Information technology (IT) products distributor Tech Data Corp. (TECD) reported first quarter 2012 earnings per share of $1.03, which missed the Zacks Consensus Estimate by 3 cents. This was primarily due to lower-than-expected revenue growth in the quarter, which also failed to beat the Zacks Consensus Estimate of $6.35 billion in the quarter.
Operating Performance
Net income in the reported quarter was $48.7 million, up 6.7% year over year. EPS was $1.03, compared with 88 cents in the prior-year quarter.
A prudent execution of Tech Data's inventory, pricing and freight management practices along with higher revenues resulted in a quarterly gross margin of 5.3%, compared with 5.2% in the prior-year quarter.
Selling, General & Administrative (SG&A) expenses in the reported quarter were $257.8 million (4.1% of total sales) compared with $223.3 million (4.0% of total sales) in the year-ago quarter. On a dollar basis, SG&A expenses increased 15.5% year over year, primarily due to higher operating expenses arising from acquisitions made in the prior fiscal year and a stronger euro.
Overall, operating income increased 9.0% year over year to $75.7 million from $69.5 million posted in the year-ago quarter. Operating margin, however, was flat at 1.2% on a year-over-year basis.
Geographically, operating income in the Americas was $47.9 million versus $44.3 million in the year-ago quarter. Operating margin remained flat at 1.8% on a year-over-year basis.
Operating income in Europe was $30.3 million or 0.81% of net sales versus $27.6 million or 0.9% of net sales in the prior-year quarter.
Revenues
Total revenue in the reported quarter was $6.33 billion, up 12.6% from $6.33 billion in the prior-year quarter. The strengthening of certain foreign currencies against the U.S. dollar positively impacted the year-over-year net sales comparison by approximately 3%.
Net sales in North America and Latin America (representing 41% of total sales) increased 6.0% to $2.6 billion while net sales in Europe (representing 59% of total sales) climbed 18.0% to $3.7 billion. The increase in net sales in both regions was due to strengthening demand.
Balance Sheet
At quarter end, the company had approximately $807.6 million of cash compared with $810.0 million of cash in the previous quarter. Total long-term debt at the end of the quarter was $483.3 million versus $494.5 million in the previous quarter.
During the first quarter of fiscal 2012, the company repurchased approximately 1,032,000 shares for $51.3 million under its current $100 million share repurchase program authorized in March 2011.
Outlook
Tech Data, which distributes products made by Apple Inc. (AAPL) and Hewlett-Packard Co. (HPQ), expects continued year-over-year growth in both the U.S. and European regions. The company expects year-over-year double-digit growth in operating income, net income and earnings per share for fiscal 2012.
We expect the recent IT demand trend to continue in the second quarter of 2012. We, therefore, maintain our long-term Outperform recommendation on the stock. Currently, the stock has a Zacks #3 Rank, implying a short-term Hold rating.
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