TURMOIL AT INGRAM : Series of Missteps Started a Slide : Technology: Company officials cite a combination of tactical and reorganizational errors, and bad timing.

By JONATHAN GAW

Sept. 9, 1999 12 AM PT

TIMES STAFF WRITER

Ingram Micro Inc. has a healthy balance sheet, the right strategy and a dominant market position. But Wednesday’s announcement that the company is looking for a new chief executive and that its earnings will again fall far short of expectations underscored what Ingram hasn’t done this year: perform.

“In large measure, Ingram’s earnings figures reflect real execution problems,” said Joel Pitt of Credit Suisse First Boston. “The company was going through a lot of changes in terms of management and staff reductions and we believe that’s probably the major source of the shortfall.”

That Ingram is looking to replace Jerre Stead as chief executive surprised most financial analysts, who see the Santa Ana-based company--the world’s largest distributor of computer hardware and software--as fundamentally sound.

Ingram “still leads the industry, it is still financially very, very solid and it’s generally the leading distributor of any major vendor in the world,” said Robert Anastasi, an analyst with Raymond James, a St. Petersburg, Fla.-based research firm. “There’s no question that it’s in an excellent long-term position.”

The problem lies in near-term profits, the risks of losing market share to its competitors, and getting its management team in order, analysts said.

On Wednesday, Ingram said it will earn between $15 million and $21 million, or 10 cents to 14 cents a share, in the third quarter ended Oct. 2. Last year in that quarter, the company earned $60 million. That’s also far below the 41 cents that Wall Street analysts were anticipating, according to a survey by First Call Corp. This will be the third consecutive quarter of profit declines.

The news caused Ingram’s already-battered stock to plummet even further, falling 31%, or $6, to $13.31, its lowest point ever, and far below the $18 level at which the company went public three years ago. Ingram shares hit an all-time high of $54 last September. Wednesday’s market carnage mean that Ingram’s stock has fallen 62% this year, and 73% over the past 12 months.

The steep slide has shaved billions from the company’s market value. On Wednesday, Ingram was worth $1.9 billion, down from $7.7 billion a year ago.

Some analysts said the company’s strategy has been somewhat haphazard recently, attempting to hold up profit margins while the rest of the industry cuts prices to gain market share, a tactic historically employed by Ingram.

“They’ve got some pretty significant internal problems to resolve, with big holes in the top management team,” said Kurtis King, an analyst with Banc of America Securities. “The problems are correctable, but the company will need some time.”

Ingram has about 40% of the market, about twice as much as its closest competitor, Clearwater, Fla.-based Tech Data Corp. Tech Data, however, last week announced earnings that were in line with analysts’ expectations, including an 82% jump in sales.

Ingram officials note that Tech Data’s figures were for a different time period, but analysts said that Tech Data had expressed optimism about the current quarter as well, with accelerating sales in the U.S., an area where Ingram is experiencing difficulties.

During a conference call with financial analysts on Wednesday, Ingram officials said the company failed to execute its strategies and appeared to blame this quarter’s shortcomings on Phil Ellett, the former head of U.S. operations who left last week to “pursue other opportunities.”

“As leaders of our company, we made many mistakes in the implementation of our reorganization, particularly in the U.S.,” Stead told analysts. “The size and speed of change in the industry is even larger and more rapid than we had anticipated. We did not respond quickly enough to certain changes.”

Ingram announced in March that it would trim 1,400 positions from its 14,000-person staff. Since the beginning of the year, more than a dozen senior executives have left, complicating the transition.

“Making management changes at the same time we were trying to redefine our organization caused further disruption,” Stead said. “These changes coming at a time when the industry was in flux added to our difficulty.”

The management departures mostly were the result of Ingram executives receiving enticing offers from Internet companies, people getting weary of the distribution business and others taking advantage of stock options that had matured, industry watchers said.

Company officials point out that with 14,000 employees, including more than 300 at the director level, losing 18 to 20 people has a limited effect.

Among those who have left include senior vice president of global sales Gregory Hawkins, who took over as head of Aliso Viejo-based Buy.Com Inc.; chief technology officer David Carlson, who retired; and senior vice president of purchasing Victoria Cotten, who also retired.

Investors with a longer view seem bullish on Ingram stock. Although two large institutional stockholders recently cut their stakes, others have made up the difference.

New York-based Tiger Management shaved its holdings by about 7.4 million shares since March, leaving the investment company with about a 3.7% stake of Class A shares, down from 7.6%, according to filings with the Securities and Exchange Commission.

Alliance Capital, working on behalf of several insurance companies, cut its stake by about 1.8 million Class A shares, as of June 30, documents show.

Officials at Tiger and Alliance could not be reached Wednesday.

But there have also been plenty of buyers, including Fidelity Management, Bank of America and T. Rowe Price Associates, which have purchased Ingram shares recently for themselves or their clients.

T. Rowe Price’s mid-cap growth fund recently added Ingram to its portfolio, acquiring about 1.7 million shares. Fund manager Brian Berghuis has been a fan of the stock, saying the company is well-positioned to benefit from the growth of the Internet. But Berghuis declined to comment Wednesday, which could mean the fund is reevaluating its Ingram investment, a spokesman said.

Times staff writer Edmund Sanders contributed to this report.

* STEPPING DOWN

Jerre Stead will vacate his post at Ingram Micro, the company he helped build into a global powerhouse. A1

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Ingram Under Stead

* August 1996: Jerre L. Stead is named chairman and chief executive, replacing Linwood A. Lacy Jr., who resigned abruptly in May. Stead receives no salary or bonus; his compensation is tied strictly to stock options.

* November 1996: Ingram Micro’s shares begin trading on the New York Stock Exchange. Originally priced at $18, the shares jump more than 10% in their first day of trading.

* February 1997: 1996 profit climbs 31%, to $110.7 million, as sales rise 40% to $12 billion.

* May 1997: Company buys competitor Intelligent Electronics.

* October 1997: Third-quarter profit jumps 65%, exceeding analysts’ estimates.

* February 1998: 1997 reported profit soars 75%, to $193.6 million, as sales climb 38%, to $16.6 billion. Both exceed expectations.

* March 1998: Company moves into manufacturing, opening a major build-to-order facility in Tennessee to make customized notebooks, desktops and PC servers for computer companies.

* September 1998: Stock hits all-time high of $54 a share.

* December 1998: Company announces that fourth-quarter results will fall below analysts’ expectations. As a vote of confidence, Stead buys 1 million shares of company stock.

* February 1999: 1998 profit report shows jump of 27%, to $245.2 million, as sales gain 33%, to $22 billion.

* March 1999: Slow sales abroad and intense price reductions take a toll. Ingram cuts 1,400 jobs; stock drops to $17.13.

* April 1999: Stead exercises options on $15.9 million worth of Ingram stock.

* June 1999: Company announces it will sell its own brand of computers, called Everest.

* July 1999: Ingram agrees to distribute products sold by CompUSA to large corporate, government and education customers.

* September 1999: Stead steps down as chief executive. Company warns that quarterly earnings will fall far below analysts’ estimates. Stock slumps to $13.31, an all-time low.

Source: Times reports, Bloomberg News

Graphics reporting by Janice Jones Dodds / Los Angeles Times

Ingram’s Woes

Ingram Micro stock has fallen 73% over the past year as the world’s largest electronics distributor has struggled through an industry downturn brought on by pricing pressure.

Sept. 25, 1998: $54

Mar. 19, 1999: $17.94

Sept 9, 1999: $13.31

Source: Bloomberg News

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Reversal of Fortunes

Ingrams Micro’s annual profits have nearly quadrupled...

1998: $245.1

1997: 193.6

1996: 110.7

1995: 84.3

1994: 63.3