Fitch Affirms Ingram Micro at 'BBB-'; Outlook Stable
CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms the ratings for Ingram Micro, Inc. (NYSE: IM) (Ingram Micro), including the long-term Issuer Default Rating (IDR) at 'BBB-'. Fitch's rating actions affect $1 billion of total debt as of March 29, 2014. The Rating Outlook is Stable. A full list of current ratings follows at the end of this press release.
The ratings and Outlook reflect Fitch's expectations for stable operating performance, consistently positive annual free cash flow (FCF) through the cycle, and solid credit protection measures. For 2014, Fitch expects low-to mid-single digit revenue growth, driven by a modest recovery in Europe, strong top line growth in emerging markets (particularly Latin America), and the resumption of growth in the Brightpoint business with the support of Ingram's global scale and position in the market.
Over the longer-term Fitch expects low single digit revenue growth, driven by mature top line growth for the technology solutions businesses, which represents the vast majority of total revenues. Ingram Micro's focus on smaller but faster growing businesses, including mobility, supply chain and cloud solutions, will be key to accelerating revenues growth.
Fitch expects operating EBITDA margin will remain thin but expand slightly over the intermediate term, driven mainly by operating efficiencies programs and expectations for improving results for the Brightpoint business. Fitch expects operating EBITDA margin will exceed 1.7% over the intermediate-term and remain above 1.5% through the cycle. For the latest 12 months (LTM) ended March 29, 2014, Fitch estimates operating EBITDA margin was 1.65%, versus 1.55% for the comparable prior year.
Fitch expects consistently positive annual free cash flow (FCF), driven by growing profitability in an upturn and the reduction of working capital in a downturn. For 2014, Fitch forecasts $150 million to $200 million of FCF, driven by higher profitability and the resumption of more typical working capital patterns following the full integration of Brightpoint. Fitch believes annual FCF will be used for a combination of smaller tuck-in acquisitions and share repurchases. As of March 29, 2014, $124 million was available under the company's $400 million share repurchase authorization expiring October 2015.
Fitch expects total adjusted leverage (total debt adjusted for capitalized rent expense and off balance sheet receivable sales programs to operating EBITDAR) to remain below 3.5 times (x) over the longer-term but end fiscal 2014 in the 2.25x to 2.5x range, driven by higher probability.
Ratings strengths include:
--Significant customer and geographic diversification; --Substantial competitive advantage from scale of operations, resulting in leading positions across all geographies;
--Importance of wholesale distribution model to both original equipment manufacturers (OEMs) and value added resellers (VARs).
Rating concerns include:
--Low margin and high working capital nature of the wholesale distribution model, which can lead to volatility in profitability and FCF, although working capital has historically provided a substantial source of liquidity during cyclical downturns; --Exposure to cyclical IT demand and general global economic conditions;
--Significant reliance on Hewlett-Packard as a supplier.
Negative rating actions could result from total leverage adjusted for operating leases and off balance sheet receivables sales facilities approaching 3.5 times(x), driven by:
--Structurally lower operating EBITDA from sustained negative revenue growth or competitive pricing; or
--Negative FCF from lower profitability in conjunction with diminished working capital efficiency.
Fitch does not anticipate positive rating action, given Ingram Micro's low profitability and need for financial flexibility to support working capital needs.
Liquidity was solid as of March 29, 2014 and consisted primarily of $425 million in cash and cash equivalents ($152 million in the U.S.), an undrawn $940 million senior unsecured revolving credit facility expiring September 2018 and approximately $425 million of capacity under a $675 million North American accounts receivable securitization program which expires November 2015. Ingram Micro also has several additional committed and uncommitted receivable financing facilities which can provide further significant liquidity.
Total debt as of March 29, 2014 was approximately $1 billion and consisted principally of $250 million outstanding under the aforementioned North American accounts receivable facility, $300 million of 5.25% senior unsecured notes maturing in 2017 and $298 million of 5% senior unsecured notes maturing in 2022. In addition, Ingram Micro has $167 million outstanding under other debt and various uncommitted lines of credit.
Fitch affirms Ingram Micro's ratings as follows:
--IDR at 'BBB-';
--Senior unsecured debt at 'BBB-'
--Senior unsecured credit facility at 'BBB-'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Criteria:
--'Corporate Rating Methodology' (May 28, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage