Ingram Micro Australia's recovery ‘slower than expected’

The ERP implementation in Australia and economic conditions in Europe impact Q3 results

Ingram Micro's global ERP implementation project in Australia has continued to impact the distributor’s financial performance in the market along with the economic problems in some European countries.

Ingram announced its third quarter results, which showed worldwide sales increased five per cent to $US8.90 billion compared with the same time last year ($US8.45 billion), but Asia-Pacific operating income - to which Australia contributes - slumped.

This was in line with the preliminary update provided on October 17, when the distributor lowered its Q3 earnings forecast on the back of the ERP issues in Australia and economic conditions in Europe.

Ingram Micro CEO, Greg Spierkel, said in a statement, the market share recovery effort in Australia following the ERP implementation, was progressing slower than expected.

“We continue to focus on improving customer service levels and pursuing marketing and sales activities intended to win back our valued customers. We are also adjusting our cost base to the market conditions and lower revenues,” Spierkel said.

“Over in Europe, the macro-economic environment had an impact on demand in many countries, particularly in consumer-related segments.

“We have been proactive in responding to these challenges as illustrated by our operating expenses hitting a 10-year low as a percentage of revenue for a third quarter, and we will continue to take active measures to ensure our cost structure reflects our expectations across our operations.”

Excluding Australia, Asia-Pacific region sales grew at a double-digit pace, and overall it increased five per cent to $US2.06 billion (23 per cent of total sales), versus $US1.95 billion reported last year. The translation effect of regional currencies had a positive impact of about six percentage points on year-over-year growth.

Asia-Pacific operating income dived to $US7.8 million, or 0.38 per cent of Asia-Pacific sales, compared with $US28.2 million, or 1.44 per cent of sales, at the same time last year.

Ingram stated Australia had a negative impact on operating margins for the region of 92 basis points for the 2011 third quarter. The year-over-year decline was also due to a higher proportion of lower-margin markets and product segments.

For the fourth quarter, Spierkel said Ingram would continue to drive sequential growth, but at a much slower rate than it has historically seen.

“Gross margins should experience a sequential increase in-line with historic seasonality, as the holidays drive activity in our logistics and consumer businesses, but they are not expected to reach last year's levels,” he said.

“We believe this quarter was an outlier and gross margins will improve measurably as we address the business mix dynamics and solidify the system rollout initiative. We expect to exercise continued prudent expense control, and drive significantly stronger operating margins in the fourth quarter.”

Looking ahead, Spierkel said he sees a significant upside as its resolves ERP related-issues and seizes opportunities in the market.

“Our core business foundation is solid, and I believe we are doing a good job of managing the areas that we can control, as evidenced by the improvements in our cost structure and growth in important emerging markets and product categories. We will continue to focus on these efforts going forward,” he said.

Ingram Micro A/NZ vice-president and managing director, Jay Miley, said the team had worked tirelessly this year to implement its global ERP system, and has made great progress in resolving many of the initial teething problems.

“I sincerely thank our partners for their patience and understanding, and assure them we are 100 per cent focused on continually improving our service levels, and delivering a positive customer experience,” Miley said. “We remain committed to working closely with our vendor and reseller partners, and delivering the best value-added service to them.”

The new global ERP system went live in Australia in January.