Ingram Stock Staggered Again by Disappointing Profit Report
Computer parts wholesaler Ingram Micro Inc. took another hard knock Friday as its stock dropped 25% on the heels of its mixed earnings report, extinguishing the mini-rally it enjoyed earlier in the week.
The stock lost $3.81 to close at $11.69, nearly two-thirds off the last year’s high of $33 in mid-July. It traded as low as $10 in October, miles from its high of $52 a share a year earlier.
The market’s response, fueled by tongue-lashings from a handful of analysts about slipshod operating practices, took executives at the Santa Ana company by surprise.
“I did not expect the hit we took,” Chief Executive Jerre Stead said.
But to some, investors’ reaction made sense in view of the formidable obstacles the company faces.
“You have 4% to 5% [profit] margins, lots of competition, and it’s hard to differentiate your products,” said Tom Cal, an analyst with SoundView Technology Group. He figures investors were reacting to an outlook that is “not great.”
The Wall Street hammering is the latest hit to the world’s largest computer products distributor. The last 18 months have brought the full menu of corporate misery: declining profit, executive turmoil, heightened competition and intense self-examination.
Though virtually invisible to the shopping public, Ingram Micro touches almost every acre of the computer industry.
It distributes computers to stores and performs a host of other tasks, from assembling and shipping custom systems and computers for major brands such as Compaq and Hewlett-Packard to installing software for manufacturers. It is the offline guts of many large online stores, including Buy.com Inc. in Aliso Viejo, the fourth-largest Internet retailer.
After years of dominance and swift growth, however, Ingram found itself chest-deep in a price war last year with other distributors. Complicating matters, several computer manufacturers began to sell their wares directly to consumers, cutting out distributors altogether.
As a result, Ingram’s profit fell in 1999 even as sales grew 27% to $28.1 billion, the most for any public company in Orange County. Ingram earned $183.4 million last year, or $1.24 a share, down 25% from the previous year’s profit.
In releasing fourth-quarter financial results Thursday, Ingram said it had profit of $75 million, or 51 cents a share, well above analysts’ expectations.
But much of that came from the sale of stock in Japanese investment giant Softbank Inc., which resulted in a $125 million gain.
On an operating basis, Ingram lost $36.5 million, reflecting larger-than-usual write-offs for excess inventory and undersized rebates from suppliers.
Some analysts blamed management turnover, staffing gaps and inexperience for the quarter’s 29% increase in the cost of sales. More than 20 top executives have left the company in the last nine months. Ingram also laid off 1,400 employees last year to cut costs.
Not so, Stead said.
“That’s about as disconnected from reality as anything I’ve heard,” he said. He called the write-offs an effort to clean the slate as the company chooses his replacement and moves from a payment system of traditional product markups to charging fees for its services.
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On the Skids
Ingram Micro’s stock had another setback Friday, continuing a long slide. Monthly closes and latest:
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Friday: $11.69, down $3.81
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Source: Bloomberg News
