Tech Data (TECD) Q1 Earnings Beat Estimates, Increase Y/Y

Shares of Tech Data Corporation (NASDAQ:TECD) increased roughly 6% during the trading session on May 30, following the first-quarter fiscal 2020 results, which marked the third straight quarter of earnings beat. The company’s bottom line also registered double-digit growth year over year despite a decline in the top line. This increase can be attributed to lower costs of products sold and reduced operating expenses.

Moreover, management now envisions earnings of $2.15-$2.45 per share for second-quarter fiscal 2020. The midpoint of $2.30 is in line with the Zacks Consensus Estimate and indicates a sharp improvement from $2.01 reported in the year-ago period.

We also noticed that while Americas and Asia Pacific regions witnessed net sales growth, Europe encountered soft sales. This led to a year-over-year decline in the overall net sales that also fell short of the Zacks Consensus Estimate.

We note that shares of this Zacks Rank #2 (Buy) company have gained 14.2% year to date, compared with the industry’s growth of 17.1%.

Q1 Details

The company reported adjusted earnings of $2.04 per share in the reported quarter. The figure not only surpassed the Zacks Consensus Estimate of $1.98 but also increased 11% on a year-over-year basis.

However, net sales of $8,406.4 million decreased 2% year over year. Also, the figure lagged the consensus mark of $8,453 million. Net sales rose 3% on a constant-currency (cc) basis.

Net sales from the Americas (45.1% of global net sales) rose 5% to $3,789.2 million. Sales from Europe (51.3% of global net sales) declined 8% to $4,309.5 million. Sales from Asia-Pacific (3.6% of global net sales) increased 15% to $307.7 million.

Margins

The company’s gross profit fell 2.6% to $509.4 million in the reported quarter. Gross margin shrunk 6 bps to 6.1%. Adjusted selling, general & administrative (SG&A) expenses declined 3.6% to $384.6 million in the quarter under review. Adjusted selling, general & administrative expenses as percentage of revenues contracted 9 bps to 4.6%.

Adjusted operating income came in at $124.8 million, up 0.6% from $124.1 million in the year-ago quarter. Adjusted operating margin expanded 3 bps to 1.5%. Segment wise, operating margin contracted 14 bps to 2.2% for the Americas, while the metric expanded 12 bps to 1.1% for Europe and 51 bps to 0.9% for Asia Pacific.

Balance Sheet and Cash Flow

As of Apr 30, 2019, Tech Data had cash and cash equivalents of approximately $797.5 million, long-term debt of $1,297.9 million and total stockholders’ equity of $2,915.9 million.

During the quarter, the company bought back 346,000 shares worth $36 million. Tech Data generated cash from operations of $63.2 million.

Tech Data Corporation Price, Consensus and EPS Surprise

Outlook

Tech Data issued second-quarter fiscal 2020 view, wherein the company anticipates sales to be $8.6-$8.9 billion. Although growth in IT market has slowed down, going ahead management sees robust demand for its products.

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