Ria Carlson - Senior Vice President of Communications and Brand Management
William Humes - Chief Financial Officer, Principal Accounting Officer and Senior Executive Vice President
Gregory Spierkel - Chief Executive Officer, Director and Member of Executive Committee
Benjamin Reitzes - Barclays Capital
Richard Gardner - Citigroup Inc
William Fearnley - Janney Montgomery Scott LLC
Craig Hettenbach - Goldman Sachs Group Inc.
Ingram Micro (IM) Q4 2010 Earnings Call February 10, 2011 5:00 PM ET
Welcome to the Ingram Micro Fourth Quarter Earnings Report Conference Call. [Operator Instructions] Now, I will turn the meeting over to Ms. Ria Carlson, Chief Strategy and Communications Officer.
Thank you very much and good afternoon, everyone. Joining me today are Greg Spierkel, our Chief Executive Officer; and Bill Humes, our Chief Financial Officer. Greg will present a brief overview and then Bill will provide the financial review of the fourth quarter. Greg will come back to discuss our long-term growth strategy, business highlights and plans for the future, followed by a question-and-answer session.
The financial portion of this call is accompanied by presentation slides, which can be found with today’s news release at the Investor Relations section of our website at ingrammicro.com or by calling
Before we get started, I have a Safe Harbor announcement. 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 our Form 10-K for the fiscal year ended January 2, 2010, 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. The presentation slides and a replay of the call will be available for one week on the company’s website at ingrammicro.com or by calling (800) 678-3180.
I’d like to turn the call over to Greg Spierkel, our Chief Executive Officer. Greg?
Thank you, Ria, and good afternoon, everyone. With the end of 2010, we closed a volatile yet successful decade on record-breaking high note. The year's earnings per share and GAAP net income hit the highest levels in our history. Sales growth for the full year was more than 17%, a rate greater than any we've experienced since 1999. Our return on invested capital exceeded our cost of capital in each of the last six quarters. For the full year, return on invested capital was 13.6%, more than 400 basis points above our cost of capital.
The fourth quarter ended with a similar flourish. Earnings per share hit a quarterly record and net income was our second highest in the history. Sales grew 12%, the fourth consecutive quarter of double-digit growth. Our progress is tangible, and I'm extremely proud of the team for their hard work and dedication.
All regions generated double-digit sales growth during the quarter. Asia-Pacific and Latin America sales had quarterly records, while revenues in North America and EMEA were at their second highest each in the region's history. North America's revenue growth was the highest in 10 years for both the fourth quarter and a full year.
Worldwide operating income or margin surpassed 150 basis points for the quarter with three regions, North America, EMEA and Latin America, delivering operating margins above 170 basis points. In regions outside of North America, operating margins were strong but like those of last year, as Bill will describe in his financial overview.
Operating margins on a full year basis improved considerably, rising more than 25 basis points compared to the prior year. I'm proud of our results for the quarter and year and believe we are well positioned for the next decade. I'll give more detail about our strategy after Bill's financial review. Bill?
Thanks, Greg. I'll start my discussion with sales, which can be found on Slide 3. In the fourth quarter, worldwide sales rose 12% to $9.88 billion, just shy of the record set in 2007. There was no meaningful impacts from foreign currency exchange on a consolidated basis, as general strengthening of currencies in Asia-Pacific and Latin America were offset by an overall weakening of European currencies.
Looking at our four regions, North America quarterly sales exceeded the $4 billion mark for the first time since 2001, coming in at $4.05 billion, an increase of 13% from the prior year. We generated double-digit sales growth in all our units except Avid, which is improving but still the dealing with the lingering effects of the weak housing market and consumer spending. Data Capture/Point-of-Sale, Canada and the U.S. Distribution business drove strong year-on-year performance.
EMEA sales grew 10% to $3.35 billion. The translation of weaker European currencies had an eight percentage point negative impact on year-over-year growth. Germany, the U.K., Spain and Italy were particularly strong, as was the pan-European data capture/point-of-sale unit.
Asia-Pacific sales increased 15% to a record $1.98 billion. The translation of stronger local currencies had a five percentage point positive impact on revenue growth. China and India generated double-digit growth in local currency and the DC/point of sales performed well across the region as a whole.
Latin America sales grew to $496 million, up 11% year-over-year and a quarterly record. The translation of stronger local currencies had a four percentage point positive impact on revenue growth. Mexico, Miami and Argentina posted double-digit sales growth in local currency, while Brazil contracted as we continued to make structural and management adjustments for the long term.
Gross margin, on Slide 4, was down slightly from last year at 5.66%. This includes a benefit of $9.1 million or nine basis points of sales from the release of reserves related to the Brazilian commercial tax on software imports, on which the statute of limitations for an assessment has expired. The prior year also included a similar tax benefit of $9.8 million or 11 basis points. The gross margin performance was influenced by seasonal strength from our Fee-for-Service Logistics business in North America, partially offset by the impact of mix and competitive changes in EMEA and Asia-Pacific. I'll provide more color later in my remarks.
Operating expenses, on Slide 5, were $392.6 million or 397 basis points versus $354.7 million or 403 basis points a year ago, which included $7.7 million or nine basis points of costs associated with expense reduction programs. The increase in operating expenses reflects overall growth in our traditional Distribution business, where we continue to generate solid operating leverage, plus increased sales in our Logistics operations, which has a substantially higher expense ratio than the traditional distribution model. We also continue to make investments in growth initiatives and systems and process improvements.
As seen on Slide 6, operating income grew to $167 million or 169 basis points, which includes the nine basis points benefit from the release of the Brazilian tax reserve. In last year's fourth quarter, operating income was $146.5 million or 166 basis points of sales, which included the aggregate benefit of $2.1 million or two basis points from the release of Brazilian commercial tax reserves partially offset by the expense reduction program costs mentioned previously.
On a regional basis, North America operating income grew to $70.3 million or 174 basis points. Last year, the region's operating income was $53.4 million or 149 basis points, which included $5.7 million or 16 basis points of expense reduction program costs. For the full year, the region surpassed our full year operating margin target, delivering 158 basis points.
EMEA operating income was $59.7 million or 178 basis points of sales. Last year, operating income was $53.9 million or 177 basis points, which included $1.2 million or four basis points in expense reduction program costs. Prior year comparisons were impacted by a greater mix of lower margin products and customer categories, which was almost entirely offset by the region's careful management of expenses.
Asia-Pacific operating income was $28.5 million or 144 basis points. Last year, operating income was $25.7 million or 149 basis points, which included $700,000 or four basis points in expense reduction program costs. Prior year comparisons were impacted by a greater mix of lower margin in emerging markets and increased competitive dynamics.
Latin America operating income was $17.6 million or 354 basis points, which includes the previously discussed benefit of $9.1 million or 184 basis points of the region's revenues relating to the release of Brazilian tax reserves. In the year-ago quarter, operating income was $21 million or 470 basis points, which included a net benefit of $9.8 million or 219 basis points related to the tax reserve released, slightly offset by expense reduction program costs. The region's decline in operating income and margin is attributable to operating challenges in Brazil. The other operations in the region delivered strong performances.
Interest and other expenses for the quarter were $9.7 million versus $5.6 million last year. Contributing to the year-over-year increase was higher interest expense related to the $300 million in public debt issued in August, as well as lower net cash positions during the quarter as a result of the earlier share repurchases and increased working capital required to support our revenue growth. The foreign exchange loss of $4.4 million recorded in the third quarter of 2010, which is related to euro-denominated inventory purchases in our U.S. dollar based Pan-European purchasing entity fully reversed in the fourth quarter as expected.
Our effective tax rate for the fourth quarter was 27% compared with 24% last year. The increase in the effective tax rate was largely the result of the mix of profits in higher tax jurisdictions, primarily due to the strength in our U.S. operations. The effective tax rate in both periods was favorably impacted by approximately two percentage points from the previously discussed release of Brazilian commercial tax reserves for which no income tax was applied.
On Slide 7, you'll see that net income grew to $115 million or $0.71 per diluted share, which includes approximately $0.05 per diluted share from the release of the reserve for Brazilian commercial taxes. This marks our highest fourth quarter net income since 2007. Last year, net income for the quarter was $107 million or $0.64 per diluted share, which included a net benefit of $0.03 per share comprised of the release of a portion of the Brazilian tax reserves offset partially offset by expense reduction program costs.
On Slide 8, you'll see the strength of our balance sheet. Our cash balance at the quarter end was $1.16 billion versus $911 million at the end of last year. The increase in cash primarily reflects the proceeds from the public debt we issued in August, offset partially by funds used for share repurchases during the second quarter and higher investment in working capital due to higher sales volumes in 2010.
Quarter-end debt was $636 million compared with $379 million at the end of the year-ago period. While we did not repurchase any shares of common stock during the fourth quarter, we continue to evaluate potential uses of our capital and view our share repurchase program as a key opportunity.
Our debt-to-capitalization ratio was 16% compared with 11% at the prior year end.
Please turn to Slide 9 for an overview of working capital. Days of sales outstanding were 38 versus 41 at the end of the year-ago period. Days of inventory were 29, up two days from the end of last year but four days better than the third quarter of 2010. Days of payables outstanding were 45 versus 47 one year ago. This brings working capital days to 22, at the lower end of our normal range of 22 to 26 days and compared with 21 at the end of the year-ago period.
That completes the financial review. So I'll turn it back to Greg for a discussion of our business strategy. Greg?
Thanks, Bill. In honor of the new year, I'll devote the balance of my remarks towards sharing our strategic priorities for the company.
Our strategy is built upon three priorities: Generating improved productivity and service in our traditional distribution operations; strengthening our higher-margin specialty and adjacency areas; and developing new capabilities in nascent growing areas that will provide new sources of profitable revenues for the future.
I'll start my discussion with an update on optimizing the business. It is imperative that we continue to drive growth and efficiency in our traditional distribution engine, allowing us to expand into other areas that secure our competitive advantage. As we have shared with you previously, we began reinvigorating our sales efforts about 18 months ago after spending the recessionary months streamlining operations, improving underperforming businesses and making systems enhancements.
Since the third quarter of 2009, we have enhanced our engagement with business partners and we're finding ways to make doing business with us easier.
The results are evident. 2010 earnings were record-breaking and sales growth was the highest in more than a decade.
North America was a key contributor to our worldwide success. The region delivered 18% growth this year, with operating income increasing more than 50 basis points and was one of our best performing units for the fourth quarter. Much of this performance is attributable to the team finding better ways to serve customers while tightly managing expenses.
The region kicked off 2010 with a special campaign designed to accelerate decision-making and become more connected to customer and vendor priorities. The response has been overwhelmingly favorable, with record attendance at our customer meetings and vendors giving us first-to-market access to many new lines. For example, Ingram Micro was recently selected as master distributor with OnStar, which is selling its stand-alone product to consumers for the first time, and we became the exclusive distributor for SOUL by Ludacris, personal audio video products.
At the same time, the North American regional structure reorganized to more fully align with its business partners. To better manage expenses for the long-term, we established a captive shared services center that became fully operational earlier in 2010.
In EMEA, the region has done an excellent job of regaining the share that slipped during the business improvement actions of 2008 and early 2009. It closed the year with double-digit growth and its strongest full year operating margins since 2005. Moreover, the team has been diversifying its customer base with a greater emphasis on the small and medium business market. More than 30 SMB initiatives were launched across multiple countries in 2010. As a result, the SMB segment has grown at double-digit rates in nearly every country, and we've received our best vendor satisfaction ratings in five years. This effort has become particularly valuable in the fourth quarter when consumer caution and negative economic reports clouded retail demand in November and December. Despite the softness in retail, our growth in many of the region's countries was excellent.
Asia Pacific closed 2010 with annual sales at the highest levels of its history, representing 22% of our geographic mix. China and India led the region in sales growth with both countries generating more than 25% annual growth last year. Singapore also grew at a double-digit pace. The region's third anchor country, Australia, has an excellent job of maintaining its leadership amid competitors that are hungry for share. The team won Distributor of the Year award from Australian Reseller News and generated sales growth and good profitability last year.
In Latin America, the team was able to generate double-digit growth and strong operating income in the quarter despite the turnaround actions in Brazil. Mexico was the standout country again in this region, bolstered by continued solid execution and strong sales in its Gaming business. The Mexican operation is consistently among our strongest generators of return on invested capital globally, which is a great testament to the team given the country's frequent flow of unsettling political news.
The Miami Export division also had an excellent quarter, with double-digit growth and strong profitability. In Chile, demand increased as the quarter progressed, as the country continues to recover from the epic earthquake experienced earlier this year. Brazil is making progress but still has work to do. The country's new leader was located from our EMEA operations and is in place. He is strengthening the new management team and updating procedures and controls to put the country on the road to success. Brazil is a growing dynamic market with great opportunities, and we're committed to making it a star in our country portfolio.
As we continue with our business strategy, our emphasis will be on creating the most efficient and effective distribution engine in the world through either organic efforts or acquisitions. Our focus will be on continued operational excellence, greater automation and providing a superior experience for our customers and partners.
Our next strategic priority is focused on strengthening our position in existing high-growth, high-margin specialty markets such as Data Capture/Point-Of-Sale, Logistics and Enterprise Computing. The Data Capture/Point-of-Sale business had a strong quarter and excellent year. We entered this business six years ago with a small acquisition in United States and now have the only global footprint in the industry. Worldwide, our business grew at double digit rates again last year, well above the company average with operating margins significantly above those of traditional IT distribution. This business made a notable recovery in EMEA in 2010, as the transition from several fragmented acquisitions to a consolidated pan-European operation took hold. It was our most improved business unit in 2010.
In North America, the team added the full portfolio of products from Intermec, a leading vendor of rugged mobile computing and data capture space, presenting a prestigious and desirable selection to an already solid line card. In Asia-Pacific, the recently acquired Vantex business is performing well with good growth throughout the region.
Looking ahead, the trends in this business are favorable, as businesses turn to data capture/point-of-sale technology to help automate their supply chains and increase productivity. Ingram Micro has an advantageous position as one of the only suppliers with the complete solution that seamlessly connects specialty areas and IT distribution.
2010 was also a milestone year for revenue growth in our Fee-for-Service Logistics business. We had our business' busiest holiday season ever in terms of unit volume with approximately 6 million products shipped each week in the U.S. alone, and our worldwide client base grew to more than 50. This includes 10 clients in Europe where we expanded last year. Many of our clients are outside the technology industry, giving us a platform to expand our addressable markets and demonstrate our capabilities in new verticals. Last year, our excellence was rewarded when we were named Shipper of the Year by eBags.com selected from a field of more than 500 brand partners.
While we're pleased with our growth in sales and clients, our ability to adjust staffing and expenses as forecasts changed needs additional fine-tuning. Late in the fourth quarter, our U.S. logistics centers were overstaffed when projections for certain clients were found to be too optimistic. This took a bite out off the division's profits, which in turn dampened operating margins for the quarter. Our logistics team is committed to improving the accuracy and accountability of these forecasts while becoming more nimble to drive a more scalable and profitable model.
We are excited about the Logistics business and confident in its ability to provide differentiation and market advantage. Our near-term plans call for expansion into Asia-Pacific and Latin America to make this a truly global business.
We are even committed to strengthening our global position in enterprise computing. With data center solutions becoming more affordable and attractive to the SMB market we believe we can carve out a solid, higher margin opportunity in this space. We already have a strong foundation as we've been selling enterprise products for years. The key is building capabilities to create solutions, which requires a more consultative sales process, deeper technical expertise and additional vendors to fill gaps in the line card.
In North America, much of this work will be achieved organically. In the region's recent reorganization, an Advanced Solutions division was established to create a dedicated team for this business. Since then, the team made tighter connections with vendors and customers including the launch of Cisco enterprise center in Buffalo and becoming the first authorized distributor to offer HP's video conferencing portfolio.
In EMEA, we're building our capabilities both organically and through acquisitions, with the addition of four enterprise distributors in the last five quarters, Albora Soluciones, Areté Sistemas, Computer Center Distribution and interAct. These acquisitions bring us important new vendor lines such as VMware and Citrix as well as the technical sales capability needed to create the right data center solutions for our customers.
In Asia-Pacific and Latin America, we have established businesses in Singapore and Brazil, which have been selling enterprise solutions for years. We've complemented these capabilities with the acquisitions of Value Added Distributors in New Zealand and Asiasoft in Hong Kong as well as organic investments in India, Australia and Mexico. We see these investments expanding into other countries such as China in the coming quarters. As we grow this business, we see it eventually becoming a global unit, cultivating this with additional capabilities will create an exciting new dimension for Ingram Micro focused on attractive and growing SMB market.
The third and final strategic priority concentrates on developing new technology areas that have a potential to fuel the business long term. For us, there are two initiatives in this category, cloud and mobility. We've been investing in annuity services for the last three years, long before cloud became the buzzword that it is today. We started building our capabilities with managed services. And last fall, we introduced our cloud computing platform. We know that we're early in this adoption cycle, so most of our current activities revolve around reseller education. Over the coming year, we will establish a cloud marketplace where we can create a single-source cloud-based solutions for our resellers and broaden the reach of cloud vendors. Several vendors are supporting our early investments with a first distributor to offer a VMware cloud solution and a pay-as-you-go subscription model. And we have also signed Microsoft, Rackspace and Amazon Web Solutions.
EMEA is also actively creating a cloud offering. Germany was the first out of the gate, signing agreements with Microsoft and visionapp. One of our lead executives who built our initial services in cloud offerings in North America recently moved to Europe to help the region accelerate its progress. We also plan to launch pilot programs in Asia-Pacific and Latin America in the coming quarters. This is an exciting time as many cloud providers are new to the channel and our resellers are still exploring opportunities. By launching first-to-market education and solutions, we believe we will seize an early lead on a high-growth opportunity.
Another development area is mobility, which is expected to grow at a double-digit pace for the foreseeable future, especially with the popularity of tablets and smarter handhelds. We've been offering mobility solutions for years, establishing market leadership in emerging countries such as India. And sales have reached hundreds of million dollars of dollars worldwide. We are expanding our presence approaching this market with more focus and greater capabilities. For example, we established a division focused on the mobility space in Europe last year, which has since added 14 new vendors including Research in Motion and OtterBox, an innovative accessories provider that selected us as the first distribution partner worldwide. In the U.S. we are partnering with Lenovo to provide activation services for the reseller community. And in Asia-Pacific, we plan to springboard from our market leadership in India to establish relationships with handheld and tablet vendors throughout the region.
The lines between IT and mobility are expected to converge over time and we plan to be well positioned for this trend. As we've demonstrated in Data Capture/Point-Of-Sale and Enterprise, consumers appreciate a partner that can provide a complete solution from the device to accessories to infrastructure.
I believe our strategic agenda for this year is full yet achievable. As 2011 gets under way, we expect first quarter sales to decline sequentially in line with historical seasonality. This should result in year-over-year growth at or slightly above forecast for overall IT spending. Gross margins are also expected to decline sequentially due to both seasonality and the competitive dynamics we referenced earlier. We will continue to invest in our business throughout the year for both organic expansion and productivity improvements while targeting operating expense growth at half the rate of sales for the full year.
Our Brazilian improvement should begin to take hold as the year progresses, driving greater leverage in Latin America. We are committed to keeping a healthy spread between return on invested capital and weighted average cost of capital, which we believe is key to improving shareholder return.
I'm excited about the year. We are energized not only by the many opportunities that abound, but also by our ability to change the shape of the IT market as new technologies emerge. We've never been in better fighting shape, and I'm optimistic about the opportunities for growth, expansion and profitability. I'm confident that our strategy will cement our leadership and competitive advantage now and into the future. I would now like to open the call to your questions.
Lisa, we will take questions now.
[Operator Instructions] And our first question comes from Scott Craig with Bank of America Merrill Lynch.
Greg, maybe on the outlook for OpEx when you talked about half the sales growth for the full year, should we assume that it's maybe not at those levels in the first part of the year? Given that it wasn't there in the fourth quarter, so maybe there's a little bit of pressure there? And then secondly, on the competitive pressure front that you noted in the gross margins, can you maybe provide a little bit more color around that? I know last quarter, you provided some extra color around that. So I'm just wondering if anything's changed there.
So on the OpEx front, again, we're trying to provide a little bit of direction that we believe we're going to be growing at or above market rates. And IDC has at least a full year outlook in the 7% range, and so we're looking at those types of numbers. From an OpEx perspective, we're going to be working pretty hard to try to keep things at close to the percentages that we've talked about. It may be a little choppy at points in time through the quarters in the year. But again, depending a little bit on how top line's doing and some of the initiatives that we have going on internally, hopefully you've got a sense that we're still investing significantly, with some of the comments that we've just made around systems, around new areas that we're trying to get into with programs. So we're kind of, I would say, aggressively looking longer term on some initiatives in the current year that we're just entering right now. On your second point on the competitive pressure color, I would say we've seen a little bit more in a couple of regions particularly, I think we highlighted more so probably China, India and I would say Australia, those three sort of major anchor countries in Asia. We've seen a little bit more activity. I think again there's one or two companies that are usually locals, that are trying to take a little bit more of a share grab. And in some instances, we're just feeling that we have to hold our own. So that's putting, I could say, a little additional pressure in some of those markets. But again, there's a lot of growth and particularly India and China. And at point sometime, I would say, we're probably not growing as fast as the market, even though we did grow 25% in both operations there last year. So we're being careful about what type of business we do go after. Elsewhere, a few pockets maybe here and there, nothing unusual but a little bit more in, I would say, the consumer space and the commodity space probably more tied to Europe than anywhere where the markets are growing a little bit slower.
Our next question comes from Craig Hettenbach with Goldman Sachs.
Craig Hettenbach - Goldman Sachs Group Inc.
Greg, just following up on the OpEx when you mentioned the hit to Logistics in Q4. Q1 is typically an active quarter as well for that business, do you think you'd be able to address that in Q1 in terms of some of the issues you've had?
Yes, so again maybe just a little bit more color on the whole IML picture for you. So last year, a very good year for us in IML, good growth on the top line, but again I should remind everybody on the call here that we did talk about it at the beginning of last year, a little bit of pressure on margins with the IML business overall, largely because a couple of significant clients were revisiting, if you may, their pricing with us. And in a competitive situation, we retained those clients, but we did make reference I think a couple of times through some of the quarters in the year that we were working to improve that and add new clients. So as we got to the end of the year and specifically in Q4, we felt pretty good about some of the adjustments we made. And the business grew at a very healthy clip year-on-year, hitting record levels as we touched on. But we finished the quarter with really the last two weeks or three weeks with less expected pull-through from consumers particularly where a large part of the revenue goes or at least the fulfillment goes in terms of supporting our partners, slightly lower volumes than anticipated, and we could not pull the costs that quick enough. It really was very much a short-term thing. That said, we've made all the significant adjustments because we knew we'd normally have a bit of a step down from a very, very busy Q4 into our secondary quarter, which for IML business, tends to be Q1. And we've made those adjustments in the current quarter. We feel like we're in a pretty good position in light of that. We continue to add new clients through this quarter, so we're making good progress here. We did get caught a little bit though in the quarter that we just finished. And I feel good that we will have that adjusted in the current quarter and frankly as we go and take a look at the very heavy Q4 that we're into this year.
Craig Hettenbach - Goldman Sachs Group Inc.
Just looking back to 2010, very much a year when you guys are looking to regain market share and grow, and you did outgrow the market. Into 2011 now, what's the strategy in terms of market share gains versus profitability for this year?
I think there'll be more of a bias this year to probably closer-to-market growth rates. I think the market's going to be a little slower anyhow. There'll still be healthy growth, but I believe the IDC numbers are not far off the mark in terms of their perspective. Last year, I would have told you they were shy all year long. But I think the market conditions are coming back into more of a normal pattern of sort of 1.5 to 2x GDP growth rates. So our bias will probably be to hold around market growth rates and then try to find the right pockets of opportunity that present better margin for us in the mix of our overall portfolio. Like anything, we're going to always project certain amounts of volume customers in commodity product areas. But we are working, as I said, to develop the higher value pieces of the equation and make them be a bigger part of the portfolio over the coming quarters.
Craig Hettenbach - Goldman Sachs Group Inc.
For Bill, in the prior quarter, the company's very aggressive in buying back stock. You mentioned no buyback this quarter. Can you update us on the buyback authorization and plans around it, and really strategy on buyback?
As we've talked about it and announced in the fall or in the fourth quarter, we did get approval for a three-year $400 million stock repurchases plan. So that very much is still a strategic opportunity to drive shareholder value going forward. The good part about it is our balance sheet continues to be very, very solid and flexible. And so we have the ability to seek both mergers acquisitions, investment in organic growth as well as using stock repurchase programs, so very much still in play, very much still important to us. Understand, it's only been a couple of months since we did get authorization from that overall.
Your next question comes from Ben Reitzes with Barclays Capital.
Benjamin Reitzes - Barclays Capital
I just want to clarify also in the OpEx line some of the Brazil issues. You mentioned logistics. But how much was Brazil a hit in the quarter? And the issue there to the OpInc in that region, which was below my expectations, and how long does that take to recover there?
Ben, it's Bill. Overall, Brazil was a challenge, as we've been talking about it over the last several quarters. We've really put a lot of effort and had a lot of concentration on continuing to fix the business, the processes and controls. We've put one of our best managing directors in leading the business, as Greg mentioned earlier. But in the fourth quarter, it did impact. If you look at the Latin America results on a year-over-year basis, you would have expected given their growth, they would have even done better than last year. So if you think about that, all that shortfall there is on the operating income side of Brazil, which is a combination of both sales, gross margin and as well as OpEx. So collectively, we have pretty much all hands on deck in the region and worldwide to try to drive improvement and drive that business as a star portfolio of the company. But it'll take a little bit of time going forward but we're making good progress there. So overall, that was a factor, but not the driving factor. It really comes down to, what Greg mentioned, a very heavy volume Ingram Micro Logistics business in North America, good growth there. But as you know, it's a substantially different operating expense model than our traditional Distribution business. And then there are other factors you have to consider. Given our stellar performance for the full year, we also had increased incentive compensation, which was several million dollars over the all true and up our incentive plan payouts for the performance we had for the full year. And obviously, that adjusts going forward because we set new targets, new plans. So overall, back to your summary, Brazil was a factor but not the primary factor.
Benjamin Reitzes - Barclays Capital
But is it something you think you fixed this year? I mean we're going to be able to -- based on your comments we can back into what the hit was pretty much.
Benjamin Reitzes - Barclays Capital
So is that just like every quarter, it gets a little better according to your plan?
Yes. Ben, I'd say, our goal is definitely -- a very solid improvement going into 2011 and then onwards from there. So, I do think that Brazil will continue to improve throughout the year. And the rest, what's good about the Latin America region is the rest of the region is performing very, very well. So Brazil as that starts picking up through the next several quarters, then the region's going to look handsome like it did in the past years.
I'll just add a little more color. I'd say again, we've definitely lost money in Brazil through the year, and not happy about that. But when you lose revenues and you make moves in offices and you change management and you lose some momentum with let's say some vendors and customers. It is a multiple quarter sort of turnaround. We are sort of midway through that. And so as Bill highlights, it will get better. Will it return to the level that we are comfortable with within the year? It will get better, but I don't think it'll be have turned the corner completely in the sense that it's turning a level of profitability that we like and that we have in the rest of the region. So probably more of a two-year voyage. It may sound like a little long, but it does take time to get things goings and reestablished, and getting the whole structure moving in the right direction for us. So we're more than halfway through that, which we feel good about.
Benjamin Reitzes - Barclays Capital
If you got Brazil and you got logistics, and these are headwinds even though they get less of the headwinds throughout the year, doesn't that mean you kind of need to take your foot off the brakes in the other areas to get the profitability in EMEA and whatnot to make up for this? And perhaps what would be the impact on leverage if you did that? Like the gives -- sounds like there's a give-and-take, in terms of taking your foot off the gas in other areas to make up for these? Or am I looking to much into it?
Well, Brazil is a relatively small operation, Ben, for us. So in the total scheme of things, it was negative and it's going to be better this year than it was last year. IML definitely is a bigger operation in terms of contribution back to the corporation. And we feel good about the challenges that we saw last year a little bit at the end of the quarter and then earlier in the year in terms of some of the pricing. We're on top of those and the corrections are already well under way. So those are much easier to manage through, so less of a headwind there for sure.
Benjamin Reitzes - Barclays Capital
And what are you excited about in terms of product in 2011 in areas...
Everything around mobility that we've touched on is doing very well, somewhat as a bigger question mark, what kind of expenses there going on in the PC or laptop space. So, tablets and smart handhelds are growing very fast. Infrastructure to support those, growing very fast. And related networking and security software, those areas are looking very, very positive. And everybody is bringing out, as I mentioned, tablets. So most of the key vendors there from Apple, who is going to the commercial market with us in a big way, as well as Research in Motion, Samsung are all key partners of ours and are excited about the potential as those products hit the market this year and probably continue to accelerate into next year. We're fortunate we do not move a lot of the subnotebooks in the consumer space, which is the area that's probably these tablets are impacting the most. So net-net, we see growth opportunities from this net new category area and a limited impact on, what I would say, the downturn or the slower growth that may be happening in areas that it's displacing.
Your next question comes from Richard Gardner with Citigroup.
Richard Gardner - Citigroup Inc
I was wondering, was the overstaffing in Logistics the primary reason that North American operating margins were not up seasonally in the fourth quarter? Or were there other factors as well? And could you talk about whether additional costs associated with the new organizational structure in North America was a significant contributor there?
Rich, this is Bill. I mean, overall, I think North America as total region had nice leverage in the fourth quarter. I believe, from the mid-160s last year to 174 this year. So...
Richard Gardner - Citigroup Inc
I was talking more sequentially actually.
Yes, I mean, overall, I would say to a large degree that was the heavy Ingram Micro Logistics impact. And even though that it has historically generated a good uptick quarter-to-quarter, that one, they had a great third quarter. And then in the fourth quarter, the profitability overall was hampered by some of the Logistics problems Greg's mentioned, as well as the fact that we did have to top up some of the incentive compensation structure and accruals to reflect large and stellar performance we have.
I wouldn't call out of the investment in the structural changes that we made at as an area of big investment, Rich. That was relatively small, a few heads added there. So that was definitely -- it was more IML topping up year-end bonuses and long-term bonuses based on some good trajectory that we're seeing, some of which gets reset of course particularly on the annual side of the equation in a more modest fashion we believe going forward.
Richard Gardner - Citigroup Inc
I wanted to come back to the target that you had previously talked about for 2011 regarding OpEx growth at one half the rate of revenue. I may be reading too much into things. But, it sounds like you're maybe a little bit more in investment mode. And I may be suggesting that you might not be able to quite hit that target this year. And I just wanted to see if you're still committed to growing at one half the rate of revenue?
I would say for the year, that's what we view our goal will be and clearly we feel that we will be able to achieve that based on everything we see right now. We'll report back quarter-to-quarter how that's evolving. I think I wanted to kind of just guide that back to the little bit of a question that I think Scott brought up earlier before. Is it more of a challenge in the first half versus the second half? At this stage, there's nothing to tell us that we have a struggle with one half versus the other. But if there's a little bit of softness in the marketplace or what-have-you, then we may struggle. There is definitely investment going on, though. I want to be clear that across a number of fronts, we're trying to do things again still for the longer-term for the organization. And there is some good areas of opportunity that we see developing over the next two years that we feel it's important to be investing now.
And, Rich, just to add a little bit to it, if you think about a year ago, at this time frame when we started talking about what we expected the OpEx ratio to be like for 2010, our view is the half the rate was the very high end that we would expect it to be, because we expected some recapturing of the revenue growth as well as constraining OpEx and as well as taking advantage of the expense reductions. What we're trying to do now is just say we're back to a more normal state, but we always do look at it on a full year basis as well as we did last year.
Richard Gardner - Citigroup Inc
And then I guess back to the question regarding the lack of share repurchase in the quarter despite the fact that the stock is trading around tangible book value. And I know there will be questions tomorrow regarding whether you're reserving the cash for some other type of strategic activity and obviously I don't expect you to talk about acquisitions that you might be considering. But I'd just love to get your thoughts on whether you're thinking about acquisitions any differently in 2011 than you have I guess in 2010 or 2009 in terms of the magnitude of acquisitions that you think the company might do.
Rich, it's Greg here. I mean Bill tried to give you a sense before, the additional call it cash position that we're sitting on does give us a fair bit of flexibility. We have been looking at other opportunities that are of interest to us in the M&A space. We have a screening process that's always ongoing. I would say that for the last four years, we've typically done two to four or five acquisitions a year. They've tended to be relatively modest and small in nature, what I would call tuck-ins. But you never know when one that's a little bit bigger could hit the radar. And every year, we've had at least one or two that are bigger than are on the radar and we've not move forward. So the conditions have to be right. And from that perspective, you never know what could be in front of us. So I would be clear with you that at any one point in time, there's always something of significance in front of us. But I wouldn't read more into it than just the comments I'm making. So again, it's a cycle that we're always going through. And the share repurchase activity will take place. We've got a bit of time. We want to sort of pick our places and find dips and what-have-you to make our play on the repurchase front. And then keeping our flexibility as a management team should any interesting and big come along the way.
Our next question comes from Bill Fearnley with Janney Capital Markets.
William Fearnley - Janney Montgomery Scott LLC
On the enterprise solutions, are you getting any measurable vendor help as you offset some of the investments that you're making there in the enterprise and in the cloud stuff that you're doing?
Yes, so on enterprise solutions, definitely there's some help somehow going on. Again, without being too specific, there's been a number of instances particularly -- well actually both with the acquisition activity where we sort of stuck our toe with certain key vendors who are saying, "Are you going to support us as we make this acquisition? Are you going to not add another distributor as we acquire so that we can keep the landscape similar and then leverage our scale?" And we've had that very explicit review and discussion with key vendors when we've made some of the acquisitions over the last 18 months. As it relates to organic, without question, there's been commitments in some countries that we've made particularly in China, India and the U.S. where we've said, "Look, we're going to go hire X number of people across this product line or category and solution set. Will you support us? Will you provide in some degree of matching, if you may, funding to start this type of activity?" And we've been getting some of those. Again, I don't want to be more specific than that but that is definitely in-play to your question, Bill.
William Fearnley - Janney Montgomery Scott LLC
When you look at Logistics business, how did the European expansion go versus your expectations, more color there? And if you could provide more color on the IML expansion as you look the in other regions, in particular Asia-Pacific?
Well, we've been actually pretty happy with what's happened in Europe this past year. We really landed better to the part of about 10 customers from zero start in 2009. So last year was an important year of sort of proving ourselves in another region. And that came off the back of us implementing some new systems in Europe, some tools that we've been using here in North America that obviously help us control that business and support the different type of mode of going to market for a fee-for-service partner. And again, we're seeing some healthy things in the pipeline both in North America and Europe. So proof of concept in Europe and now and most of those customers were relatively small, but we needed to sort of make our the and get comfortable with that and then start using those as references or testimonials. We've taken the same software into Australia and were look at potentially doing similar things in China and India. But Australian we've already started with this software. We are now in the same process and position that we were in late '09 in Australia where we're going to start looking for capabilities and customers that way. We think we're going to be in a pretty good situation in part also because in the next three months or four months, we will be moving into a vastly larger warehouse facility and with our new systems and tools, we'll be a good position to open that kind of business opportunity in at least for that country. And then we've been in discussions in China and Hong Kong in particular about a number of other opportunities. We're hoping that we will get successful. The gestation period for these types of sales, as I think we've mentioned in the past before are several months sometimes up to several quarters, because it really is changing the supply chain dynamics of a partner or a customer. So we know their long sale cycles. With every five that come to the table for us to dance, probably we'd land one. So from that point of view, a longer process but clear when you lock in a customer this way, it's a multiple-year relationship as well.
Our next question comes from John Poliam [ph] with Zala [ph] Capital.
You mentioned on the call you're initiating different training initiatives in the cloud computing over areas and that they're really a second growth market. Can you compare those different cycles to past, rapidly and growing some industries of the technology? Is there more opportunity for differentiation? Is it a different dynamics than past, rapidly growing cycles?
Well, the cloud is a particularly interesting one and I believe it will be very prevalent in our space within the next two to three years. It's at its early stages, we're probably in inning number one of a multiple game series. All our key vendors that are in the software space in particular, and a few, in hardware capabilities around storage, around Enterprise Computing are all looking at models to go to market slightly differently. At this stage, the vendors that we're working with are all of the view at least the CEOs that I talked to. They're all looking at a 5% to 10% of their revenues three years out from today where it might be less than 1% in many of these relationships. So there clearly is going to be a disproportionate growth rate around that I believe over the next two years. And it's is an important area in light of that, both from a defensive point of view again I think some people think this intermediation. I don't view it that way. I think and we believe it is opportunity just like the Internet situation coming up 10 years ago. There was a lot of talk and intermediation with Internet changing everybody's businesses and if anything it allowed us to play a role in supporting those types of companies going to market in a different business model. So we're talking about a slightly different business in billing model. We're talking there's still the need to sort of put solutions together. There's still the need to provide credit, there's still a requirement to move physical product to a large extent to end customer sites are different types of locations all of which I think Ingram Micro has a key role to play. The vendor community is excited about reaching SMB typically. That's 30% to 40% of their overall revenues if not more, and depending on the type of vendor but as a broad market comment. And distribution is a key to market for all of that. So it's very much in their vernacular and they're planning, and we want to be in front and center as the market evolves. It's still early stages but I think it's going to be a pretty quick acceleration probably next year and the year after as a lot of infrastructure and education happens through this year and people get comfortable with the a different kind of approach to selling and marrying let's say on-premise and off-premise annuity type solutions.
I would now like to turn the call over to Greg Spierkel for closing remarks.
Thank you. I'd like to leave you with three points really. I mean 2010 was one of the best years in our history with record results from both the fourth quarter and the full year. So we're very, very happy with that. We consistently delivered return on invested capital above the cost of capital in every quarter for the past 18 months. So record numbers for us there and keep moving up, 13.6% for the full year, which is excellent. And our plans for 2011 build on this strength, calling for continued excellence in our what I'd call our traditional Distribution business while strengthening their will position in high growth and high margin opportunities designed to really enhance our leadership for the longer-term. So thank you for listening, and we look forward to seeing you and talking to you next quarter.
Thank you very much, Greg. Just as a reminder, the replay number is (800) 678-3180 and that will be available for one week. Thank you very much for joining us. Goodbye.
Thank you. That does conclude today's conference, and you may disconnect at this time.