Ingram Micro Inc. (NYSE: IM), the world’s largest technology distributor, announced financial results for the second quarter, which ended June 30, 2007. Worldwide sales for the quarter were $8.19 billion, an 11 percent increase from $7.40 billion in the prior-year period and an all-time record for a second quarter. The translation impact of the relatively stronger European currencies had an approximate three percentage-point effect on comparisons to the prior year.

8% growth ex currency is the type of fairly bland result we have been seeing from tech companies for a long time.  I had been turning hopeful as CDW Corp.’s (CDWC) sales growth accelerated, and some of the economic indicators suggested a bottoming out. But EMC’s  (EMC - Annual Report) results and the durable goods report are throwing cold water on the thesis. Ingram didn’t make things worse, but it didn’t make them better either.

The Economic Calendar is quiet in the early part of this week but there are important reports at the end of the week. On Thursday is the Durable Goods report, for which the consensus estimates a 2.0% increase. On Friday is the Preliminary Estimate of 2Q GDP, which the consensus has pegged at 3.2%. That sounds a little high to me based on the economic data table I’ve been compiling.

EconomicData

The Earnings Calendar is as busy as it can get. Some of the names I’ll be watching:

Monday

• Altera (ALTR) - Xilinx (XLNX)  filed an awful report. Can Altera do any better? Consensus is $0.19 EPS on sales of $314 million.
• Hexcel (HXL) - This Small Cap Watch List (Track at Marketocracy) member was seeing rising estimates until last month, when they were cut from $0.20 to the current $0.17.
• Steel Dynamics (STLD - Annual Report) - The Mid Cap Watch List (Track at Marketocracy) member is expected to earn $1.04 on sales of $948 million.
• Texas Instruments (TXN - Annual Report) - expected to earn $0.42 on $3.45 billion in sales.

Tuesday

• CH Robinson (CHRW - Annual Report) - estimates have been rising and now stand at $0.47, but Landstar (LSTR - Annual Report) disappointed.
• CDW Corporation (CDWC) - stellar monthly sales reports have kept estimates rising. They now stand at $0.97.
• EMC Corporation (EMC - Annual Report) - The big news is still the VMWare IPO, but it is also a decent look at enterprise tech spend.
• Laboratory Corporation of America (LH) - The Mid Cap and Large Cap Watch List (Track at Marketocracy) member has been seeing positive earnings revisions and is now expected to earn $1.09 on $1.03 billion in revenue.
• Lexmark (LXK) preannounced and will probably offer poor guidance.
• Linear Technology (LLTC) - expected to earn $0.35 on $267 million in sales.
• Norsk Hydro (NHY) - The Large Cap Watch List (Track at Marketocracy) member has no analyst coverage right now.
• Plantronics (PLT) - my covered call position is now being cashed out so I’ve no skin in this one. But it is often volatile.
• United Parcel Services (UPS) is a great read on the health of the economy. Expectations are $1.03 on $12.23 billion in revenue.

Wednesday

• Arkansas Best (ABFS) - after Landstar’s (LSTR - Annual Report) weak quarter I’m expecting a poor showing. Estimates have come down to $0.67, but may not have come down enough.
• Colgate Palmolive (CL) - Large Cap Watch List (Track at Marketocracy) member unlikely to surprise much. Consensus is $0.83 on $3.31 billion.
• Corning (GLW - Annual Report) - is LCD supply/demand back in balance?
• Freeport McMoRan Copper & Gold (FCX - Annual Report) -Another Large Cap Watch List (Track at Marketocracy) member with dramatic positive earnings revisions, now standing at $2.71.
• Graco (GGG) is another Large Cap Watch List (Track at Marketocracy) member. Estimates have been coming down and are now at $0.61.
• MEMC Electronic Materials (WFR) - Is polysilicon supply catching up to demand for this Large Cap Watch List (Track at Marketocracy) member?
• Xerox (XRX) - can they make the numbers without asking investors to ignore a bunch of stuff? I don’t doubt they will earn $0.27 as expected but wonder how they’ll get there.

Thursday

• Federated Investors (FII) is on the Large Cap Watch List (Track at Marketocracy) and expected to earn $0.54.
• Ingram Micro (IM) is on the Small Cap Watch List (Track at Marketocracy) and expected to earn $0.36.
• KLA-Tencor (KLAC) - I know the semiconductor equipment fundamentals stink. I want to know how much and whether it is priced in.
• NII Holdings (NIHD) is on the Large Cap Watch List (Track at Marketocracy) and expected to earn $0.49.
• Western Digital (WDC) is on the Large Cap Watch List (Track at Marketocracy) and expected to earn $0.36.

Disclosure: William Trent has a long position in SMH.

Earlier today I said “Other signs are pointing to the consumer slowdown extending beyond just housing-related stores. The consumer was the last leg in the economy’s stool, so businesses had better take up the slack or we could be in for more of a slowdown than we already have.”

Right on cue, I learn that CDW’s Average Daily Sales Increase 25.3 Percent in June 2007 and 24.4 Percent in the Second Quarter of 2007:

Excluding Berbee sales in June 2007, and therefore on a non-GAAP basis, CDW’s average daily sales for June 2007 were $31.641 million, an increase of 15.9 percent compared to average daily sales for June 2006 of $27.293 million and total sales for June 2007 were $664.5 million, an increase of 10.7 percent compared to total sales of $600.4 million for June 2006.

That is a pretty darned good number. If it is happening across the board, and not as a result of CDW gaining market share, the GDP chart for tech equipment and software spending won’t look like this for long.

If it is an industry-wide phenomenon, there are positive implications for Tech Data (TECD), Ingram Micro (IM) and Mid Cap Watch List (Track at Marketocracy) member Synnex (SNX) as well as for their suppliers, primarily Hewlett Packard (HPQ - Annual Report).

CDW Corporation (CDWC), a leading provider of technology products and services to business, government and education, announced average daily sales for May 2007 increased of 25.8 percent compared to May 2006. Both May 2007 and May 2006 had 22 billing days.

As previously announced, CDW completed the acquisition of Berbee Information Networks Corporation on October 11, 2006. May 2006 sales do not include Berbee sales, while May 2007 sales include Berbee sales. Excluding Berbee sales in May 2007, and therefore on a non-GAAP basis, CDW’s average daily sales for May 2007 were $28.990 million, an increase of 15.7 percent compared to average daily sales for May 2006 of $25.057 million and total sales for May 2007 were $637.8 million, an increase of 15.7 percent compared to total sales of $551.3 million for May 2006.

In May 2007, average daily sales for the corporate sector segment increased 10.5 percent and average daily sales for the public sector segment increased 26.9 percent compared to the prior year period.

Since we likely won’t have this source for much longer, I intend to make the most of it while it is still available. The 15.7% organic growth rate is certainly stronger than we have seen recently from such indicators as GDP. Since the GDP data applies to Q1, the stronger (and accelerating) sales growth from CDW argues in favor of improving GDP numbers in the coming quarters.

Yesterday, when the CDW buyout talks were still just a rumor, I said “with the stock now trading with a 19x FY2008 P/E multiple and a 12x EV/trailing EBITDA, I wonder how much more a buyer would be willing to pay. I wish I had bought this one earlier, but it’s looking way too late now.”
CDW to be bought by Madison Dearborn for $7.3 bln - Yahoo! News

CDW in a statement late on Tuesday said its board had held an auction for various potential bidders before it approved the Madison Dearborn deal, under which CDW shareholders will get $87.75 in cash for each share of CDW common stock.

I was wrong. The one-day gain should still be about 4-5% from when I made that comment, which makes for an annualized rate I don’t want to figure out. Still, had the deal fallen through the downside was probably greater than the 4-5% so I don’t think I was too wrong.

Truth be told, more than missing the trade opportunity I regret losing such a useful read into channel sales for tech equipment. I don’t have the resources to conduct channel checks, so such proxies are my next-best chance.  Without CDW’s monthly sales reports it will be more difficult to get a handle on tech demand.

When CDW Corp. (CDWC) announced earnings for the first quarter, I described the results as solid. The 8.0% growth was above average for the computer-related industries though below the “double-digit” growth investors typically (and quite arbitrarily) expect from tech-related firms.

Then, they achieved that double-digit growth rate in the second quarter, though there were some questions about the quality of the sales. Still, investors have been pleased by the results, and given CDW’s size and position in the channel I’m not surprised that there are talks to take the company private.

That said, with the stock now trading with a 19x FY2008 P/E multiple and a 12x EV/trailing EBITDA, I wonder how much more a buyer would be willing to pay. I wish I had bought this one earlier, but it’s looking way too late now.

With earnings season nearly over, we can revisit an earlier question. Namely, what’s going on with Microsoft’s (MSFT - Annual Report) Vista rollout. It was supposed to usher in a tech renaissance, but sort of sputtered coming out of the gate. Is is building up speed or looking like a dud? Here’s what some of the industry leaders are saying:

Our results were primarily driven by strength in our core products. Windows Vista and 2007 Microsoft Office System will have a multi-year impact, and both are off to a very good start.

Revenue growth in the third quarter was 32% and even if you were to exclude the $1.7 billion in recognition of previously deferred revenue associated predominately with our Technology Guarantee Programs for Windows and Office, our revenue growth would have been an extremely good 17%.

(Excerpt from full MSFT conference call transcript)

Of course, Microsoft is talking its own book. Some of the apparent strength was due to the better than expected mix of premium edition sales rather than broad-based adoption. Hewlett Packard (HPQ - Annual Report) was more circumspect:

I think it is still too early to tell whether that will be the case long run, but we have begun to see some help from Vista, and I think it was helpful to us in the quarter. But this is really a more of a longer-running opportunity we see as we go forward as opposed to something that was just unique for the quarter.

(Excerpt from full HPQ conference call transcript)

Meanwhile, CDW Corp. (CDWC) sounded almost dour:

With regard to Microsoft Vista, we have not seen significant adoption by our customers in the first quarter of 2007. While we are promoting Vista and educating customers as they prepare their adoption plan, we continue to provide support to Windows XP.

(Excerpt from full CDWC conference call transcript)

With the mixed reviews, it is no wonder investors wonder.

William Trent currently has a short position in put options related to Office Depot (ODP).

When computer reseller CDW Corp. (CDWC) recently reported a blowout quarter, we said:

Even excluding the acquisition, CDW posted those double-digit sales gains. CDW is a major reseller of Hewlett Packard (HPQ - Annual Report) computers, but Hewlett’s recent blowout was attributed to Asia. CDW only sells in the US, where businesses have been parsimonious with regard to equipment and software spending. It looks like CDW could be gaining a good deal of market share.

According to a recent article at CRN, which is a trade magazine for IT resellers, they are doing so by pricing aggressively - even below the wholesale prices paid by most resellers.

How Low Can CDW Go? - IT Channel - IT Channel News by CRN and VARBusiness

One Midwestern solution provider said CDW has matched his price for Hewlett-Packard ProLiant servers through distribution before, but until recently it had never beat that number.Yet, late in the first quarter of this year, the solution provider, who asked not to be identified, said one of his longtime HP accounts was relocating its corporate offices and needed to buy new servers. He said CDW went below cost on the servers to wrest the deal away from him. “They had to use [HP] MDF to pad their margins,” he speculated.

CDW’s gross profit margins were up slightly in the quarter. However, the company has been underutilizing a new warehouse that doubled its capacity, and gross margins should naturally increase as the new facility reaches capacity. Therefore, the gross margin doesn’t necessarily indicate stronger pricing. In fact, pricing lower in order to increase utilization may be allowing the company to paradoxically increase its margins while selling at a lower price. Chalk it up to the power of operating leverage.

The CRN article provides one example where an apparent snafu on HP’s part cost the manufacturer some margin:

One East Coast solution provider, who requested anonymity, said that in the first quarter CDW came into one of his largest accounts and bid HP ProLiant servers at 13 points—or about $1,000 per server—below what he could buy the same servers for from Ingram Micro. “I found out that CDW had an HP Big Deal letter for the account,” the solution provider said.

Big Deal authorization allows HP solution providers to sell products at substantially reduced prices in order to win a deal against competing vendors such as Dell or IBM. But it wasn’t intended to shift share from one HP solution provider to another. The solution provider was ultimately able to obtain his own Big Deal authorization for the account and ward off the CDW incursion. But the upshot of the deal was that HP, Palo Alto, Calif., lost double-digit margins on an account it was already locked into.

Hewlett Packard announced its own upside surprise recently, saying its sales will be about $1 billion more than previously forecast for the quarter. Given the CRN story, investors may want to pay special attention to margins when the company reports tomorrow.

When CDW Corp. (CDWC) announced earnings for the first quarter, we described the results as solid. The 8.0% growth was above average for the computer-related industries though below the “double-digit” growth investors typically (and quite arbitrarily) expect from tech-related firms.
CDW’s Average Daily Sales Increase 22.8 Percent in April 2007: Financial News - Yahoo! Finance

CDW Corporation (NASDAQ:CDWC - News), a leading provider of technology products and services to business, government and education, today announced average daily sales for April 2007 were $29.571 million, an increase of 22.8 percent compared to average daily sales of $24.088 million for April 2006. Total sales for April 2007 were $621.0 million, an increase of 28.9 percent compared to total sales of $481.8 million for April 2006. There were 21 billing days in April 2007 and 20 billing days in April 2006.

Even excluding the acquisition, CDW posted those double-digit sales gains. CDW is a major reseller of Hewlett Packard (HPQ - Annual Report) computers, but Hewlett’s recent blowout was attributed to Asia. CDW only sells in the US, where businesses have been parsimonious with regard to equipment and software spending. It looks like CDW could be gaining a good deal of market share.

Our earnings preview for CDW Corp (CDWC) said “14.6% sales growth doable given Berbee acquisition.” They did it and then some.

CDW Reports First Quarter Results: Financial News:

Total sales in the first quarter of 2007 were $1.859 billion compared to $1.589 billion in the first quarter of 2006, an increase of 17.0 percent. Average daily sales in the first quarter of 2007 were $29.049 million compared to $24.822 million in the first quarter of 2006, representing a 17.0 percent increase. There were 64 billing days in both the first quarter of 2007 and the first quarter of 2006.CDW completed the acquisition of Berbee Information Networks on October 11, 2006. Total sales for the first quarter of 2006 do not include Berbee sales, while the first quarter of 2007 sales include Berbee sales. Excluding Berbee sales in the first quarter of 2007, and therefore on a non-GAAP basis, total sales were $1.716 billion, an increase of 8.0 percent compared to total sales of $1.589 billion for the first quarter of 2006 and average daily sales for the first quarter of 2007 were $26.819 million, an increase of 8.0 percent compared to average daily sales for the first quarter of 2006 of $24.822 million.

Net income was $76.8 million in the first quarter of 2007 compared to $61.7 million in the first quarter of 2006, an increase of 24.5 percent. Diluted earnings per share were $0.96 in the first quarter of 2007 compared to diluted earnings per share of $0.75 in the first quarter of 2006.

Consensus estimates called for $0.85 on $1.82 billion in sales. And while the 8% organic growth rate in sales was below both consensus 5-year growth forecasts of 11.7% and the “double-digit” growth investors seem to assume is the norm for tech companies, it is certainly an improvement from recent quarters and is now sufficient to be called “solid.”

Looking at the balance sheet, about the only thing to complain about was a slight increase in the allowance for doubtful accounts, which occurred despite a slight reduction in accounts receivable. It suggests that a customer or two may not be paying the bills, but is nothing we would worry much about unless the trend continues as so far it isn’t a very large change and probably reflects normal variation.