Tech Data Corp. (TECD) reported impressive third-quarter fiscal 2015 results. Earnings of $1.18 per share comprehensively beat the Zacks Consensus Estimate of 95 cents and jumped 13.7% from $1.04 reported in the year-ago quarter.
Quarter Details
Tech Data’s third quarter revenues improved 6.1% from the year-ago quarter to $6.76 billion. However, revenues missed the Zacks Consensus Estimate of $6.78 billion.
Revenue from the Americas (39% of revenues) and Europe (61% of revenues) increased 3% and 8% year over year, respectively.
The year-over-year growth in the Americas was primarily driven by strong sales of broad line products, particularly PCs, as well as strength in networking and storage. Country-wise, Canada delivered strong double-digit growth, posting its second highest third quarter sales so far. From an end markets perspective, in the U.S., the education, federal and health care verticals posted strong double-digit growth.
Strong revenue growth in Europe was driven by sales increase across the major regional segments, which increased on a year-over-year basis. France, the Nordics, Iberia, Italy and Switzerland posted double-digit sales improvement during the quarter.
Gross margin declined 10 basis points (bps) from the year-ago quarter. This year-over-year decline was primarily due to the changes in customer and product mix, including higher sales of lower margin products, mainly PCs in both regions, and mobility products in Europe.
Selling, general & administrative (SG&A) expenses increased 0.6% year over year to $264.2 million in the reported quarter. As a percentage of revenues, SG&A expenses declined 20 bps due to strong operating leverage in Europe.
Operating profit improved 11.8% year over year to $70.8 million. Operating margin remained flat on a year over year basis. Geographically, operating profit increased 13% in the Americas and 17% in Europe.
Non-GAAP net income was $45.3 million or $1.18 cents per share compared with $9.6 million or $1.04 reported in the year-ago quarter.
Tech Data had approximately $466 million in cash and cash equivalent compared with $611.5 million reported in the previous quarter. Total debt was $353.5 million compared with $402.5 million at the end of the last quarter.
Outlook
For the fourth quarter of fiscal 2015, management expects low single-digit sales growth in both regions in local currency. The company also expects a non-GAAP effective tax rate of 27% to 29% and the average U.S. dollar to euro currency exchange rate to be $1.27 to euro 1.00.
Our Take
We believe that Tech Data will benefit from pent-up demand for personal computers for the rest of 2014. Tech Data’s partnership with the likes of Cisco (CSCO), VMware (VMW), Google (GOOGL) and Xerox will drive top-line growth. Further, the company’s improving execution (particularly in Europe), superior customer service and improving market share in the Americas are the major positives.
However, sluggish IT spending remains a concern. Moreover, Tech Data’s performance will significantly depend on sustained demand for personal computers.
Currently, Tech Data has a Zacks Rank #4 (Sell).
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