Tech Data Corp. TECD reported modest first-quarter fiscal 2016 results. Adjusted earnings of 28 cents per share were in line with the Zacks Consensus Estimate. Earnings however came ahead of the prior-year quarter figure of 23 cents.
The company reported non-GAAP earnings of 80 cents, up from 72 cents in the year-ago quarter.
Following the news, the company’s shares increased 5.34% and closed at $64.49 in yesterday’s trading session.
Quarter Details
Tech Data’s revenues dropped 12.5% from the year-ago quarter to $5.9 billion but came ahead of the Zacks Consensus Estimate of $5.7 billion.
Revenue from the Americas (40% of revenues) and Europe (60% of revenues) decreased 6% and 17% year over year, respectively.
Revenues from America were impacted by lower demand and the company’s ongoing exit from lower margin businesses and adverse currency translations.
The company’s business in Europe was primarily impacted by adverse currency translations owing to the strengthening of the U.S. dollar. On a constant currency basis, the region witnessed mid single-digit sales growth.
The company’s gross profit in the quarter was $291.9 million, down from $335.3 million in the year-ago quarter. However, gross margin remained flat on a year-over-year basis.
Non-GAAP selling, general & administrative (SG&A) expenses decreased nearly 15% year over year to $241.7 million in the reported quarter. As a percentage of revenues, SG&A expenses declined to 4.11% from 4.22% in the year-ago quarter.
Non-GAAP operating income declined 2% year over year to $50.2 million. Operating margin however improved 9 bps on a year-over-year basis to 0.85%. The company witnessed an impact of $8 million on operating income owing to the weakening of the euro against the U.S. dollar.
Geographically, operating profit decreased 16.7% in the Americas but increased 24.4% in Europe.
Non-GAAP net income was $29.6 million compared with $27.7 million in the year-ago quarter with an impact of $5.3 million in the quarter due to adverse exchange rates.
Tech Data had approximately $619.2 million in cash and cash equivalent at the end of the quarter compared with $543 million reported in the previous year quarter. Total debt was $351.7 million, almost flat on a year-over-year basis.
Outlook
For the second quarter of fiscal 2016, management expects low to mid-single digit sales decline in Americas and low to mid-single digit growth in Europe. The guidance is inclusive of $70 million loss of sales owing to Tech Data's exit from its businesses in Chile, Peru and Uruguay. The company expects a non-GAAP effective tax rate of 30% to 32% and average U.S. dollar to euro currency exchange rate of $1.05 to euro 1.00.
Our Take
The company has been undertaking strategic initiatives to review and strengthen its operations. The exit from its businesses in less-profitable regions like Chile, Peru, and Uruguay is also a positive.
Yesterday, the company also revealed its plans to acquire North Americas’ leading data center and professional services provider – Signature Technology Group to enhance its Advanced Infrastructure Solutions business.
In the reported quarter, Tech Data introduced a number of new products, won contracts and collaborated with the likes of Barracuda Networks CUDA and launched Windows Server 2003 Migration Hub, which are likely to drive growth going forward. Moreover, the company’s Mobile Solutions and Retail division entered into an agreement with VSN Mobil for the distribution of the latter’s offerings in the U.S.
However, the ongoing business transition is likely to affect financials in the near term. Moreover, Tech Data’s performance will significantly depend on demand for personal computers.
Currently, Tech Data has a Zacks Rank #3 (Hold). A couple of better-ranked stocks include Synacor, Inc. SYNC, and Gaiam Inc. GAIA, both with a Zacks Rank #2 (Buy).
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