretty major win for your business. And I was just wondering, is there any way you can size that opportunity so we could get a sense for the direct impact? And then indirectly, do you think by having these product categories it'll help you sell other categories either within the IBM portfolio, like industry-standard servers or software, or outside of the IBM portfolio? I'm just trying to understand the kind of spillover effect that you might be anticipating? And are there any other enterprise vendors that you think are considering a similar move? Or is this more of an isolated event? That's it.

Alain Monié

No, you're absolutely right that IBM giving us the confidence and the product representation is going to have a ripple effect on other vendors. As well as, putting together the value in the enterprise business means to have the proper back and grouping of vendors. And so this is really the result of the investments we've made. We know we have to invest first, get the capabilities, get the skills and the people in place. And then the vendors really give you then the credit of you, meaning what you're saying, and then giving you the confidence level. So we expect this to have a snowball effect. Now giving you dimensions, we're not in a position to give you any numbers on that. But it's really an encouraging development that will definitely help us assemble the right level of and the right set of vendors for us to have the value proposition that we think we already have on the market.

Operator

And we'll take our next question from Matt Sheerin with Stifel, Nicolaus.

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

Just another question regarding BrightPoint and the impact on gross margin. You talked about enhancement of around 45 basis points. So that would basically leave the core business up 30 basis points-plus quarter-on-quarter, which I know seasonally it's typically up because of IM Logistics. So it looked a little bit better than we've seen in the last 2 or 3 years. So I'm trying to get a sense of the impact, IM Logistics versus the higher end of value-added programs that you talked about, particularly in North America and in Europe, the impact there. And then also with BrightPoint, its -- the seasonality, is there more Logistics business that BrightPoint does in the fourth quarter that would enhance their gross margin? In other words, I'm trying to get a sense directionally of what the gross margin will look like. In the March quarter, you guided it down. But that, obviously, it can be anything. Should we assume that it should be up on a year-over-year basis versus last year?

William D. Humes

Yes. So Matt, it's Bill. I'll start with the beginning of your question then maybe I may add or clarify after that. But overall, in the sequential increase in margin, yes, if you back out the 45 basis points that BrightPoint had on the accretion of gross margin, margins definitely went up Q3 to Q4. Also, they were solid relative to last year when you back out last year's hard disk drives. So we're pleased with the performance of the Q3 to Q4 margins. Now part of it was IML strength. We've been really making great progress in Ingram Micro Logistics. So it had a higher-end impact on the Q3 to Q4. Plus you have to look at the Q3 margins, and they were generally -- at 5.02%, I believe, they were -- they were fairly low. So part of that is a fact of them being lower. So I look at those factors as being very strong Ingram Micro Logistics' fee-for-services business, the fact that we continue to make very smart balances on decisions on what business and what pricing to make on the various different businesses to try and maintain the stability of gross margins while grow our adjacencies. We had very strong revenue in our special divisions where -- such like our CE businesses in DBL and Avid. Auto identification business was very solid as well. So all those factors had a -- they are strong fourth quarter businesses. So the impact on fourth quarter was probably pronounced for all those reasons. But the largest would be the IML business and strength relative to a weaker Q3.

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

Okay. And directionally for March?

William D. Humes

Well, generally similar in previous years, albeit now we're -- the combined business is at a new gross margin rate going forward. But our IML business will generally -- will tend to have the sequential decline, maybe not nearly as similar -- heavy as the increase from Q3 to Q4, but it does definitely have a large decrease from Q4 to Q1 just because the services levels are lower in our fee-for-service business. That being said, Q1 is the second strongest quarter, generally, for our fee-for-service business. I do believe the logistics services business in BrightPoint has a smaller seasonal decrease but does have a seasonal decrease nevertheless, so.

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

Okay, that's helpful. And then, could you tell us what the pro forma revenue for BrightPoint was in the quarter, including the first couple of weeks in the quarter? Because I know last conference call you mentioned that that's typically the strongest part of the quarter, is the beginning. So could you give us a sense of what that number was?

William D. Humes

Yes, we're not going to disclose the specifics. But I think if you just did the math, you're not going to be too far off by taking the 10 weeks versus the 12 weeks or 10.5 weeks versus the 12. So I would go ahead and do that. You're not going to be way off.

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

Okay. And then just lastly, on the ERP rollout, that, obviously, you've taken a step back there trying to fix issues in Australia. Where do we stand on that ERP rollout now? Or is there any big, heavy moving or lifting we're expecting this year? Are you putting that on hold for a while you're reevaluating it? I know you also just replaced your CIO, so can you give us an update on that?

Alain Monié

Sure, Matt, this is Alain. As we mentioned before, we're not communicating the exact dates of any future rollout plans. What we are reaffirming is that we are rolling out based on what I call the readiness level rather than a schedule. We're not looking at calendar schedule for the rollouts, but readiness, mainly. This year, in 2012, we did roll out Malaysia with virtually no impact and no disruption to the business at all. And today, I can tell you that we're running Singapore, New Zealand, Australia, Indonesia, Malaysia, Chile, Belgium, Netherlands. All of those are under the new ERP system. So we've been solidifying those operations with the ERP. We -- frankly, we do not intend this year to have any major rollout on the ERP but, rather, continuing the progressive rollout on the operations where we feel we're ready.

Operator

And we'll take our next question from Rich Kugele with Needham & Company.

Richard Kugele - Needham & Company, LLC, Research Division

A few questions. I guess, first, just in terms of modeling going forward, you talked about the 2014 cost synergies. But coming off of the Q4 level, if you could be any more specific about how we should think of the trajectory of the OpEx as it progresses through the year. And then secondly, when you talked about the full year top line growth rate, can you just give us any sense on what your underlying IT spending growth rate might be or what the inputs might be to get there beyond just bolting on the company?

William D. Humes

Sure, Rich. I'll talk about the overall cost synergy levels. I mean, overall, we talked about $55 million in 2014 or at least $55 million. We're on track to at least hit that level. And I would say we've realized a big portion. That's starting off in Q4 and throughout Q4, and then probably a little bit more of a full run rate as we go through the next into 2013. I would -- we will be on an exit rate at that level or above come Q4 of -- the end of the year for this year. So if you wanted a back-in or model that piece, that would be probably be helpful. I'm not -- I don't think it's going to be exactly ratable because some of the things we're going to have to do are going to more be structural. So a little bit of the step function. We've got a lot of what we need to do already, and then we'll have to get some step function changes towards the back end of 2013 to get to the full run rate or exceed it. So maybe not exactly ratable, but a big chunk now and then some more towards the back end, if that's [indiscernible] going to think about it. And then could you repeat your second question, please?

Richard Kugele - Needham & Company, LLC, Research Division

Oh, just the -- your underlying assumptions more industry-wise for the guidance for the top -- for the revenue for the year.

Alain Monié

Yes, I -- if you look at Gartner numbers, that goes anywhere between 3% and 4% when we start looking more surgically to the regions. I think in North America, on our side, we expect to continue to grow slightly, moderately above the -- those numbers, above the GDP and IT spend here in North America. As far as Latin America, we've been growing very fast for quite some time. This last year, Brazil grew 50%, and we had a very solid business in Mexico. Now that's probably not sustainable at those levels for the future, particularly since in Mexico, there has been some kind of a slowdown in Q4 given the new government taking place. But I think that whole region in it by itself remains very solid for growth. Europe, frankly, continues to be the mixed bag that we've been talking about, and we're not planning on any significant growth in Europe in 2013. And as far as Asia Pacific, China and India continue very strong. Frankly, we don't see any major slowdown there, although there is a lot of talk around the new government in China may impact that. But I think their investments in developing the local markets are going to work. And India, we've had a very solid growth there, particularly with the retail business growing that fast. When you combine that with our Indonesia business, which is small but growing very fast, and then hopefully the recovery that we're planning on in Australia, Asia Pacific should also be a fairly solid growth region for us.

Richard Kugele - Needham & Company, LLC, Research Division

So one of the takeaways would be that even though you're guiding for low teens, you're really not assuming some massive snapback in spending to drive that growth?

Alain Monié

No, that's correct. And if you look, obviously the BrightPoint addition is the bulk of that growth. And then for the rest, it's based on the comments I just made.

Operator

And we will take our next question from Jim Suva with Citi.

Jim Suva - Citigroup Inc, Research Division

My first question is you mentioned strength in tablets and phones. I believe you mentioned some areas such as China and India. Are you seeing the strength impacting traditional PC, like discretionary budget dollars coming out of wallets or spending monies from the PC market? Or is this 100% additive? Any commentary on that?

Alain Monié

So you're correct, Jim. Tablets and phones are really very strong, particularly in China and India, as you mentioned. But at the same time, in parallel in those territories, particularly in China, you see a fairly significant slowdown on PCs and laptops. And so there is a definite trade-off between those products. And also, the influence of consumer versus with -- the commercial type. So there is a transfer there. But as we're well positioned, both in tablets, phones and the BYOD ecosystem, we are able to capture that growth as well even if in parallel, PCs and laptops are really not growing.

Jim Suva - Citigroup Inc, Research Division

Great. And then for your guidance of low-teens growth for next year, I think mathematically it works out to most of that being from BrightPoint. Is it actually all of it from BrightPoint? Or can you help us understand what the core Ingram, excluding these 2 acquisitions, actually is for your guidance for next year?

William D. Humes

Yes, generally, we see the -- IT growth in general as being around low to mid-single digits in general for IT growth, and we would expect to grow at or a little bit above that. So by computing that, then you can probably back into both sides of it.

Jim Suva - Citigroup Inc, Research Division

Great. My last question then. Can you just clarify again what you said for the tax rate going forward?

William D. Humes

Yes, sure. I mean, that's always -- it's an estimate of what we think in the future. But I would say 32% is what we're going to model for ourselves for next year.

Operator

And we'll take our next question from Ananda Baruah with Brean Capital.

Unknown Analyst

This is actually Mactul [ph] for Ananda. I have a couple of questions about the margin. So just the first line, looking to this quarter, what do you think will be the most significant operating margin [indiscernible] opportunity, do you think?

William D. Humes

Okay, we had a hard time understanding exactly what you said. But if I -- I think you said what do we see, going into next quarter and this year, as the biggest margin? Gross margin or operating margin or both [indiscernible]?

Unknown Analyst

Operating margin.

William D. Humes

Yes. I mean, what -- I think continue to execute on our overall BrightPoint synergies is -- and the overall integration of the business and capture some of the revenue synergies that we believe are so important over time in that business. Our margin and profit and dollar opportunities, we definitely believe. Continue to expand out on our strategic initiatives for our adjacencies and the value -- driving up the stack in the value business and data center business, like you've talked about, and then the -- our history on our strategies is one of the items, as well as continue to grow our logistics business, which we have made some great progress on and continue to have progress on. So those are big expansion opportunities. We also see, obviously, fixing Australia as an important element that we are driving hard to and are very, very committed to. And so I would name those as some of the big ones. Alain, if you have any additions?

Alain Monié

No, I think you summarized it. So it's the logistics and services business growing more than the average, the enterprise and data center, mobility, Data Capture/Point-Of-Sale and, overall, BrightPoint -- the BrightPoint business. Those are the elements that will give us a better operating margin mix.

Unknown Analyst

Okay, that helps. Just a quick follow-up. We noticed the BrightPoint operating margin ramped through the year. I just wonder what [indiscernible] eventually [indiscernible]. Is there any upside room? And then what about the drivers?

William D. Humes

Yes. I mean, overall, the BrightPoint margin, as we even disclosed, in our stub period from the -- when we acquired the company on October -- so October 16 onward through the end of the year, we were able to deliver on a -- excluding integration costs, 171 basis points of operating margin. So we were very pleased with that, driven by some pretty solid logistics revenue and profitability. And then, obviously, that was also impacted by 79 basis points of amortization expense from the acquired intangibles from the acquisition itself. And understand, the expansion opportunities exist in both driving more business through synergies, which is really why we bought the -- and combined with the company. But in the meantime, as we do that, continue to execute on cost synergies. So we do believe that cost synergies will drive incremental margin or operating profitability expansion above and beyond where we're sitting today.

Alain Monié

We also believe that the mix of services versus traditional distribution -- that is already a very good mix of services in North America has a potential increase in the other regions. So we're -- we'll be investing in developing services in Europe and Asia Pacific for the BrightPoint business.

Operator

And we will take our next question from Osten Bernardez with Cross Research.

Osten Bernardez - Cross Research LLC

To begin, with respect to your data center business, specifically I'm talking servers and storage, would you be able to give sort of your take on how demand for those products -- if you want to be specific, to your AIS group in North America, but how demand for those products sort of trended through the quarter and what you saw near the end of the quarter given certain, I guess -- given the political environment?

Alain Monié

Well, our play in that area is more around us getting into the higher end of products software and services more than riding the underlying demand, which you can get those -- that data from different sources. So our focus is really to increase our role within the higher-end data center. And that's where that business, if you look at our North America organization in particular, has grown way above the average IT growth, which is not necessarily consistent with what you hear about servers' growth. So our play -- what I'm saying is our play is more in taking a bigger role and market share in that area than it is to ride only on the underlying growth.

Osten Bernardez - Cross Research LLC

Could you maybe share what that growth was for the entire company for -- at least for the -- for -- from a full year perspective for 2012?

Alain Monié

We don't share the specific growth by segment.

Osten Bernardez - Cross Research LLC

Okay. And then looking at BrightPoint, it appears -- obviously, you pointed to some of the synergies and the mix of logistics business for the quarter. But it still appears that at least, if I'm looking at this properly, that the gross margins for BrightPoint, stand-alones, appear to be at least improving from where they were just before you acquired them. Is that a correct characterization? And if so, why is that? Is -- has there been an improvement in mix or just execution? And would you be able to share sort of how ASPs are trending for the units handled within that business?

William D. Humes

Yes. No, I think, Osten, overall, in my prepared remarks, I had mentioned that as we acquired and joined the companies, BrightPoint historically had put certain costs in cost of sales such as the cost of doing the services, cost of facilities, cost of people running the warehouses. And typically, in Ingram Micro, we've have put those in SG&A. So when extracting those out of cost of sales and conforming them to Ingram Micro's presentation, that increases kind of their stated overall gross margin. And that's part of the 45-basis-point impact onto -- on the overall Ingram Micro. And as you noticed, we also said that there was a 43-basis-point impact on operating expenses, excluding the integration costs, because of there's higher expenses in SG&A side than they had previously disclosed because of that classification change that we made to conform with our historical presentation.

Alain Monié

So yes, so the one piece is based on reclassification, which really doesn't change the bottom line. But there is also an influence on a better mix of services versus classic distribution, which comes with a better margin. So slightly improvement on the mix as well that we have seen there.

Osten Bernardez - Cross Research LLC

And then would you be able to highlight sort of -- Alain, for the year, obviously, 2012, there are lots of changes that you made throughout the company. But when you look at now you have the team -- your team more or less put together and, obviously, you have to deal with -- you have to -- you and your team have to put together BrightPoint as well within the whole company, you have to fit it together. But what do you -- from an Ingram Micro stand-alone standpoint, what do you see as your primary interest with respect to organic investments?

Alain Monié

Well, what you call -- I'm not sure what you call organic means outside of BrightPoint or if it is core business versus the. . .

Osten Bernardez - Cross Research LLC

Your core business.

Alain Monié

The core business, okay. On the core business, we continue to really focus on productivity. During the prepared remarks, you may have noticed we increased our shipments. If you take just North America alone, we increased our shipments by 7% to a very high number of 25 million shipments, and we continue working on reducing our cost per shipment. So our operational excellence continues to be the backbone of how we will become the best cost-to-serve basis in the core business. And we have in our organization that is now a global operations organization. So we are able to share best practices and really drive that into our warehouses in Germany, in Australia, in China, in India. And so we continue working on the productivity there. That's really the core of productivity improvements, of course above and beyond what our new systems, our new ERP rollouts are giving us as more productive tools.

Osten Bernardez - Cross Research LLC

And lastly for me. With respect to Australia, obviously you have gone through several sort of adjustments to that business operationally. How do we think about sort of the -- or rather, how are you thinking about the future of that business in terms of whether prior businesses -- prior business that you thought you would be able to win back? Are you looking at what the -- are you looking at the future of that business differently with respect to the sales that you're no longer getting at a particular rate as you. . .

Alain Monié

I think the -- we've had some discussion in past calls on this, which -- our assumption is that coming from where we were coming, we were -- we had a very large market share in the country. Unfortunately, we lost some of that share with our own internal problems. And I think that a good objective -- given that we have readjusted our cost basis, a good objective would be for us to recover I would call it somewhere around 50% of the share that we've lost. And that would be, I think, the right goal for us to be back into the profitability levels that we want to have and, at the same time, being realistic about how much of the lost customers we think we can get back.

Operator

And we will take our next question from Keith Housum with Northcoast Research.

Keith M. Housum - Northcoast Research

As we look at the exchange [ph], I actually the updated strategy for your IT costs over the past year and more toward IT readiness. As you look at spending in the fourth quarter on IT cost internally versus the prior year, was there a big change in your spend? Or was it relatively flat?

William D. Humes

Yes, we haven't gone into, I won't go into a whole lot of detail. But in the overall, in cash spend, I believe there was a reduction year-over-year, slowing down the deployments, slowing down the attack of differences. And plus, last year, we were also in the middle of implementing our own data centers across the globe in 3 different areas, Frankfurt, Singapore and in the U.S. So there was a lot of spend going on in all of 2011. So albeit we did spend money in 2012 on systems, which is usually our highest level of CapEx, it was a reduced level in my overall basis. And P&O probably had a little bit less spend, but it still had more of it because they are working on more expense-related projects than capital projects.

Operator

And we will take our final question from Shaw Wu with Sterne Agee.

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

First, I had a clarification and then a question. The clarification is, so the comment you made on BrightPoint, I just wanted to clarify. You said that it's going to decline less than seasonal. I just want -- is that what you said?

William D. Humes

Shaw, I think, well, the question or response you're having is on -- normally, in the sense of the seasonality of logistics services business, ours declines Q4 to Q1 a decent degree because Q4 is such a big quarter for us in that Logistics business. I believe that our knowledge, at least, as the logistics declines -- does decline from Q4 to Q1 somewhat but not nearly at the ramp or level that our IML business declines. Does that help clarify?

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

Okay. Yes. And then also the -- for the BrightPoint business, is that the same as well or...

William D. Humes

No, that's what I was just indicating on the sense of the Logistics business goes down seasonal. So if you think about the level of revenues and fees that it produces from a sequential Q3 to Q4, then it goes back down into Q1. The logistics services in BrightPoint has a similar pattern but not nearly as abbreviated as -- or as extensive as our Logistics business.

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

And then the question I decide for you as well, Bill, when you look at the historically kind of -- your SG&A, you've been able to keep it around 4%, right, and the -- even with top line growth. Obviously now, with the BrightPoint expenses and -- it's a little bit higher than that. And it looks like probably Q1, it could be even higher. Do you see that going back -- going -- do you see opportunity to take your OpEx down to 4% with the BrightPoint synergies? Any color there?

William D. Humes

Well, first and foremost, I'd probably look at it more on an operating margin basis and what we delivered on operating margin, coming in at 155 basis points of operating income level. And that includes the amortization of intangibles of -- impacts as well. So in the sense of operating expenses, as you know, BrightPoint, that contributed in the fourth quarter about 43-basis-points increase on a year-over-year basis from our historic or legacy Ingram. So I guess if you were to back that out, we are under 4% by a good deal. But also, remember, as we try and continue to grow some of our logistics businesses, which are much higher OpEx component, some of the other value-oriented businesses that we're driving over, that's going to have a higher OpEx. In the end, we're shooting for higher operating margin and operating margin percent, and we're delivering. So that's the way I think you should focus it.

Operator

That concludes today's question-and-answer session. Mr. Wright, at this time, I'll turn the conference back over to you for any additional or closing remarks.

Damon S. Wright

Thank you, Angela. We appreciate everyone joining us on today's call and webcast, and we look forward to the opportunity to sit down with a number of you during the course of the quarter. Have a good evening.

Operator

Ladies and gentlemen, this concludes today's conference. We thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Ingram Micro Management Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts