Brightpoint Inc. (CELL) declared mixed financial results for the second quarter of 2010. We remain concerned regarding the company’s top-line fluctuations. Quarterly total revenue was $788.6 million, an improvement of 11% year over year but a decrease of 11% sequentially. This was also significantly below the Zacks Consensus Estimate of $832 million.
Brightpoint cited this poor performance was the result of lower sales of wireless devices in its Singapore operation although EMEA region performed relatively better. In the second quarter 2010, the company managed 22.294 wireless devices, up 18% year over year but sequentially down 1%. However, high-margin smartphones constituted 27% of total units handheld in the reported quarter compared with 22% in the previous quarter.
Because of its continued problems in the Singapore operation, management has reduced its full year 2010 wireless device handled target to 98 million – 100 million from its previous estimation of 101 million – 103 million.
GAAP net income from continuing operations was $7.3 million or 10 cents per share compared with a net income of $3.1 million or 4 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS in the second quarter was 14 cents, beating the Zacks Consensus Estimate of 12 cents.
Segment wise, Distribution revenues were $713.1 million in the second quarter 2010, compared with $616.7 million in the year-ago quarter. Logistics Services revenues were $75.5 million versus $91.0 million in the prior-year quarter.
Margins
In the reported quarter, gross margin was 9.0%, compared with 8.5% in the prior-year quarter. SG&A expenses were $53.7 million, compared with $48.7 million in the year-ago quarter. The increase in expense was due to fluctuations in foreign currency. EBITDA was $16.8 million, up from $12.4 million in the second quarter 2009.
Cash Flow
In the first half of 2010, Brightpoint used $18.7 million of cash for operations compared to a cash generation of $101.9 million in the prior-year period. Free cash flow (cash flow from operation less capital expenditure), in the same period, was a negative $8.7 million compared to a positive $93.0 million in the prior-year period.
Balance Sheet
At the end of the second quarter 2010, Brightpoint had $17.9 million of cash & marketable securities on its balance sheet compared with $81.1 million at the end of fiscal 2009. Total debt was $121.5 million at the end of the same quarter compared with $97 million at the end of fiscal 2009. Debt-to-capitalization ratio, at the end of the second quarter 2010, was 0.37 compared with 0.26 at the end of fiscal 2009.
Future Financial Outlook
Gross margin, in fiscal 2010 is expected to be between 8.6% and 8.8%. SG&A expense, excluding stock-based compensation, restructuring and amortization (non-GAAP) is expected to be between $210 million and $217 million compared with the prior guidance of $218 million to $225 million. This was primarily due to foreign currency exchange rates fluctuations. Interest expense is expected to be between $8 million and $10 million compared with the prior guidance of $9 million to $11 million. Non-GAAP effective tax rate is expected to be between 31% and 33%.
Our Take
Despite experiencing lower sales of devices from its primary supplier in Singapore, we believe Brightpoint is leveraged to gain from the expanding smartphone trends in the global wireless industry. We thus maintain our Neutral recommendation for Brightpoint. Currently, it is a Zacks # 3 Rank (Hold) stock.
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