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Ingram Micro (NYSE:IM)

Q2 2011 Earnings Call

July 28, 2011 5:00 pm ET

Executives

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

Analysts

Brian Alexander - Raymond James & Associates, Inc.

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

Benjamin Reitzes - Barclays Capital

Richard Gardner - Citigroup Inc

Ananda Baruah - Brean Murray, Carret & Co., LLC

Shaw Wu - Sterne Agee & Leach Inc.

Craig Hettenbach - Goldman Sachs Group Inc.

Operator

Welcome to the Ingram Micro Second Quarter Earnings Report Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Ms. Ria Carlson, Senior Vice President. You may begin.

Ria Carlson

Thank you very much, Rose, 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 a financial review of the second quarter. Greg will come back to discuss 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 (714) 382-2015.

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 1, 2011, 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'll now turn the call over to Greg Spierkel, our Chief Executive Officer. Greg?

Gregory Spierkel

Thank you, Ria, and good afternoon, everyone. In the second quarter, we delivered strong growth from many of our anchor countries, including the U.S., Germany, China and Mexico, which outweighed the consumer softness in some markets in Europe and Asia Pacific. Demand for commercial products remained stable, particularly in the small and medium business segment. The disparity of local markets highlights the benefits of our diversified business mix, allowing us to capture opportunities for multiple geographies, technologies and customer sets.

We also made progress on our global ERP migration. The system continue -- the system issues that we encountered in Australia last quarter have largely been resolved, and we are actively winning back share. We expect the country to deliver incremental improvements to the remainder of the year, narrowing the year-over-year performance gap.

The new system was also successfully implemented in the Netherlands during the quarter. The Brazilian implementation, which we mentioned last quarter, was moved to a later date to accommodate continued focus on the country's operational improvement program currently underway.

Gross margin improved sequentially but remained below our preferred range due to the negative impacts and effects of the system implementation in Australia and the softer consumer markets in Europe and Asia Pacific. These factors also contributed to year-over-year declines in gross margin and operating income. The business disruptions in Australia alone had a negative impact of approximately 5 basis points on worldwide gross margin and 18 basis points in worldwide operating income in the second quarter. We expect operating and gross margins to improve over time as we begin to experience the benefits of our system's improvements and our high-margin strategic initiatives become a greater portion of our overall mix.

Net income improved sequentially, primarily due to foreign currency benefits from our Pan-European business unit. This gain reflected the reversal of a large portion of the foreign currency loss we recognized in the first quarter. We also actively repurchased shares during the quarter. As of today, we have repurchased over 8 million shares for approximately $151 million through our 3-year $400 million authorization announced in late October of last year.

In our regions, North America achieved the second highest quarter sales in more than 10 years and boosted operating margins 26 basis points compared to the prior year, an excellent illustration of the leverage our business model can generate.

Latin America's operating margins improved 34 basis points on strong performances in Mexico and the Miami export business.

In Europe and Asia, robust demand in some countries was offset by weak economies elsewhere. I'll provide more geographical detail later in the call.

While our ERP investments have tempered our results in the first half, we're confident they will serve us well in the future. The new system is now in 7 countries, along with the financial module for North America. When fully implemented, it will help us make quicker, more informed decisions and provide support for the business expansions we are developing today.

For example, our cloud marketplace was -- it launched in June, an exciting step into a new route to market for our industry. We're building data center and mobility capabilities in more countries and we've become a global force in Data Capture/Point-Of-Sale.

Our logistics business is developing new accounts and capabilities throughout the world. As these efforts continue to take hold, our vendors and customers will benefit through consistent, quicker operations and comprehensive solutions in both the physical and virtual worlds.

I will give you more color in a few moments. Until then, here's Bill with the financial review. Bill?

William Humes

Thanks, Greg. I'll start with sales, which can be found on Slide 3. Worldwide sales increased 7% to $8.75 billion. The translation effect of foreign currencies had approximate 6 percentage point positive impact on growth versus the prior year.

In our regions, North America sales reached $3.7 billion, a 10-year high for a second quarter and an increase of 6% versus the prior year. EMEA sales were up more than 11% to $2.64 billion. The translation of European currencies benefited the region's sales by approximately 13 percentage points.

Asia Pacific sales rose 5% to $1.96 billion. The currency translation had a positive effect of approximately 8 percentage points.

Latin America sales increased 7% to $387 million. The translation in regional currencies had a positive effect of approximately 6 percentage points.

Gross margin, on Slide 4, was 5.25%, a slight uptick sequentially but 11 basis points below last year's levels. The decline from last year is primarily attributable to the system-related business disruptions in Australia as well as the softer retail environments in Europe and Asia Pacific.

As you can see on Slide 5, second quarter operating expenses were $362 million or 414 basis points of sales versus $333 million or 408 basis points of sales a year ago. More than half of the year-over-year increase or approximately $16 million is related to the effects of foreign currency translation. The remainder is primarily attributable to meriting compensation increases for our associates around the world as well as investments in our strategic initiatives and system enhancements.

On Slide 6, you'll see that operating income was $97.1 million or 111 basis points of sales versus $104.6 million or 128 basis points of sales last year.

On a regional basis, North America operating income grew 24% and 26 basis points to $67.6 million or 180 basis points, driven by solid sales growth, slightly better margins and tight expense control. In last year's second quarter, North America operating income was $54.7 million or 154 basis points of sales.

EMEA operating income was $16.9 million or 64 basis points of sales versus $22.3 million or 94 basis points of sales in last year's second quarter. The decline from the prior continues to be primarily attributable to the weaker retail market we began to experience towards the end of 2010 as well as investments in system enhancements.

Asia Pacific operating income was $16.5 million or 84 basis points of sales compared to $29.8 million or 160 basis points of sales in the prior year. The poor performance in Australia, which was driven primarily by the ERP-related business disruptions, had a 92 basis point negative impact to the region's operating margin.

Latin America operating income totaled $6.5 million or 168 basis points of sales compared with $4.8 million or 134 basis points of sales in the prior year. Strong performances in Mexico and Miami expert -- export contributed to the increase compared with the prior year.

Interest and other expenses for the quarter were $13.3 million compared to $9.9 million in the prior-year quarter. The year-over-year increase is primarily attributable to higher interest expense as a result of the $300 million in public debt issued in August of last year. This year's expenses include a net gain of $2.5 million related to the impact of foreign currency translation on euro-based purchases in our Pan-European entity, which designates the U.S. dollar as its functional currency. The gain is a function of the timing of currency fluctuations within the quarter, similar to what we have experienced previously and includes a reversal of a large portion of $4.2 million foreign exchange loss recorded in the first quarter of this year.

Our effective tax rate for the second quarter was 28.7% versus 28.5% in the prior year. Our quarterly effective tax rates may vary significantly depending on the mix of actual operating results in the various tax jurisdictions. For the full year 2011, we expect our effective tax rate to be approximately 29%.

On Slide 7, you can see that net income was $59.7 million or $0.37 per diluted share compared with $67.7 million or $0.41 per diluted share in the prior year.

Turning to some key balance sheet metrics highlighted on Slide 8. Our cash balance at quarter end was approximately $1.37 billion versus $762 million at the end of the year-ago quarter. The increase in cash primarily reflects the proceeds from the public debt we issue last August as well as cash from profitable operations offset, in part, by funds used to repurchase our stock and investments over the past year. During the quarter, we purchased approximately 4 million shares of common stock for a total of $75 million. We also purchased more than 4 million shares for another $75 million in July.

Our quarter-end debt was $643 million compared to $351 million at the end of the year-ago period. Our debt-to-capitalization ratio was 16%, up from 11% a year ago. These year-over-year increases primarily reflect our $300 million public debt offering last August.

Moving to working capital on Slide 9. Days of sales outstanding were 37, an improvement of 2 days from 39 a year ago. Days of inventory were 34, up 3 days from the end of the second quarter last year. Days of payables were 47, flat versus last year. This brings working capital days to 24, up 1 day from the end of the year-ago quarter and a 4-day improvement sequentially. The team worked hard to bring working capital back to our normal range of 22 to 26 days.

Return on invested capital was 9.7%. This exceeded our weighted average cost of capital, which is currently slightly less than 9% for the eighth consecutive quarter.

That completes our financial review. Greg will now continue with a regional review and comments about the future. Greg?

Gregory Spierkel

Thanks, Bill. I'll start my review with North America. The region had a strong quarter with outstanding operating leverage. Operating income more than quadrupled the rate of sales growth, an excellent illustration of the significant leverage our business model can drive. Every U.S. unit grew with the DBL consumer electronics and the U.S. classic distribution businesses generating the region's best performances.

One of the highlights of the quarter was the unveiling of our cloud marketplace before hundreds of resellers at our Cloud Summit in June. Our marketplace is an app store for business where resellers can shop and procure virtual solutions for their commercial clients. 27 vendors with 45 solutions have been signed for the marketplace, including IBM, BMC Software, Siemens and other respected names, and we are in discussions to add more in the coming quarters. We've also built a complementary suite of webinars, research and other educational programs to help our resellers better serve their clients in the cloud environment.

We're the first in our industry with a robust transactional cloud offering, and we're proud to continue our legacy of innovation. Our work in this area was recognized with the CIO-100 award for 2011 presented by the CIO Magazine to salute operational excellence in information technology.

Another regional bright spot was DBL, which began selling the consumer version of OnStar automobile accessories during the quarter. This is OnStar's first foray into the retail aftermarket, and we're proud that they chose us for -- as their exclusive distributor. The product is currently in retail stores throughout the U.S. Elsewhere in consumer electronics. Avid, our home theater business, delivered year-over-year growth for the second consecutive quarter.

We're pleased that the classic distribution business in the U.S. continues to do well, with steady growth and profitability in both the commercial and retail sectors. We saw a particular strength in our advanced Enterprise divisions, while the government business was slower. The logistics business experienced a nice pickup in Canada, with double-digit growth, while efforts to add new accounts in the U.S. hold promise for the coming year. The Data Capture/Point-Of-Sale business continues to grow while improving operating margins.

The strength of our partner relationships creates a solid foundation for future success. The region held many customer events during the quarter, from the cloud summit to invitationals for our customer communities, and all were well-attended with encouraging engagement and support from our resellers.

In April, we are awarded Distributor of the Year by Juniper Networks, recognizing our progress in broadening the vendors' reach into new markets.

I'll turn next to Asia Pacific. As I mentioned earlier, our systems in Australia are now functioning properly, and we have refocused our energies on reengaging customers and vendors. While second quarter sales in Australia declined at a double-digit rate versus the prior year, we experienced improvement as the quarter closed. The hardest hit categories were in the country's volume business, primarily PCs and consumer, with more modest declines in enterprise solutions.

Beyond Australia, the region delivered solid performance with the rest of the region's sales growing at a double-digit pace, with operating margins exceeding those of last year. China continued to shine, generating double-digit sales growth and improved profitability. It is now the region's largest operation. India made more modest gains, largely on the strength of mobility products, while demand for consumer PCs was a bit soft.

We continue to solidify relationships with partners throughout the region. In most countries, even Australia, key vendors in the enterprise solutions space are experiencing robust growth. Our acquisitions in Data Capture/Point-Of-Sale and enterprise solutions over the last 2 years have opened doors to new vendor relationships and capabilities that would serve us well in the future. Developing strong relationships with higher-margin partners is critical to our strategy especially as the region becomes a greater proportion of our overall business mix.

It's been a tough first half-year for the region, but the team is resilient. Asia Pacific has been testing ground for most of our worldwide system investments, hosting our first ERP implementation in Singapore in 2009, our first retooled e-commerce engine in New Zealand in 2010 and our first proprietary warehouse management system connection with SAP in Australia earlier this year. And our experiences will benefit the company.

Moving to EMEA. The region did a nice job of navigating through difficult consumer sentiment in many of the southern countries and effectively managing through an ERP implementation in the Netherlands. The regions focus on the SMB market continues to be beneficial, offsetting the softness in retail channels. The Netherlands migrated to SAP in June with few surprises, the second country in EMEA to implement the new system, as Belgium switched over in February.

In the individual business units, Austria, France and our Pan-European unit delivered solid growth in local currencies, while Spain and Switzerland were softer. The Data Capture/Point-Of-Sale business continues to do well, with strong sales growth and operating margin improvement.

Our strategic initiatives continue to help us weather the European economy. We were first to offer a cloud solution in Germany with the introduction of Office 365 for our resellers. Our mobility unit added BlackBerry mobile voice system, unifying fixed and mobile service with a single phone number, voicemail, caller ID and other features. In France, we created a dedicated Apple boutique, a one-stop shop for all of our Apple products as well as news promotions and education programs. We've also added a new account in Ingram Micro logistics and a new product in our V7 portfolio in the region.

Our efforts continued to be recognized by our partners. In Germany, we received excellent reviews and media coverage for our IM.TOP partner event. We also received Distributor of the Year award from Kingston Technologies. And a special honor was given to Gerhard Schulz, our Managing Director in Germany, who was ranked #1 in Channel Partner Magazine's 100 Most Important Channel Leaders survey.

As we look ahead, improving operating income will continue to be the focus of the region. A more stable economy, coupled with the realization of benefits from our new systems, will help us move forward.

In the Latin America, the team welcomed a new leader and delivered operating income growth of 34%. Mexico and Miami export were the top-performing business units, with both generating double-digit growth and solid operating margin expansion. Chile was a bit softer, primarily due to the timing of incoming product. While we continue to make improvements in Brazil, as previously discussed and disclosed, the rest of the region performed better than expected.

John Soumbasakis was named Regional President in April, as we discussed in our last call. John energetically jumped in the new role, immediately visiting our country operations and partners throughout the region. He has ready established good working relationships and presented ideas for enhancements. I'm confident that he will be a strong leader for the region.

In Brazil, progress in our business enhancement efforts is visible but slower than we would like. We filled the key positions, but we still have some gaps. We're strengthening our relationships with important vendors and customers. We don't want to lose our current momentum, so the SAP migration plan for the fall has been postponed.

Looking ahead, I am excited about the opportunities before us. The ERP implementation is expected to bring long-term benefits that surpassed our near-term challenges. Once the implementation is complete, we will have a unified global system that will be the backbone for the company for decades.

Common processes, tools and richer analytics will drive greater productivity across the enterprise. Our partners throughout the supply chain will benefit from modern, more ubiquitous interfaces with continuous stream of data, creating an easier, more streamlined relationship. These systems are expected to support a more diverse enterprise with greater proportion of business mix from higher margin adjacencies. I'm pleased with our early progress in cloud computing, Data Capture/Point-Of-Sale, mobility, advanced enterprise solutions and logistics. These initiatives allow us to provide comprehensive service to our partners and maintain a position as a global leader.

In the third quarter, we expect global technology demand to remain stable. Sequential sales growth should be roughly in line with historical seasonality, resulting in continued year-over-year growth. The Australia business should deliver some sequential improvement but will continue to lag last year's results. Expenses may continue to be expected -- affected by currency translation as well as strategic initiatives.

As we move to the second half of the year, I feel better about our business. Our Australia ERP issues are largely behind us, and we'll begin to see steady incremental improvement. Our ongoing work in building adjacent businesses is beginning to present the diversification we need as a platform for stronger margins going forward. Given our size, this is a multiyear transformation that is being embraced by our associates, vendors and customers. I'm confident that today's efforts will result in a stronger, more profitable company in the coming years.

I'll now open the call to your questions.

Ria Carlson

Rose, you may open the line.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Matt Sheerin from Stifel, Nicolaus.

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

First question has to do with Europe and the weakness that you're seeing in consumer. Could you give us an idea, Greg, the magnitude of the revenue decline either year-on-year or quarter-on-quarter. And could you tell us what kind of initiatives you have to improve margins in the face of weak consumer? In other words, are you doing cost cutting? Are you moving people and resources around to growth areas to offset the higher expense load that you have now on those lower volumes?

Gregory Spierkel

All right. Good question, Matt, and thank you for that. So the consumer market for us is, I think we've said in the past, is a very significant element of our go-to-market client base in Europe, slightly larger than our overall company average, which tends to be around 20%. Europe is going to be in the 25% to 30% range. So it is having an impact. In the local currencies in the quarter, we grew a negative 2% effectively year-on-year, obviously the tailwind of currency or translation impact providing a positive 11% on the top line in U.S. dollar terms. Quarter-on-quarter, I don't have a good sense that there was a big difference. It has been a weak consumer story for the last 2.5 to 3 quarters because we did touch on it for the first time with our Q4 discussions back in February. And we were seeing the change or the slowdown already in late November and December with the European environment, particularly emanating, as a lot of us have heard, from the southern part of the continent, Spain and Italy where we have a very significant capability and coverage. In terms of how it looks going forward, we think it's going to remain fairly soft. So the focus as a team and in the organization has been predominantly around SMB. Let's make sure we do a good job executing on commercial in small, medium businesses. We started a lot of initiatives there last year. So the consumer segment is actually down substantially, and we're offsetting that downward draft with strong commercial growth or solid commercial growth. As far as operating initiatives to improve operating income as we go forward, yes, we're going to be touching on, I think, a little bit of all the points you brought up. We are being very vigilant with costs, and we're going to continue to be so in the second half of this year because we don't see the conditions changing. So I think we will take cost actions where we think it's appropriate and people actions where it's appropriate. But again, they'll be targeted. There is definitely a lot of emphasis, as a management team, across Europe to sort of double down on commercial and SMB and also to focus on the areas where we've been trying to invest in and made some acquisitions in recent years, which are growing fairly well for us and better than the overall clearly consumer markets, and those are our point-of-sale, data capture, enterprise, computing, and adding of new logistics contracts. All these though are relatively smaller base, but they're all going at a nice clip at this stage and are really going to support us, I think, with the longer-term trajectory here for Europe.

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

And my follow-up, just on your comments, Greg, about relative strength in enterprise and SMB in Europe, is your sense that's continuing? Are there any signs that's softening at all? And then in line with Europe, you talked about -- well, you talked about actually pushing out or delaying the ERP implementation in Brazil. But are there any plans for any major SAP upgrades in Europe over the next few quarters? And could that be an issue in terms of your continuing to grow and avoid any hiccups?

Gregory Spierkel

So to your first question of 2, by the sound of it, or 3 there. Relative strength softening, I don't believe we see anything that worries us that it's getting worse. They're still the same sort of sense of the unemployment rates are fairly high in Europe. The consumer as a whole is not comfortable, with the exceptions of pockets of Germany, Austria, France where the consumer, I wouldn't call them overly buoyant, but at least there are still growth in those markets relative to pretty much the rest of Europe. As far as the second point around, anything that could influence us as we go forward, these are the ERP, no major changes planned. Clearly, going into next year, we will probably have 1 or 2 other countries in Europe that we'll put in play. We're not going to be too specific about that at this stage, for a lot of good competitive reasons, but we don't see any major issues. We've just moved forward with Netherlands, an important midsized country in the month of June in closing out our Q2, very happy with the progress that we made there along the lines of the expectations we had. And so we would have a view that, as we move forward and as much as we've learned from the prior implementations, that we should be in pretty good shape going into Europe with these other changes we'll make there next year.

Operator

Our next question is from Craig Hettenbach from Goldman Sachs.

Craig Hettenbach - Goldman Sachs Group Inc.

Greg, with some parts of the business a little soft, are you seeing any reaction in competitive pricing at this point?

Gregory Spierkel

No. I would not call out anything out of the ordinary at this stage, Craig. As we have said in points in the past, there's going to be times where we're going to have to sort of protect our ground with certain key customers or vendor relationships in order to hold share of wallet or to hit certain clip rates in terms of expectations of programs that we've worked on with the vendors. Yes, the market is a little softer than everybody, I think, would like it to be, but there are opportunities in commercial, corporate. There are opportunities in certain product areas and solution tracks, so I think the main emphasis for us is to be vigilant on those areas that are very commoditized and not overly chase price, and that's what we've been doing. And I don't think I'm seeing anything that gives us any cause for concern, if there is sort of any amping up in this regard from a price perspective in the marketplace right now.

Craig Hettenbach

Okay. And then commentary around the Data Capture/Point-Of-Sale sounded positive. Can you just talk about that growth engine, really, investments you've made there to drive that growth and kind of the outlook there?

Gregory Spierkel

Yes, we've been very, very pleased with the investments that we've put into Data Capture/Point-Of-Sale, sort of recast things a little bit over the last 3 years. We've made 7 smallish acquisitions across Europe and Asia, in particular, to bolster and build out our capability across a large number of countries in both geos. And the benefits of that have been sort of falling through very nicely. Both last year and this year, we've seen very healthy, very, very healthy double-digit growth at market rates that we feel are better than the vendors that we tend to be serving, largely because they've been shifting -- a lot of these vendors have been shifting to 2-tiered distribution, a trend that's been continuing for the last 2 to 3 years. The vendors are very pleased with our solution's orientation. So we do have a division here that is now in virtually all of our countries. We do have a little bit of a gap, probably in Latin America, to fill, but in most of the other significant countries around the world, we do have a practice and a dedicated division focused on this. And that's allowed us to grow at a rate that's, as I said, healthier than our overall corporate levels and clearly at better returns than our corporate level. So we're very pleased with this business unit.

Craig Hettenbach

And last one, if I could, for Bill, just on OpEx, excluding the impact of ERP. Can you just talk about what you're doing in the OpEx line here as we go forward?

William Humes

Yes, sure, Craig. It's -- OpEx obviously in the second quarter, a large piece of the OpEx growth was related to currency strengthening. So that's just has a one-for-one increase relative to the sales growth as well on OpEx. Going forward, similar issue in the sense. or similar items in the sense of merit increases globally that we experienced in this year. So if you think about it, about 2/3 of our overall compensation -- 2/3 of our overall OpEx is compensation-related, and we institute merits earlier this year. So that has, if you think about it, 2% to 3% depending upon what country you're in, a merit that has an impact going forward. And we do keep on, continue to invest in some of our strategic initiatives in the adjacent markets, developing out capabilities in mobility and in the data center. But our goal is to be, as Greg mentioned, extremely vigilant on costs, tighten up where we need to and drive operating leverage or at least control it whilst the markets are a little bit softer. So we'll continue to do that and then address some of the softer markets a little bit even more vigilant.

Operator

The next question is from Richard Gardner, Citigroup.

Richard Gardner - Citigroup Inc

Couple of questions, if I might. First of all, I was wondering if you could help us understand how much of the European operating margin pressure that you're seeing is a transitory ASP issue as vendors try to bring down channel inventories on certain products. And then a follow-up or 2.

Gregory Spierkel

All right. There clearly has been some degree of inventory overhang in Europe. We've talked a little bit about that again in Q4 and Q1, that there was more inventory in the overall marketplace than, I think, most of us, our competition and the vendors would like, largely again off of the back of a surprise of the downturn that everybody saw in the consumer late in Q4. And Q4 is such a strong quarter for the consumer purchase patterns. So from that point of view, there's been some, I'd say, burning off of inventory throughout the channels. And generally, we feel much better than where we were 6 months ago. As a company, we were sitting on probably a little bit more of aged inventory, and we had to work through that, but we have done a really good job of moving through that. So from an Ingram perspective, I think we're in pretty good shape. As far as ASP pressure, because of that, it's again hard to tell. You get vendor support with lower price points, so we might be moving some of the revenue activity or the revenue decline has been because there's been slightly lower prices to pull things through. Not affecting our margins as much, Richard, but definitely affecting the value of the product or the inventory going through to the consumer. So there, there's probably been more pricing action that we've obviously supported and passed through with our vendor community to move some of that stock. The exact percentage, I couldn't tell you, but I know for sure in the PC space and, to some extent, print, 2 areas where there was probably a little bit more overhang. It's where more action was taken over the last 6 months to move that along.

Richard Gardner - Citigroup Inc

Okay. I guess the reason for the question was obviously sort of the $150 million charge to move inventory through over there. I guess I was just trying to figure out whether Q2 might have seen some unusual ASP pressure, and there might be. What with the headwind during the last quarter or 2 might abate substantially going into Q3? Or is that not the right way to think about it?

Gregory Spierkel

Well, no, I think it is. I think the question, it is a good one or point. Without question, Acer and a couple other major vendors in the PC space had shipped a lot by boat, as I said, and they've made big changes to their supply chains over the last 2 years to make a lot more of the production in Asia. So it usually means a 7-, 8-week timeframe from seeing the activity in the marketplace to the stock, actually, from production to the stock showing up in the continental area. Asia was not the only company that was taking, in my mind, some charges. The others were not as public, but some of the partners we work with, we know that they had to move prices down on their products substantially to move their stocks. So as I said, I think that had more of an impact on a lower price of the value for PCs, as an example, to move them into the marketplace, but not as much of an impact on the partners that are helping them affect that change through the channel.

Richard Gardner - Citigroup Inc

Okay. And then the follow-up is for Bill. You've obviously been pretty aggressive with the repo in the June quarter and July, but you're still global attention for book value. Do you plan to continue to buy back stock? Or do you need to put the brakes on here temporarily for the credit rating agencies?

William Humes

I think we're, similar like we've been in the last few quarters, we are continue interested in being actively involved in the marketplace but by also being balanced in the sense of investing in longer-range enhancements to our business. So like we've said all along, we're going to have a balanced approach, and you're seeing some of that balanced approach come through in the last couple of quarters. So we do have a $400 million program, and we are committed to continuing to exercise on that.

Richard Gardner - Citigroup Inc

Do you intent to buy more stock this quarter, Bill?

William Humes

We'll see. We don't really talk about the specifics on price, quantity or anything else within the quarter itself after release. But we are definitely -- we've exercised it over the last couple of quarters, and we'll see what we do going forward in there.

Operator

The next is from Brian Alexander from Raymond James.

Brian Alexander - Raymond James & Associates, Inc.

Just to clarify the normal seasonality for Q3, Greg. Is that roughly up low-single digits sequentially in local currency, kind of 2% to 4%? And then just talk about whether you expect each region to behave seasonally. Or are there some that will be better and some that will be worse?

Gregory Spierkel

Well, if you look over the last 5 years, and you probably have your spreadsheets in front of you, Brian, it has bounced around anywhere from 4% down to 4% or 5% up. So it has bounced around quite a bit. And of course, in there we've had 1 or 2 years that had been somewhat a little abnormal with '08 and '09 movements. So we see probably just a slight uptick in the revenue. So it will be low single-digit for sure, at least that's the sense that we have. So we're in an interesting time for us from a regional perspective. We're always in a very, very soft Europe quarter from a revenue point of view. As you know well from historical norms, July, August, are months for us that typically run at sort of 70%, 80% of what our normal run rates in Europe for the first 2 months, then all of a sudden, everybody comes back off of vacation in Europe, and then there's an incredible swell of sales that take place in September and to the balance of the year where Q4 ends up being a strong month -- a quarter, excuse me, as well. Regionally, elsewhere, again because we've got businesses down under as well as on the northern hemisphere, we get some pretty good balance in the rest of the portfolio that says there's not much of seasonal visibility except for the European piece, that's very distinctive. So I think the year-on-year changes and kind of the normal trends that we've been seeing in the current quarter that we just finished, I think, continue to play through in the existing quarter that we're in now, Q3.

Brian Alexander - Raymond James & Associates, Inc.

Okay. And then just a follow-up on Australia and clarify the impact in the quarter so we're all using the same numbers. On a revenue basis, sales would have been impacted by something around $90 million; and gross margin on a worldwide basis would've been 5.3%; and operator margin would've been about 1.3%? Is that the right way to think about what the P&L would've looked like x Australia?

Gregory Spierkel

Yes, you're close enough. Worldwide sales were impacted by about 2%, so we would have been instead of a 7 -- 2 points, excuse me. Yes, it would've been closer to 9%. So you're about right on the margins and the operating income implications. Maybe it would've been that range it. Again, it was significant for us in the quarter. But we feel, like I say, the worst is behind us and incrementally we're going to move forward in a much better light.

Brian Alexander - Raymond James & Associates, Inc.

And final one, just on the profitability in the Americas, I think it's a record second quarter at 1.8%, a very strong operating leverage. How much of that is being driven by leverage in the legacy portfolio versus incremental profitability from the adjacency strategy that you've been executing over the last couple years in Data Capture services and enterprise?

Gregory Spierkel

Well, we have improved the legacy or the classic business very nicely, so that has improved year-on-year. But to the point I was bringing up in the question from Craig before, our Data Capture/Point-Of-Sale business is moved up very nicely in the quarter, and it's continuing to present a stronger piece of the portfolio. Our investments in the data center are also generating good and better returns. The focus also on the 2 consumer divisions have seen nice improvements year-on-year from where we were last year in Avid and DBL. So you get a the mix of those other investment areas outside the classic business that also contributed. So I don't have an exact number for you, but they all improved over last year and had the tide rising for us on a quarter-to-quarter comparison for the 2 years.

Brian Alexander - Raymond James & Associates, Inc.

So it basically sounds like this is a sustainable operating margin level, barring any unforeseen changes in the macro or some competitive issues that we can't see. It sounds like 180 basis points is kind of a new range to be looking at?

Gregory Spierkel

It's a good number. We will definitely try to keep driving to that number. It will vary a little bit from quarter to quarter, but North America is generally a little steadier than the other regions. And as we get into September and the fall, we tend to -- early fall, we tend to invest pretty heavily on getting ready for IML, but then -- sorry, Ingram Micro Logistics business. So I don't think you'd be too far off, but again, it's in that range. 170, 180 is kind of what we hope to be performing at.

Operator

The next is from Ananda Baruah, Brean Murray.

Ananda Baruah - Brean Murray, Carret & Co., LLC

A couple, if I could. I guess, a lot of moving parts this quarter. It sounds like sort of the 2, would've been the 2 sore spots come into the quarter, which were Europe and Australia. It sounds like, Greg, you're saying at least some, if not most, of that kind of behind you now. So when we think about the operating margins, I guess, in both these regions going forward, and Asia actually improved this quarter sequentially. Should we consider -- should we expect sort of the same kind of operating margin improvement in Asia? Or least that same sort of dynamic, if not the same magnitude, to go forward? And then with Europe, with sort of all the comments you have made on the call so far, can we begin to see improvements there in the operating margins? It sounds like maybe there's some events that impacted the margined this quarter that are now behind you. Or do you think we're going to be at this level for maybe another quarter before we begin to improve?

Gregory Spierkel

Well, again, you're getting into a little bit more specificity than I would normally like to provide. I don't blame you for trying. Asia, clearly, we feel better about where we are. As we kind of said in the call, we had a very good quarter in all the other operating units. So stronger than prior-year top line, stronger than prior-year operating income. Clearly, Australia was the negative story there. But if you take that aside, it's very encouraging with the performance that we continue to see in an important growth region for the company. We want to be clear that the improvements that we are starting to see are going to start to happen at the customer level. I do think they will take longer than we would like, but it is what it is, not from the system changes being made but getting the customer confidence back in Australia and earning our way back into those clients. That will -- the glide path will probably be several quarters to kind of get back where we once were. But we will make continued progress here, and the team's starting to see that already, but it's going to take some time. So from a systems point of view, that's behind us. From a customer confidence and get back on track, that's just is going to take some time, month after month, quarter after quarter. And we'll see, I'd say, incremental progress as we move forward on that from an Asia point of view. From a Europe operating income perspective, as I kind of said to Brian a few moments ago, we are in our quietest quarter in Q3, our lowest from a volume perspective, so that always is a bit of a challenge for Ingram Micro in the way we seasonalize our results. The market conditions of Europe won't change overnight. We don't see anything, as we talk right now, that changes the trajectory of kind of what we saw in Q2 coming into Q3 from the consumer marketplace and the overall mix. There's still a very significant overhang outside of Europe and Austria and France with a lot of the economies and the consumer mix that we have in our portfolio. But as we go into Q4, I expect, obviously, a significant improvement. Again, that's a seasonal improvement. I don't -- I wouldn't give you clarity beyond the seasonal giant move that we typically see at this point, Ananda, because I don't think the pattern from where we are right now, as you say, as we exit Q2 coming into Q3, are too different for Europe from what we've seen in prior years albeit from maybe a slightly softer condition because of the market situation we're in right now.

Ananda Baruah - Brean Murray, Carret & Co., LLC

That's very good detail, I guess. I had one other follow-up as well, just on PCs generally, consumer and corporate. It sounds like just, corporate overall, you're expecting sort of solid seasonal spending, and on consumer just softer generally. Can you sort of just peel maybe, if there's anything specific around PCs, to say, in both of those pockets, give us just a sense of sort of how you guys are viewing PC demand as we go into the rest of the summer and enter the fall?

Gregory Spierkel

Okay. On the PC front, I mean, we have seen, as we've kind of alluded to, let's say, the consumer segment has drifted down. Our sales into retail in Europe and in Asia are flat in many countries, down in some countries in revenue terms. Unit-wise, we're probably still moving up. But in revenue terms, it's flat to down across most the geographies. We've shown some and talked about some positive retail growth in North America, but that's not off the back of PCs as much it is other product form factors and new products that we're bringing in and us executing a bit better in some of the markets that we serve through DBL and Avid. As far as corporate is concerned, I think I would echo what I've read and what our team is saying, seeing it's comparable to, I think, the IDC market data, is that the corporate PC market, while it has slowed from last year, is still showing positive revenue growth. Corporations, if anything, are putting more choice into their equations about what types of PCs they will buy than in the past. And they're trying to get standard sort of virtual desktops in place but there's more choice coming into the universe, which is presenting us opportunities to sell security, desktop automation services and a number of vendors that are in that space that are presenting great opportunities for us. And of course, a new form factor that we've all talked a lot about over the last year is the tablet. And the tablet is working its way into the workplace as well as an incremental, generally, an incremental device for people that have a lot of mobility in their lives, whether that's people in healthcare walking around with patients or engineers in the field or contractors in the field. There's those types of environments we're seeing where PCs may sit in or a mobile PC might have been used. They're may be being displaced a little bit by clearly a lighter form factor with applications being thrown on. Again, presenting good opportunities for us in networking, infrastructure, security around that type of a new solution set that's quickly evolving here.

Operator

The next question is from Ben Reitzes from Barclays Capital.

Benjamin Reitzes - Barclays Capital

A lot of questions were asked. So I was wondering with regard to your guidance here, what are you thinking about sequentially by region in terms of top margin? What kind of improvement can we see in Europe, if any? And maybe if you can talk about overall the change in OpEx -- I'm sorry, op margin?

Gregory Spierkel

Okay, Ben, as you probably know, I won't get into that level of detail by country or region around operating income. We don't provide a hard guidance number anyways. At this stage, it's just a directional movement. But I think I tried to give you a sense of that earlier. I would say Asia continues to make meaningful progress off the back of region that's strong for us generally, with the exception of the challenge we've had in Austria -- Australia. We're moving in the right direction. The momentum that we've seen in North America seems to be holding. Our team is doing a good job executing. The market dynamics are relatively solid across the board. Latin America, again from an income perspective, this quarter is usually a decent quarter. The market conditions that we just seen, which have been pretty favorable for us outside of Brazil, I think, will continue along the same path that we just had in the quarter that we finished saleswise. And then as we go to Europe, maybe that's the area with the biggest question still from an economic perspective. And as we go into the 2 fairly quiet months, our visibility is not as good in Europe, although the trends are consistent with prior years, which says the general European body at large is largely on vacation. So the spending patterns are definitely lighter for the first 2 months in the quarter.

Benjamin Reitzes - Barclays Capital

I mean that the European operating margin is the big takeaway on terms of the op margin taking away the upside of the quarter. I mean, do you have any view on how long it will take to get that back up to closer to where it was a year ago at this time? And any timeline there, though? I know you've got a lot of ERPs moving in and out.

Gregory Spierkel

Yes, there's -- I mean, the ERP implication on Europe has been very muted. We have haven't highlighted it. We feel that the few conversions that we've done have gone fairly well. So the only one we've really talked about extensively, clearly, is the Australia one. The bigger story here is what's happening with consumer and what can we do to offset the retail consumer exposure, if you may, that we have with corporate SMB and commercial business. And that's where the emphasis is, and we've had good traction on that. We need to continue to make that a high priority. The consumer tends to come back in Q4 anyways, and everything we're hearing from our vendor community is encouraging in terms of new product launches. Again, a lot more tablet form factors and ancillary devices or accessories around that. So hopefully, after what has been 3 quarters of consumer being very light in Europe, maybe it gets a tad better, and that would help us, but I can't put that out on the table right now. But the European team is definitely focused on watching operating expenses, managing to find the right kind of business, making sure the gross margins are being managed carefully. So our expectation is that it will get better with each progressing quarter, but we have lost a little ground compared to last year, you're right.

Benjamin Reitzes - Barclays Capital

And then just finally on the -- you have the change in interest and other due to the reversal of the benefit you had less quarter. I mean, is there anything sequentially there that we need to think about, Bill? Or can we just kind of model more steady on the interest with the currencies and whatnot moving?

William Humes

Yes, I would say nothing substantially, no. Not a significant carryover from the foreign exchange. Obviously, there's things that can happen towards the end of the quarter that could change the dynamic. But I would say at this point it's pretty normal as she goes.

Benjamin Reitzes - Barclays Capital

I got to ask one more. You guys talked about tablets a bit, maybe a little less so than in prior calls, but is anything besides Apple selling anywhere?

Gregory Spierkel

Yes, there's other sectors of the -- and I kind of alluded a little bit on that, Ben. We're very pleased. Networking, as a category, still grew faster than the overall company numbers, and there's several vendors in the networking suite. We have seen some very good growth, as I said, in Data Capture/Point-Of-Sale; very good growth in security; interesting, from a small base, applications around our cloud offering, which we've not talked about here, growing at a nice rate, but again, very early days from a small base. So there are other pockets clearly that are -- storage, also growing much faster than the company's overall growth rates. So there are pockets of growth in certain segments. But we are in a situation where the one vendor who has brought out the tablet form factor to begin with is doing quite well in the marketplace as well. And we feature quite nicely with that company, by the way. We have, pretty much, full rights to sell the iPad in most of the countries that we're operating in around the world, so that's been a good addition to the portfolio.

Benjamin Reitzes - Barclays Capital

Just to clarify, my question was, any other tablet vendor selling? Because...

Gregory Spierkel

Yes, there are but at smaller numbers. We're selling Motorola. We're moving -- we're going to start moving HP. We work with Research In Motion in some countries. We're definitely taking Toshiba, Lenovo tablet form factors to market, as we speak. So all the major manufacturers that we've worked with are bringing a tablet form factor or have just brought a tablet form factor out. They are moving smaller numbers, maybe taking 10% to 15% market share as a broad base. Everything around the Android platform seems to be doing a little bit better in our shop, at least early days.

Operator

Our last question is from Shaw Wu from Sterne Agee.

Shaw Wu - Sterne Agee & Leach Inc.

I got to go back to margins a little bit. Obviously, the Australia IT transition impacted your gross margin by about, I guess, around 20 basis points over the last 2 quarters. You said that it's going to -- that transition is mostly over with. And I'm just wondering, how should we think of in terms of the sequential improvement in terms of the gross margins there?

William Humes

Shaw, this is Bill. I mean, overall, I think what we did say is we -- Q2 was definitely impacted by the Australia disruptions from the ERP implementation. We made some improvements from Q1 to Q2. We addressed the systems issue, so those are largely resolved in the sense of the system issues, but it's going to take some time, several quarters to regain the level of revenue. Now we do expect to make some progress, but it's going to be moderate from quarter to quarter, but it's going to be hopefully incremental. So I wanted to clarify that, first and foremost, in the sense of it doesn't all recover in Q3. It's going to be more moderate. So part of the impact was on gross margins, 5 basis points overall from the Australian market. And we would hope to continue to make some improvements in there. But it was also overall operating margin leverage relative to the reduced sales levels in Australia. So we do expect some improvement there. And other than that, what Greg told you about the guidance on, roughly seasonal revenue patterns on a global basis should have a factor. But the Australian, Asian improvements are probably one of potential catalysts for OPM moderate improvement.

Shaw Wu - Sterne Agee & Leach Inc.

And just a follow-up. So what that means is, in order for the margins to improve, I guess, from the Australia, that specific revenue stream would need to -- I mean, that specific revenues you would need to recover to see that overall gross margin improvement?

William Humes

You mean operating margin improvement overall?

Shaw Wu - Sterne Agee & Leach Inc.

Yes. Both.

William Humes

Both, yes. I would say, as we continue to regain the market share, that our operating leverage levels and performance in Australia should improve, but that's going to take a few quarters, probably longer than what we wanted it to, but it's going to hopefully incrementally improve in the -- hopefully each quarter over the next several quarters.

Operator

I would now like to turn the call over to Ria Carlson for closing remarks.

Ria Carlson

Thank you for much for joining us today. This concludes our call. A replay will be available for one week at (800) 678-3180. Thanks again. Bye-bye.

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