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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