IM: Ingram Micro Guidance Looks Uninspiring for Tech Shares

By William Trent, CFA of Stock Market Beat

Although it is a member of the Stock Market Beat Small Cap Watch List and Mid Cap Watch List, computer wholesaler Ingram Micro is the world’s largest computer distributor. As a result, it is a useful gauge of the health of the entire IT industry when the company reports earnings:

Worldwide sales for the fourth quarter were $8.85 billion, an 11-percent increase from $7.96 billion in the prior-year period. The translation impact of the relatively stronger European currencies had an approximate three-percentage-point positive effect on comparisons to the prior year. Sales for the 2006 fiscal year were $31.36 billion, a 9-percent increase over 2005 and an all-time record.

After accounting for a few factors that had not been factored into the guidance, the results were slightly ahead of the consensus estimate of $8.55 billion in sales and $0.53 EPS. The company also provided guidance for the current quarter:

* Revenue of $8.10 billion to $8.35 billion. (Consensus = $8.04 billion)

* Net income of $63 million to $70 million, or $0.36 to $0.40 per diluted share. (Consensus = $0.40)

With operating margins less than 1.5% of sales, it is very easy for small changes in the expense structure to translate into big earnings swings. More important is the revenue estimate, which marks an expected 6.5% improvement. That amount is acceptable, but hardly enough to spur hopes of a rally in tech shares. It is also a dropoff from the 11% fourth quarter growth, despite the much anticipated consumer launch of Windows Vista.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Starbucks (SBUX) call options; Landstar (LSTR) put options; Plantronics (PLT) put options

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