Information technology (IT) products distributor,
Tech Data Corp.
(
TECD
) reported dismal third quarter 2013 results with earnings of
$1.21 per share missing the Zacks Consensus Estimate of $1.33.
Reported revenue also missed the consensus mark of $6.21
billion.
Quarter Details
Total revenue declined 8.4% year over year to $6.04 billion.
Foreign currency fluctuations negatively impacted revenue by 5%
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
39.0% of total sales) plunged 15.0% to $2.37 billion. Net sales
in Europe (representing 61.0% of total sales) decreased 4.0% to
$3.67 billion.
Gross profit decreased 10.6% year over year to $308.3 million.
Gross margin was 5.10% compared with 5.23% 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 6.5% year over year to $238.7 million in the reported
quarter. This year-over-year decline was due to weakness in euro
and cost improvements resulting from business shutdown in Brazil
and Colombia.
However, operating income plunged 22.4% year over year to
$69.5 million, primarily due to lower revenue base. Operating
margin was 1.15% compared with 1.36% reported in the year-ago
quarter.
Geographically, operating income in the Americas was $33.7
million versus $52.6 million in the year-ago quarter. Operating
margin in the region was 1.43% compared with 1.89% in the
year-ago quarter. Operating income in Europe was $39.4 million or
1.07% of net sales versus $39.7 million or 1.04% of net sales in
the year-ago quarter.
Net income was $45.9 million or $1.21 per share compared with
$53.5 million or $1.26 per share in the prior-year quarter.
At quarter end, Tech Data had approximately $515.8 million in
cash compared with $277.6 million in the previous quarter. Cash
provided by operations during the quarter totaled $33.1
million.
Outlook
For the fourth quarter, Tech Data expects year-over-year sales
growth in the range of low-single-digit. Gross and operating
margins are expected to increase on a sequential basis. Tech Data
expects year-over-year sales growth of low-single-digits in
Europe (in €). In Americas, sales are expected to decrease in the
low-double digit range.
Recommendation
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.
(
AAPL
) and
Hewlett-Packard Co.
(
HPQ
), 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 #3 Rank, implying a
short-term Hold rating.
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