Insight Enterprises Reports Record Earnings, But What Lies Ahead?

Ticker: NSIT | Date: February 12, 2020

Q4 Results: A Closer Look

Insight Enterprises, Inc. has unveiled its financial results for the fourth quarter and full year ending December 31, 2019. The headline figures reveal a net sales increase of 31% year over year, reaching a robust $2.3 billion for Q4, while the full-year sales soared to $7.7 billion, marking a 9% uptick. This is the kind of growth that could make any CFO blush, but let?s dig deeper.

Gross Profit & Earnings: The Good, the Bad, and the Adjusted

Gross profit also saw a commendable increase of 33% for Q4, totaling $338 million, with the annual figure climbing to $1.1 billion, a 15% year-over-year growth. Now, regarding the earnings per share (EPS), the diluted EPS dipped by 8% to $1.20 for the fourth quarter, while the full-year EPS fell 3% to $4.43. Not quite the earnings surprise one might expect from such stellar revenue growth, but here?s the kicker: adjusted diluted EPS increased by 11% to $1.57 for Q4, and 9% to $5.42 for the full year. This points to a potentially favorable EPS consensus when analysts scramble to adjust their revenue forecasts in light of these results.

The PCM Acquisition: A Double-Edged Sword?

Much of this growth can be attributed to Insight's acquisition of PCM, Inc. last August. While acquisitions often promise synergies and enhanced market position, they can also bring baggage?namely, costs associated with integration, severance, and restructuring. Insight?s operational earnings rose by 14%, yet the acquisition-related expenses weighed on diluted EPS, leading to the aforementioned declines. It's a classic case of "you can?t have your cake and eat it too," unless of course, you bake it yourself with a hefty side of strategic planning.

Future Outlook: Riding the IT Wave

Ken Lamneck, Insight's President and CEO, heralded the quarter as reflective of the company's scale and momentum, suggesting that this growth trajectory may not just be a one-off spike. With IT solutions in high demand, especially in a world increasingly reliant on technology, Insight appears poised to ride this wave. However, the market will be watching closely to see if next quarter?s results will continue to reflect this growth or if the integration costs will catch up with the company.

Sector Implications: Peers Should Pay Attention

For sector peers, Insight?s performance acts as a barometer. Companies in the IT services sector should take note of the revenue forecasts and adjusted earnings metrics. If Insight can maintain its growth amidst integration challenges, it may set a precedent for others in the industry. Conversely, if the growth trajectory falters, it could signal a cautionary tale for those considering similar acquisition strategies.