Distributors Feel Effects Of Soft Market

Staff On Jun 11 2001 - 6:00am

SANTA ANA, CALIF. — Global wholesale provider of technology products and supply chain management Ingram Micro blamed the soft technology market in the United States for a 15 percent decline in net sales in this market, to $3.92 billion during the first quarter, compared with the year-ago period.

As a result of this downturn, the distributor of microcomputer products announced an aggressive plan to improve cost efficiencies, including the elimination of about 1,000 job in the United States. The plan is expected to save the company about $30 million to $40 million on an annual basis. These actions will result in a restructuring charge not expected to exceed $15 million in the second quarter.

"We began to experience a decline in demand late last year, which continued into this quarter," said Michael J. Grainger, president/chief operating officer. "Nevertheless, we made measurable improvements in other vital areas."

Operating margin in the United States during the first three months ended March 31 improved 13 basis points to 1.21 percent, based on income from operations of $47.4 million, compared with the same quarter last year.

"Gross profit and net income outperformed the first quarter last year and hit the high end of our range of guidance," Grainger continued. "We were able to reduce expenses by approximately $8 million during the quarter, as compared with the fourth quarter 2000, and operating efficiency continues to be a key area of focus."

Ingram Micro's overall net sales dropped about 2 percent in the first quarter to $7.2 billion, down from $7.8 billion in the year-ago three months. Net income was $26.4 million, compared with $24.7 million in last year's first quarter, excluding gains from the sale of securities and the repurchase of company debentures. With the gains, net income for last year's first quarter was $96.1 million.

Gross margin was in line with the company's previous guidance, rising to 5.34 percent of sales, up 64 basis points from the 4.70 percent recorded in the first quarter of last year.

Income from operations was $70.5 million, down a hair from the year-ago first quarter, but up eight basis points as a percentage of sales.

The company said it expects to generate sales of between $6.3 billion and $6.7 billion during the second quarter in 2001, with anticipated net income, before any non-recurring items, ranging from $11 million to $18 million.

Details of Ingram Micro's plan to create a more competitive cost structure include closing a California distribution center and returns processing center and downsizing a Florida distribution center. The company will consolidate the product management division from six product categories into four. It will reorganize IT resources and restructure the sales function into six groups focused on specific customer segments.

"The economic outlook for the rest of 2001 is cloudy, but we have clear strategic priorities," said Kent B. Foster, chairman/CEO. "We will continue to improve operating efficiencies and manage gross margins, while capturing additional market share."