Tech Data Hits 52-Wk High on Earnings Beat - Analyst Blog

Tech Data Corp. TECD reported better-than-expected fourth-quarter fiscal 2014 results. Earnings of $2.10 per share jumped 36.8% from the year-ago quarter and surpassed the Zacks Consensus Estimate by 15 cents.

Earnings per share were much better than the preliminary result of $1.85 to $2.05 per share, announced on Feb 25. Tech Data's revenues of $7.97 billion were almost in line with the Zacks Consensus Estimate of $8.00 billion.

Shares of Tech Data reached a new 52-week high of $65.98 following the results. Shares went up 5.4% ($3.34) to close at $64.83 on Apr 9, 2014.

Quarter Details

Tech Data's revenues improved 7.1% from the year-ago quarter. Americas (34.0% of revenues) and Europe (66.0% of revenues) increased 4.0% and 9.0% year over year, respectively. Revenues were in line with the preliminary results announced in February.

The year-over-year growth in the Americas was primarily driven by strong growth in the U.S. and double-digit growth in Canada. The U.S. results were positively affected by robust performance from small and medium size business and strong growth in the healthcare segment.

Product-wise, strong sales of Advanced Infrastructure Solutions as well as personal computers and tablets drove the results in the Americas.

Europe's strong revenue growth was driven by sales increase across the major regional segments, which increased on a year-over-year basis. Benelux, Nordics, Iberia and Italy posted double-digit sales improvement during the quarter.

Since Nov 2013, Tech Data started distributing Apple's AAPL iPhone and related accessories, which also drove sales in the region. Apple was its second largest customer contributing 13.0% of fiscal 2014 sales just behind Hewlett-Packard HPQ. H-P accounted for 21.0% of fiscal 2014 sales.

Gross margin slightly improved to 4.99% from 4.98% in the year-ago quarter, driven by higher improvement in European margin, partially offset by unfavorable product mix in the domestic market and intensifying competitive environment in the Americas.    

Selling, general & administrative (SG&A) expenses increased 1.4% year over year to $280.7 million in the reported quarter. As a percentage of revenues, SG&A expenses declined 20 basis points (bps) due to strong operating leverage in both the Americas and Europe.

Operating profit improved 24.5% year over year to $117.3 million. Operating margin increased 20 bps to 1.47% due to improving operating leverage in both the regions. Geographically, operating profit in the Americas decreased 3.9% from the year-ago quarter, while European operating profit surged 38.4%.

GAAP net income was $109.8 million compared with $44.4 million in the year-ago quarter. Adjusting LCD settlements ($7.8 million), acquisition-related amortization of intangibles ($5.3 million), restatement-related expenses ($18.4 million) and reversal of deferred tax valuation allowances ($45.3 million) net income on a non-GAAP basis was $80.4 million.

Non-GAAP net income was higher than $58.5 million reported in the year-ago quarter. The year-ago net income figure included adjustments related to acquisition-related amortization of intangibles ($5.4 million), VAT assessment and interest expense ($33.8 million) and reversal of deferred tax valuation allowances ($25.1 million).

GAAP earnings of $2.87 per share were much better than $1.17 reported in the year-ago quarter. Including adjustments related to one-time items, non-GAAP earnings were $2.10 per share.

Tech Data had approximately $570.1 million in cash and total debt of $397.6 million at the end of the last quarter.

Outlook

Tech Data expects improved profitability for fiscal 2015. However, much of the improvement is expected to come in the later half due to seasonal effects from Europe.

For the first quarter of fiscal 2015, management expects Americas sales to grow in mid single-digit on a year-over-year basis. Europe is forecasted to grow low single-digit in euros. Management expects gross margin percentage to be in line with the recent levels.

Non-GAAP effective tax rate is expected in the range of 38.0% to 40.0%. For fiscal 2015, Tech Data expects non-GAAP effective tax rate in the range of 31.0% to 33.0%.

Our Take

We believe sluggish PC shipments will hurt Tech Data's top-line growth in fiscal 2015. The company's growing exposure to volatile European markets remains a concern.  Moreover, Tech Data's back-end loaded guidance will remain a headwind in the near term.

Nevertheless, better-than-expected result and positive guidance will give some momentum to the stock. The completion of the SAP implementation will improve execution. Tech Data's recent partnership with Google GOOG will drive its top-line growth, going forward.

Further, Tech Data's improving execution (particularly in Europe), superior customer service and improving market share in the Americas are the major positives, going ahead.

Currently, Tech Data has a Zacks Rank #3 (Hold).