Information technology (IT) products distributor,
Tech Data Corp
reported a disappointing second quarter of 2013. Earnings of 88
cents per share were well short of the Zacks Consensus Estimate of
$1.18. However, revenue was slightly better than the consensus mark
of $5.86 billion.
Total revenue declined 7.6% year over year to $5.96 billion.
Foreign currency fluctuations negatively impacted revenue by 8% in
the reported quarter. Moreover, revised representation of sales of
vendor warranty services and certain fulfillment contracts had a
3.0% negative impact on the quarter's result.
Net sales in North America and Latin America (representing 40.0%
of total sales) plunged 11.0% to $2.40 billion. Net sales in Europe
(representing 60.0% of total sales) decreased 5.0% to $4.4
Gross profit decreased 11.6% year over year to $301.2 million.
Gross margin was 5.05% compared with 5.28% in the prior-year
quarter. The year-over-year decline was primarily due to
unfavorable product mix, customer mix and competitive pricing
conditions in certain markets during the quarter.
Selling, general & administrative (SG&A) expenses
decreased 7.7% year over year to $242.0 million in the reported
quarter. This year-over-year decline was due to weakness in the
euro and cost improvements resulting from business shutdown in
Brazil and Colombia.
However, operating income plunged 24.8% year over year to $59.3
million, primarily due to lower revenue base. Operating margin was
0.99% compared with 1.22% reported in the year-ago quarter.
Geographically, operating income in the Americas was $29.5
million versus $47.6 million in the year-ago quarter. Operating
margin in the region was 1.23% compared with 1.77% in the year-ago
quarter. Operating income in Europe was $33.6 million or 0.94% of
net sales versus $33.9 million or 0.90% of net sales in the
Net income was $34.5 million or 88 cents per share compared with
$50.1 million or $1.10 per share in the prior-year quarter.
At quarter end, Tech Data had approximately $277.6 million in
cash compared with $447.0 million in the previous quarter. Total
debt at the end of the quarter was $91.6 million versus $88.7
million in the prior quarter. Cash provided by operations during
the quarter totaled $4.0 million. During the quarter, Tech Data
purchased approximately 2.9 million shares for $143.0 million.
For the upcoming third quarter, Tech Data expects year-over-year
sales growth of mid-single-digits in Europe (in €). In Americas,
sales are expected to decline mid-single digits annually, primarily
due to the revised representation of sales of vendor warranty
services and certain fulfilment contracts and the shutdown of the
Brazil and Colombia operations. Tech Data expects gross and
operating margins to increase sequentially.
We believe that Tech Data's strategy of shifting resources from
lower-performing regions to higher-growth regions, cost reductions
(shutting down business in the loss-making Brazilian and Colombian
units) and accretive acquisitions (14 acquisitions added $1.5
billion in sales over the last four years) will drive growth over
the long term.
Tech Data, which distributes products manufactured by
Apple Inc. (
Hewlett-Packard Co. (
, expects IT spending to remain sluggish in fiscal 2013. We believe
that Tech Data faces a number of headwinds in the near term,
including a volatile European market (approximately 60.0% of
revenue) as well as lack of visibility in government spending in
the U.S. Sluggish PC shipments are also expected to hurt Tech
data's top-line growth. Tech Data derives approximately 15% - 20%
of revenue from PC distribution.
We, thus, maintain our long-term Neutral recommendation on the
stock. Currently, the stock has a Zacks #4 Rank, implying a
short-term Sell rating.
APPLE INC (AAPL): Free Stock Analysis Report
HEWLETT PACKARD (HPQ): Free Stock Analysis
TECH DATA CORP (TECD): Free Stock Analysis
To read this article on Zacks.com click here.