Tech Data (TECD) Q3 Earnings Beat, Sales Miss Estimates

Tech Data Corporation (NASDAQ:TECD) reported mixed third-quarter fiscal 2020 results. While the company’s earnings surpassed the Zacks Consensus Estimate for the fifth straight quarter, revenues missed the same. We note that the company’s top line decreased on a year-over-year basis, while the bottom line remained flat year over year.

Although, not much movement was noticed in the stock during the trading session on Nov 26, the same has soared 57.7% compared with the industry’s growth of 53.7% in the past three months.

Recently, the company entered into a definitive agreement to be acquired by Tiger Midco, LLC, an affiliate of funds managed by affiliates of Apollo Global Management, a leading global alternative investment manager. The deal is valued at $5.4 billion, or $130 per share. The transaction is likely to conclude in the first half of calendar year 2020.

In fiscal third quarter, Tech Data announced its plan to buy DLT Solutions, a premier software and cloud solutions aggregator. The buyout is expected to close during fiscal fourth quarter.

Tech Data Corporation Price, Consensus and EPS Surprise

Q3 Details

Tech Data’s third-quarter adjusted earnings came in at $3.02 per share that surpassed the Zacks Consensus Estimate of $3.01. Net sales of $9,118.9 million missed the consensus mark of $9,343 million and decreased 2% year over year. Moreover, net sales remained flat on a constant-currency (cc) basis.

Net sales from the Americas (46% of global net sales) rose 2% to $4,202.3 million. Sales from Europe (51% of global net sales) declined 6% to $4,622.3 million. Sales from the Asia Pacific (3% of global net sales) grew 4% to $294.4 million. On a cc basis, net sales rose 2% in the Americas and 4% in the Asia Pacific. However, sales declined 2% in Europe on a cc basis.

Margins

The company’s gross profit rose 1% to $560.4 million in the reported quarter. Gross margin expanded 19 basis points (bps) to 6.2%. Adjusted selling, general & administrative (SG&A) expenses increased 7% to $394.1 million. As a percentage of sales, adjusted SG&A expenses expanded 37 bps to 4.3%.

This Zacks Rank #4 (Sell) company’s adjusted operating income of $166.3 million decreased 12% from $188 million in the year-ago quarter. Meanwhile, adjusted operating margin contracted 19 bps to 1.8%. Segment wise, adjusted operating margin contracted 64 bps to 2.4% in the Americas and 104 bps to 0.6% in the Asia Pacific. Nevertheless, adjusted operating margin expanded 23 bps to 1.6% in Europe.

Balance Sheet and Cash Flow

As of Oct 31, 2019, Tech Data had cash and cash equivalents of $964.1 million, long-term debt of $1,294.2 million, and total stockholders’ equity of $2,968.3 million.

The company generated net operating cash flow of $310 million during the fiscal third quarter. Cash from operations totaled $412.6 million in the first nine months of fiscal 2020. In the fiscal third quarter, it bought back 518,433 shares for $49 million.

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