Orange County Business Journal

Australia Operations Hamper Ingram Earnings

Chris Casacchia Thursday, October 27, 2011

Santa Ana-based Ingram Micro Inc. on Thursday reported third quarter revenue in line with Wall Street expectations and adjusted profits that missed estimates.

Ingram is the biggest distributor of computers, software and other technology products in the world, and the largest public company based in Orange County.

It posted revenue of $8.9 billion in the third quarter, up 5% from a year earlier and in line with analyst estimates.

Adjusted profits topped $52 million, down nearly 20% from a year ago.

Investors had been expecting the profit drop after Ingram lowered its third quarter earnings projections earlier this month based on recent challenges from its operations in Australia.

It said profits were expected to be in the range of $50.3 million to $53.5 million for the third quarter.

Analysts on average had expected profits of about $55 million.

Sales in North America, Europe, Middle East and Africa, Asia-Pacific, and Latin America increased in the September quarter amid stable demand among small business customers and sales growth in tablet and mobile devices, Ingram Chief Executive Gregory Spierkel said.

“While this developing product segment is strategically very important, initial gross margins are lower than company averages, which was a factor influencing results this quarter,” he said.

Gross margin was 4.95%, down less than 0.5% from a year ago.

Executives attributed the decline to lower pricing and rebates related to a slow recovery of the Australian business, weak consumer demand in Europe, and strong sales growth in lower-margin markets and products.

The company expects stable demand across its regions in the current quarter with “modest” seasonal increases, according to Spierkel.

Gross margins are expected to improve in the December quarter as the company continues to deal with the recovery efforts in Australia, he said.

Ingram did not provide guidance for the current quarter, as usual.

Analysts are projecting profits in the December quarter of $94.4 million on revenue of $10 billion.

The lingering computer and software infrastructure glitch in Australia has hampered earnings throughout the year for Ingram.

The systems overhaul involved a software program designed to improve automation, operations and services for customers and vendors around the world, Spierkel said in earlier statements.

Ingram has completed the overhaul in seven countries and has 19 more on tap. The program began three years ago and has an expected companywide completion date of 2014.

The changeover went smoothly in Singapore, New Zealand, Chile, the Netherlands, Belgium and Indonesia.

Australia is a bigger market for Ingram, and problems with the overhaul started shortly after the installation of the new software system in February and March.

The Australian business had used the same software since Ingram acquired then-Tech Pacific in 2004 for $530 million from private equity firm CVC Asia Pacific Ltd. and Dutch computer distributor Hagemeyer NV.

A year earlier, Ingram installed a proprietary warehouse management system in Australia as well, adding complexity to the system’s communications network.

When the company installed the new system, it didn’t communicate with the warehouse system, causing a backlog and other logistical problems internally and for customers.

Ingram spent most of the second quarter fixing the problem.