Brightpoint Outperforms - Analyst Blog

Brightpoint Inc. (CELL) declared solid financial results for the third quarter of 2010. Quarterly total revenue was $889.0 million, an improvement of 3% year over year and 13% sequentially. This was also significantly above the Zacks Consensus Estimate of $858 million.

In the third quarter of 2010, the company manages 24.907 wireless devise, up 14.3% year over year and 11.7% sequentially. The year-over-year increase was driven by an increase in logistic services units.

Quarterly GAAP net income from continuing operations was $11.4 million or 16 cents per share compared with a net income of $18.4 million or 22 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS in the third quarter was 20 cents, miles ahead of the Zacks Consensus Estimate of 15 cents.

Segment wise, Distribution revenues were $808.9 million in the reported quarter compared with $770.6 million in the year-ago quarter. Logistics Services revenues were $80.1 million compared with $95.1 million in the prior-year quarter.

Margins

In the reported quarter, gross margin was 8.6% compared with 8.4% in the prior-year quarter. SG&A expenses were $57.4 million compared with $53.1 million in the year-ago quarter. The increase in expense was attributed to fluctuations in foreign currency exchange rates.Quarterly EBITDA was $21.3 million, up from $17.1 million in the third quarter of 2009.

Cash Flow

During the first nine months of 2010, Brightpoint used $23.4 million of cash for operations compared with a cash generation of $112.8 million in the prior-year period. Free cash flow (cash flow from operation less capital expenditure), was a negative $7.2 million compared with $98.1 million in the prior-year period.

Balance Sheet

At the end of the third quarter of 2010, Brightpoint had $27.7 million of cash & marketable securities on its balance sheet compared with $81.1 million at the end of fiscal 2009. Total debt was $112.3 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 third quarter of 2010 was 0.33 compared with 0.26 at the end of fiscal 2009.

Future Financial Outlook

For fiscal 2010, management expects to manage wireless devices within the range of 98 million - 100 million, up 18% – 20% year over year. Mix of wireless devices handled through logistic services is expected to be near the top end of previously disclosed range of 77% to 80% of total wireless devices handled.

Gross margin is expected to be between 8.6% – 8.8% range. SG&A expense excluding stock based compensation, restructuring and amortization (non-GAAP) is expected to be between $210 million – $217 million. Interest expense is anticipated to be between $7 million – $9 million. Non-GAAP effective tax rate is expected to be in the range of 27% – 29%.

Adjusted annual diluted weighted average shares outstanding is expected to be between 72.0 million – 73.0 million shares, down from the previously disclosed range of 73.5 million – 74.5 million shares, primarily due to the repurchase of 2.5 million shares of Brightpoint common stock during the third quarter of 2010 under the previously announced share repurchase program.

Our Take

Despite of providing excellent third quarter results, we remain concerned regarding the company's top-line fluctuations. We believe Brightpoint's Singapore facility will also continue to underperform in the near future. However, management has taken effective measures to control the company's internal cost structure and as a result, net earnings are expected to increase.

We believe supply-chain agreements with a series of top-tier mobile handset developers will enable the company to withstand current economic challenges. Massive reduction of debt burden and improvement in operating cash flow are other positive factors to be considered. We thus maintain our long-term Neutral recommendation for Brightpoint. Currently, it is a short-term Zacks # 3 Rank (Hold) stock.