Tech Data Reports Dismal 3Q - Analyst Blog

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.


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 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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TECH DATA CORP (TECD): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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