Strong 1st Quarter a Sign of Recovery for Ingram Micro

Ingram Micro Inc., the world’s largest computer products distributor, showed signs of resurging health Wednesday as it beat Wall Street’s profit expectations and posted strong sales growth for the first three months this year.

The Santa Ana company reported earnings of $96 million, or 65 cents a share, boosted by its sale of more than $69 million of stock in Japanese investment firm Softbank Inc. It had a net profit of $42 million, or 29 cents a share, in last year’s first three months.

Even without the stock gains this year, Ingram still had an operating profit of $24.7 million, or 17 cents a share, for the first quarter, topping analysts’ estimate of 15 cents. The results showed a dramatic recovery from the previous quarter’s $36.5-million operating loss.

More importantly, analysts said, Ingram has begun to undo the damage inflicted by last year’s bitter price-cutting battle among distributors, partially because it has outlasted its foes.

As two of its main competitors sought bankruptcy protection, Ingram raised prices while expanding its customer list. Sales rose 16% to $7.8 billion for the first quarter, markedly improving in Europe, where the company’s rate of growth doubled that of the industry overall.

“We were prepared to [raise prices] even if it affected sales,” said Kent Foster, who took the reins as chief executive in early March. “Profitless growth will get you in trouble. We will be profitable or we will exit the business, client by client, sale by sale.”

Ingram also solidified its balance sheet by keeping costs steady, reaping the benefits of cost-cutting moves made last year, analysts said.

“I would like to see better [profit] margins still, but they are holding expenses very flat,” said Robert Anastasi, an analyst with Raymond James.

Investors have shown increasing confidence in the company’s direction after they battered its stock for much of last year. Before the release of first-quarter results, Ingram shares rose $1.63 to close at $20--much improved from a low of $10 in October but far off the $52 high set in late 1998.

“Things have bottomed out and are beginning to improve,” said Tom Cal, an analyst with Wit Soundview, a Stamford, Conn., research firm. On Wednesday, Cal upgraded his recommendation on Ingram’s shares from a “hold” to a “buy.” “The substantive change is that competitors died, but unequivocally things are on the upswing.”

Ingram’s sales traditionally have come from serving computer manufacturers and retailers.

But increasingly, the company is building a roster of electronic retailing clients, including Buy.com Inc. and Valueamerica.com, which have decided to farm out their distribution business rather than build warehouse networks and computer tracking systems.

Ingram now serves as the back office for more than 30 dot-coms, Foster said.

The company also has taken steps recently to stabilize itself internally after enduring layoffs and widespread defections of executives last year, analysts said.

Foster’s appointment ended six months of speculation over who would replace Jerre Stead, who announced in September that he would give up day-to-day control of the company once a successor was found. Stead remains the company’s chairman.

The company also has filled other top management positions.