Dropping insufficiently profitable Verizon mobility business took a huge bite out of Ingram Micro’s earnings in the quarter preceding the proposed sale of the distributor to Tianjin Tianhai.
The California-headquartered distributor said sales for the quarter ended 2 January sunk by 13 percent, to US$11.3 billion, after factoring out changes in foreign currency exchange rates. That fell way below analyst projections of US$12.4 billion.
Non-GAAP net income also fell 2 percent, from US$156 billion last year to US$152.7 billion this year, or US$1.01 per share, missing Seeking Alpha estimates of US$1.04 per share.
The distributor’s stock dropped 2.2 percent in after-hours trading Thursday to US$35.03 per share, nearly 10 percent below Tianjin Tianhai's offering price of $38.90 per share. Earnings were announced after the market closed Thursday.
"We had a solid close to a strong year of execution, and we are pleased with the progress we are making against our strategic objectives," Alain Monie, Ingram Micro’s CEO, said in a statement.
Ingram Micro started 2016 out with a bang, announcing last week that the company would become part of Hainan, China-based HNA Group in a US$6 billion deal. That prompted the distributor to call off its quarterly earnings call, dividend payment, share repurchase program, and 2016 sales and profit projections.
Then on Tuesday, Ingram Micro announced that president and chief operating officer Paul Read would be leaving his post Friday – and leaving the company altogether in September. A company spokesman told CRN USA that Read joined the distributor in 2013 with an eye toward succession planning, but HNA indicated they wanted Monie to continue leading the company for some time after the acquisition closes.
From an earnings standpoint, Ingram Micro's dumped Verizon mobility business was entirely North American-based, contributing to an almost 23 percent nosedive in quarterly sales for the continent, from US$6.04 billion last year to just US$4.66 billion.
The distributor announced in July that it would be slashing a third of its Verizon mobility practice – which contributed US$500 million of sales in the final quarter of 2014 – because of significantly higher-than-expected rates of handset returns.
The partial divorce came just 15 months after Ingram Micro signed an agreement with four of Verizon's largest national dealers to distribute handsets and supply chain services.
In Europe, Ingram Micro's sales tumbled 19 percent, from US$4.18 billion to US$3.38 billion this year. A favorable change in terms for some of Ingram Micro’s high-volume European fulfillment business will benefit the distributor in the long run, but resulted in a US$300 million sales decline in the most recent quarter, as revenue post-negotiation is being recognised on a net basis rather than a gross basis.
Ingram Micro's Asia-Pacific sales fell 15 percent in the quarter, from US$2.96 billion last year to US$2.51 billion this year, while Latin American sales dipped 0.8 percent, from US$763.7 million last year to US$757.9 million this year.
Ingram Micro's most recent quarter also had one week less than the fourth quarter of 2014, resulting in a US$900 million revenue hit.