Tech Data Corporation TECD reported lower-than-expected adjusted earnings of $2.01 per share in the second quarter of fiscal 2019 owing to product mix. Although the figure increased 16% on a year-over-year basis, it missed the Zacks Consensus Estimate of $2.14 per share.
Revenues of $8,886.1 million increased 10% year over year and surpassed the consensus mark of $8, 728.3 million, driven by robust demand for Endpoint Solutions. Net sales rose 8% on a constant-currency (CC) basis.
Tech Data Corporation Price, Consensus and EPS Surprise
Quarterly Details
Net sales from the Americas (45.5% of revenues) rose 7.3% to $4 billion. Sales from Europe (51.2%) and the Asia-Pacific (3.3% of revenues) grew 12.5% and 5% to $4.5 billion and $293.6 million, respectively.
Margins
Gross margin contracted 44 basis points (bps) from the year-ago quarter to 5.93%. Non-GAAP selling, general & administrative (SG&A) expenses as a percentage of revenues decreased 38 bps to 4.41% in the reported quarter.
Adjusted operating margin contracted 6 bps to 1.52%. Segment wise, operating margin expanded 11 bps for the Americas while it contracted 10 bps for Europe and 153 bps for Asia Pacific.
Balance Sheet and Cash Flow
As of Jul 31, 2018, Tech Data had approximately $792.9 million in cash and cash equivalents compared with $1,033.3 million as of Jul 31, 2017.
Tech Data generated cash from operations of $561 million in the reported quarter compared with $567 million in the previous quarter.
Global Business Optimization Program
During the reported quarter, Tech Data launched a Global Business Optimization Program (GBO Program) in a bid to become a more flexible and cost-effective organization. This will enable the company to work toward achieving sustainable long-term growth.
The components of the program include improving the company's regional go-to-market models to deliver higher value to channel partners; digital processes to create a more responsive, empowered and agile work environment; and improving productivity with the help of increased centralization and standardization throughout the organization.
Moving ahead, this Zacks Rank #3 (Hold) company anticipates annual cost savings of $70-$80 million from this program, out of which half the savings will be invested to speed up the company’s strategic priorities. Management noted that through Jul 31, 2018, the company incurred GBO Program-related costs of roughly $18 million.
Outlook
Tech Data issued third-quarter fiscal 2019 view, wherein net sales are forecasted to be around $8.7-$9 billion and adjusted earnings to be $2.00-$2.30 per share. The tax rate is expected to be 24-26%.
Price Performance
We note that shares of the company have declined 26.3% in the past six months, underperforming the industry’s decline of 3.8%.
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