Information technology (IT) products distributor,
Tech Data Corp.
) 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
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
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
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
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
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.
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
), 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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