Tech Data (TECD) Q1 Earnings Beat Estimates, Stock Rises

Tech Data Corp. (NASDAQ:TECD) reported first-quarter fiscal 2017 non-GAAP earnings of $1.05 per share, which beat the Zacks Consensus Estimate of 95 cents. Earnings also increased from the prior-year quarter figure of 80 cents.

Following the release, shares rose 5.95% in yesterday’s trading session.

Quarter in Detail

Tech Data’s revenues rose 1.3% year over year to $5.963 billion but lagged the Zacks Consensus Estimate of $5.986 billion.

Revenues from the Americas (40% of revenues) increased 2%, while the same from Europe (60%) was up 1% on a year-over-year basis.

The company’s gross profit in the quarter was $298.6 million, up from $291.9 million in the year-ago quarter. Gross margin stood at 5% in the quarter.

Non-GAAP selling, general & administrative (SG&A) expenses inched down 0.3% year over year to $241 million in the reported quarter. As a percentage of revenues, SG&A expenses declined to 4.04% from 4.11% in the year-ago quarter.

As a result, non-GAAP operating income rose 14.7% year over year to $57.6 million. Non-GAAP operating margin improved to 0.97% from 0.85% in the year-ago quarter.

Geographically, non-GAAP operating income increased 28.6% in the Americas, and 0.74% year over year in Europe.

Balance Sheet and Cash Flow

At the end of the quarter, Tech Data had approximately $825.7 million in cash and cash equivalents compared with $531.2 million as on Jan 31, 2016. Total long-term debt was $348.8 million.

In the quarter, Tech Data had a cash flow of $276 million.

Outlook

For the second quarter of fiscal 2017, management expects revenues in a range of $6.55 billion to $6.75 billion (on a constant currency basis).

Tech Data projects non-GAAP earnings per share in the range of $1.39 to $1.49.

Our Take

Tech Data has been undertaking strategic initiatives to review and strengthen its operations including collaboration with new vendors and expansion of its coverage model. Additionally, the company has been focusing on developing its capabilities in integrated supply chain, value-added services, data center, cloud and consumer electronics, which is a positive. The company’s cost-control measures are already boosting profitability.

The company had earlier taken some initiatives to focus more on high-growth areas in the Americas as a result of which it witnessed solid growth this quarter. Its business in Europe region also remains strong.

However, its exit from businesses in less profitable regions, though a positive in the long run, will weigh on near-term results. Also, Tech Data’s business has been affected by sluggish demand owing to a slowdown in the PC market. The company may face headwinds because of significant dependence on a handful of customers including Apple (NASDAQ:AAPL) , Hewlett Packard Enterprise (NYSE:HPE) and HP Inc. (NYSE:HPQ) .

Currently, Tech Data has a Zacks Rank #4 (Sell).