Ingram Micro's Sales Improve, Margins Worsen

| About: Ingram Micro (IM)

Ingram Micro (NYSE:IM) reported earnings yesterday:

Worldwide sales for the quarter were $8.25 billion, a 9 percent increase from $7.60 billion in the prior-year period. The translation impact of the relatively stronger European currencies had an approximate 3 percentage-point positive effect on comparisons to the prior year. Net income for the first quarter was $37.0 million, or $0.21 per diluted share which is at the high end of the company’s earnings guidance issued on March 1, 2007. As previously announced, a first-quarter charge of $33.8 million, or $0.19 per diluted share, was recorded to cost of sales for commercial taxes on software imports in Brazil, reflecting tax legislation enacted on February 28, 2007. In addition, the first quarter included a benefit of approximately $0.02 per diluted share from the favorable resolution of a U.S. tax audit.

The adjusted numbers slightly missed analyst expectations of $0.39 on $8.2 billion in sales. However, the company is expecting stronger sales performance next quarter:

• Sales are expected to range from $8.00 billion to $8.25 billion.
• Net income is expected to range from $59 million to $65 million, or $0.34 to $0.37 per diluted share.

With the street currently at $0.36 on $7.95 billion in sales, it seems the company is forming a pattern of better sales and slightly worse margins. However, in much of the world margins improved. The company explained:

European operating income was $35.0 million or 1.15 percent of revenues versus $34.5 million or 1.28 percent of revenues in the year-ago quarter. The additional operating expenses related to improving service levels and regaining market share that suffered from the transition to the upgraded warehouse management system in Germany had a negative impact on European operating income compared to the prior year.

If Ingram can regain its market share, the margins should improve. For now, the market will probably be focused on the improving sales growth.

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