Tech Data Misses 4Q EPS, Beats Rev - Analyst Blog

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Tech Data Corp. ( TECD ) reported fourth-quarter 2013 earnings of $1.48 per share, which missed the Zacks Consensus Estimate by 27 cents. Earnings per share ("EPS") declined 15.2% from the year-ago quarter but jumped 23.0% sequentially.

Revenues

Revenues improved 4.9% year over year and jumped 23.6% from the previous quarter to $7.46 billion. This was well above the Zacks Consensus Estimate of $7.27 billion. The revised representation of sales of vendor warranty services and certain fulfillment contracts (effective from the first quarter of 2013) had a 3.0% negative impact on the quarter's result. Foreign exchange volatility had minimum impact on revenue growth in the quarter.

Net sales in the Americas (comprises North America and Latin America), represented 35.0% of revenues in the reported quarter. Sales decreased 6.0% year over year to $2.6 billion. The revised representation of sales of vendor warranty services and certain fulfillment contracts reduced sales by $102.0 million.  The year-over-year decline was primarily attributed to loss of market share in the U.S., following the implementation of certain SAP software modules.

Net sales in Europe represented 65% of revenues in the last quarter. Sales increased 12.0% (13% in €) from the year-ago quarter to $3.67 billion. The revised representation of sales of vendor warranty services and certain fulfillment contracts reduced sales by $137.0 million. The SDG acquisition (completed Nov 1, 2012) contributed approximately $623.0 million to fourth quarter revenues.

Margins

Gross margin contracted 20 basis points ("bps") from the year-ago quarter, but remained flat on a sequential basis at 5.1% in the reported quarter. The year-over-year decline was primarily due to unfavorable product mix (higher mix of low-margin mobile phone, tablet and software) and continuing effects of the implementation of certain SAP modules in the US business segment.

Selling, general & administrative ("SG&A") expenses (excluding loss on disposal of subsidiaries) increased 9.0% year over year and 20.0% quarter over quarter to $286.4 million in the reported quarter. The year-over-year increase in SG&A was primarily due to higher expenses related to SDG acquisition.

Operating margin contracted 70 bps from the year-ago quarter but increased 10 bps from the previous quarter to 1.3%. Geographically, operating margin in the Americas region was 1.48% compared with 0.97% in the year-ago quarter. Operating margin in Europe was 1.20% versus 1.37% in the year-ago quarter.

Net income was $56.6 million compared with $101.6 million in the year-ago quarter and $45.9 million reported in the previous quarter.

Balance Sheet

At quarter end, Tech Data had approximately $392.1 million in cash compared with $515.8 million in the previous quarter. Total debt was $518.8 million compared with $420.1 million in the previous quarter.

Outlook

For the first quarter of fiscal 2014, Tech Data expects year-over-year sales growth in the high single-digit range. Tech Data expects flat year-over-year sales growth in Europe (in €) and Americas.

Recommendation

We believe that sluggish PC shipments are expected to hurt Tech Data's top-line growth in fiscal 2014. According to the market research firm IDC, PC shipment is expected to decline 1.3% year over year in calendar 2013. This will significantly hurt Hewlett-Packard's ( HPQ ) sales,which represented approximately 19% of Tech Data's revenues in fiscal 2013.

Moreover, Tech Data' margins will suffer from a higher mix of lower margin tablets and mobile phones going forward. Tech Data's increasing exposure to Apple ( AAPL ) , which represented 14% (versus 11.0% in fiscal 2012) of revenues in fiscal 2013, is a major concern in this regard.

Nevertheless, we believe that Tech Data's strategy of shifting resources from lower-performing regions to higher-growth regions, cost reductions, accretive acquisitions and partnership with the likes of International Business Machines ( IBM ) will drive growth over the long term.

Currently, the stock has a Zacks Rank #2 (Buy).



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AAPL , HPQ , IBM , TECD

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