Earnings fail to propel Ingram Micro

Ingram Micro (IM) reported record revenues and earnings for the first quarter since its IPO, but its stock failed to soar today despite beating Wall Street's expectations.

The company's stock was trading today as low as 23-5/8, before finishing the day at 23-3/4, down 3/4. But analysts said the stock yesterday closed at an inflated price based on anticipation of positive quarterly results.

After the market closed Wednesday the company reported a net income of $33.1 million, or 24 cents a share, for its fourth quarter ended December 28, up from $28 million or 23 cents a share for the same quarter a year earlier.

The quarter's net income included a non-cash compensation charge related to stock options. Without the charge, the company would have reported a net income of $47.2 million, or 35 cents a share. That beat analysts' estimates of 28 cents a share, according to First Call.

Deutsche Morgan Grenfell analyst Steve Fortuna said the company's results are excellent. He was expecting 18 cents after the charge and 28 before, and pointed out that a lot of scrutiny comes with a company's first quarter after it goes public.

"If you haven't got the first quarter or two wrapped up nicely, you are in trouble," he added.

The company reported record revenue of $3.5 billion, up from $2.5 billion last year.

"As a result of our ability to effectively manage working capital, combined with the proceeds from our initial public offering, we lowered our debt-to-capitalization ratio to 27 percent," said CFO Mike Grainger in a statement. "In the short term, this improved debt position has lowered our interest expense, but more importantly, it has increased our ability to invest in operations and global expansion for the long term."

In November, the company's IPO soared like a rocket, but its stock performance has twice since plunged below its initial offering price.

As a leading worldwide distributor of a vast line of computer products, Ingram is dependent to some degree on the performance of the industry as a whole. Analysts have suggested that Ingram's stock was getting whiplash from outside factors, such as the PC industry slowdown during the fourth quarter. During the quarter, its stock price fell to levels close to its IPO price of $18 a share.

Ingram's much-hyped IPO went through on November 1 prior to any indications of a slow holiday season. Shares were priced at $18, but were already up 12.5 percent to 20-1/4 when its first day of trading started.

But some analysts say Ingram Micro was wrongfully lumped with the personal computer industry, and that their record sales for the quarter should set them apart from the rest of the PC industry.

"They are not affected by the retail PC market because they really don't have much of a presence in that market," said International Data Corporation senior analyst Steve Baker in an earlier interview. "They sell to midsized corporate resellers who sell to corporations. And the corporate industry was pretty strong in the fourth quarter."

Anticipating heavy demand, the estimated price on Ingram's 20-million share offering was boosted to a range of $17 to $19 a share from $14 to $16 a share a day before the offering, according to underwriter Morgan Stanley.

"It is definitely one of the best offerings of the year. There is great demand," Manish Shah, editor and publisher of the IPO Maven, in an earlier interview.

Shah said at the time. "I think it will remain strong and by the end of year, it could be a $30 stock."

But Shah's expectations did not foresee the upcoming downturn in the PC industry, which he feels took its toll on Ingram's stock performance. "It began in November, but it really mushroomed over the last four to six weeks, and this is what fuels weakness in the sector," said Fortuna. "Two weeks out of the quarter is a lot."

As the year came to an end, Ingram's stock plunged from its high of 28-1/8 just days after its IPO to its low of 19 on January 6--when the stock ended up closing at 19-7/8.

While the company's stock gained some ground in January as expectations that Office 97 and MMX multimedia chips would result in a boom for the computer business, Ingram's stock fell to a day low of $19 again on February 5.

IDC's Baker added that corporate resellers, which had a strong fourth quarter, comprise 80 percent of Ingram's revenues.

For full-year 1996, net income before charges was $130 million, compared to $84 million a year earlier; revenue was $12 billion, up from $8.6 billion.