Higher Margin Services Push Distributor Ingram Micro Into The Black

Ingram Micro's strategic shift away from low-margin businesses toward higher-value services is starting to pay off, company executives said Thursday, as the distributor returned to profitability in its third quarter.

"We had a great quarter, reflecting continued execution on our strategy," CEO Alain Monie said in a conference call with financial analysts.

For the third quarter, ended Oct. 3, Ingram Micro reported sales of $10.52 billion, down more than 6 percent from $11.24 billion in the same quarter one year before. Net income was down more than 10 percent year over year, to $64.9 million from $72.2 million last year.

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The distributor's operating margin was 1.14 percent, up from 1.07 percent one year ago.

The Q3 results were a marked improvement over the second quarter, in which the Santa Ana, Calif.-based distributor reported a $34.3 million loss and announced a $100 million cost-cutting plan that included layoffs of as many as 540 employees.

"Our cloud business continues to grow 100 percent year over year on a currency-neutral basis," Monie said. The distributor's e-commerce and fulfillment services continue to grow at double-digit rates, he added.

The CEO said that recent acquisitions -- including repair services providers Anovo and Clarity Technology and mobile device recycling company Canai Group -- contributed two percentage points of growth to the distributor's top line.

The distributor's Q3 revenue, however, was pulled down by the decision earlier this year to drop one-third of its Verizon mobility practice in North America. Executives said sales would have been up by 5 percent on a constant-currency basis had that business been factored back in.

Unfavorable foreign currency exchange rates resulted in a $12.3 million hit on the bottom line.

Ingram Micro's strategic goal is to expand into higher-margin businesses and services, and that's been the driver behind a pair of acquisition deals unveiled this month.

Last week, the company agreed to acquire Grupo Acao, a Sao Paulo, Brazil-based distributor with expertise in applications, software and services in a move that Ingram Micro expects will create cross-selling opportunities in that country. One week earlier, Ingram Micro revealed a deal to buy the e-commerce fulfillment and payment services business of Netherlands-based Docdata.

Ingram expects revenue in the current (fourth) quarter will come in at $12 billion to $12.6 billion with the company generating $1 billion in cash for all of 2015.

Hewlett-Packard products accounted for 14 percent of Ingram Micro's sales. HP is in the process of splitting into two companies, one focused on enterprise computing products and the other on PCs and printers, and Monie doesn't foresee any disruption given that the distributor already works with the two operations as separate entities.

Given that both of the new companies will be focused on growth, Monie expects the split to create new opportunities for Ingram Micro. "The channel is going to be a more important piece of that," he said.

Monie said it was too soon to say just what the impact Dell's planned $67 billion acquisition of EMC would have on the distributor. The CEO described Dell as "a solid partner" and noted that Ingram Micro became a Dell Federal authorized distribution partner in the third quarter. EMC, however, ended its storage system distribution relationship with the distributor earlier this year. The CEO said the combination of the two vendors could result in new product innovations that create "potential positives" for Ingram Micro.

Ingram Micro executives also said they had not seen any real pickup in PC sales spurred by Microsoft's new Windows 10 operating system.

PUBLISHED OCT. 29, 2015