Ingram Micro Inc. might be hitting a bit of a speed bump.
Put a lot of the blame on Europe.
The Santa Ana-based technology products distributor said it expects net profit in the current quarter of $49 million to $56 million, slightly less than the consensus estimate of $57.5 million for the quarter. That’s including costs for stock options.
The company’s revenue expectations for the third quarter weren’t much of a surprise at $7.3 billion to $7.5 billion,up about 5% to 8% from the year-ago period.
The earnings guidance “implies little/no margin improvement, due primarily to lingering challenges in Europe,” wrote Scott Craig, an analyst with Banc of America Securities LLC in New York, in a research note.
Craig cut his target price on the stock to $19.50 from $20. The stock fell 2.5% to $17.31 on the day after the quarterly announcement, though it recovered most of that during the next few days.
In an interview following the analysts’ call, I asked Ingram Chief Executive Greg Spierkel about the apparent softness in guidance. He first pointed to Europe.
“We’re seeing a soft economic environment,” he said.
You’d think that Europe would deliver the goods now that many of the continent’s economies are finally growing faster than 2% after years of mediocre results.
Spierkel said the technology market had been strong the past two years despite the economic sluggishness.
But, in a twist, now that the economy is gaining momentum, the technology market is slowing.
Another factor: Hewlett-Packard Co. is shaking up the way it deals with its computer resellers throughout Europe,and that’s been a drag on Ingram, which distributes HP gear.
There also are some challenges on this side of the pond with increased competition for big technology purchases in North America. That’s pressuring margins here.
But Spierkel said Europe was “primarily” the driver in the outlook for the third quarter.
The good news: Spierkel said overall growth rates still are strong. Latin America and Asia continue to deliver great results, and much of North America is on track as well.
“I think the economy and IT sector are positive, but not as positive as they were last year,” he said.
Ingram said second-quarter sales in the period rose 8% to $7.4 billion,its biggest second quarter ever. Sales were higher than Wall Street forecasts of $7.3 billion, according to Thomson Financial.
Net income rose 29% to $53.8 million, versus a year ago, in line with expectations. Ingram’s profit last year was impacted by costs associated with its buy of Tech Pacific, among other one-time charges.
Quest in the Crosshairs?
I guess it’s the time of the year when Aliso Viejo-based Quest Software Inc. pops up in a discussion about mergers and acquisitions.
This time, however, there’s a decent news peg.
HP said late last month it plans to buy Mercury Interactive Corp., a technology management software and services company, for $4.5 billion in cash.
Then the analyst community started thinking other companies would want to make a similar move to match up with HP.
One of the candidates could be Quest Software, which helps companies manage their massive databases and other applications.
“Mercury’s merger with HP leaves Quest Software as the only stand-alone applications and systems management vendor focused exclusively on the distributed market,” said Credit Suisse analyst Jason Maynard in a research note
Besides being in the same markets as Mercury, both companies are coping with the options-pricing issue that forced them to restate past results.
But Maynard and many others don’t believe this will significantly hurt Quest Software’s chances to be acquired.
Western Digital’s Options
What stock options issue?
The day after Lake Forest-based Western Digital Corp. said it was looking into some stock options timing questions, the disk drive maker’s stock shot up 6%.
That same day the stock got a downgrade and at least a couple of stock price target reductions.
Western Digital said a committee of independent directors is conducting a voluntary review of its historical stock option grants. The review covers options granted from 1998 to present.
The company said in a release it does “not at present anticipate a material adjustment to the operating results reported today.”
But it also said “a material adjustment to the company’s financial statements could be required.”
The company has told the Securities and Exchange Commission that its historical stock option grants are under review.
It looks like sales and profits spoke louder than the stock options issue.
Western Digital reported net income jumped 190% in the quarter ended June 30, thanks in part to some one-time gains. But Western Digital still beat analysts’ estimates when the extraordinary items were excluded.
Revenue climbed 15% to $1.1 billion during the quarter compared to a year earlier. Analysts were expecting $1.08 billion in revenue.
