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Tech Data Misses on Q3 Earnings & Revs - Analyst Blog

Posted
2/28/2014 12:00:00 PM
By: Zacks.com
Referenced Stocks:AAPL;CSCO;HPQ;TECD

Tech Data Corp. ( TECD ) expects improved profitability for fiscal 2015, as the company's Americas business segment continues to regain market share. However, much of the improvement is expected to come in the later half due to volatile macro-environment in Europe.

The IT distributor reported results for the third quarter and nine months of fiscal 2014 after a prolonged delay (last quarter call was on Mar 4, 2013), due to restatement of previously issued quarterly and audited annual financial statements for the fiscal years 2011, 2012 and  2013.  

In the third quarter of fiscal 2014, Tech Data reported earnings of $1.04 per share, which declined 13.0% from the year-ago quarter and was well short of the Zacks Consensus Estimate of $1.29.

Tech Data announced preliminary fourth-quarter results. The company also declared that it will hold the annual shareholder meeting on Jun 4, 2014.

Quarter Details

Tech Data reported revenues of $6.37 billion in the third quarter of fiscal 2014, which lagged the Zacks Consensus Estimate of $6.73 billion but improved 5.6% from the year-ago quarter. Americas (40.0% of revenues) and Europe (60.0% of revenues) increased 8.6% and 3.6% year over year, respectively.

Tech Data's 2012 acquisition SDG contributed approximately $560.0 million of sales. The implementation of the sales inventory and credit management modules of SAP within the U.S. operations helped the company to regain market share.

Although European revenues increased on a dollar basis, it declined 2.0% on euro basis, primarily due to weak market conditions in certain countries, as well as a decline in market share in several countries, as Tech Data continued to focus on maintain its higher gross margin.

Gross margin improved to 5.12% from 5.07% in the year-ago quarter, driven by higher improvement in European margin, partially offset by unfavorable product mix in the domestic market and intensifying competitive environment in the Americas.    

Selling, general & administrative (SG&A) expenses increased 11.4% year over year to $270.1 million in the reported quarter. The increase in SG&A was primarily due to higher expenses related to the SDG acquisition and higher expenditure in the European legacy business.

Operating profit declined 7.6% year over year to $65.0 million. Geographically, operating profit in the Americas region increased 3.3% from the year-ago quarter, while European operating profit plunged 17.1%. Net income was $39.6 million compared with $45.3 million in the year-ago quarter.

Tech Data had approximately $471.0 million in cash and total debt of $400.4 million at the end of the last quarter.

Preliminary Fourth-Quarter results

Tech Data reported revenues of $8.0 billion, driven by mid single-digit growth in both the Americas and Europe in the fourth quarter. The company reported non-GAAP operating income in the range of $110.0 to $120 million and non-GAAP earnings of $1.85 to $2.05 per share in the quarter.

Our Take

We believe sluggish PC shipments are expected to hurt Tech Data's top-line growth in fiscal 2015. The company's growing exposure to volatile European markets remains a concern. Moreover, Tech Data's back-end loaded guidance will remain a headwind in the near term.

Nevertheless, fourth quarter is the strongest seasonal quarter in Europe, which will drive top-line growth in the near term. The completion of the SAP implementation will improve execution.

Further, the company's partnerships with Cisco ( CSCO ) , Apple ( AAPL ) and Hewlett-Packard ( HPQ ) will drive its top-line growth, going forward. Tech Data's improving execution (particularly in Europe), superior customer service and improving market share in the Americas are the major positives, going ahead.

Currently, Tech Data has a Zacks Rank #3 (Hold).



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