Tech Data Corp. (TECD - Analyst Report) reported impressive second-quarter fiscal 2015 results. Earnings of $1.12 per share crushed the Zacks Consensus Estimate by 33 cents and jumped 53.2% from the year-ago quarter.
Tech Data’s revenues improved 8.1% from the year-ago quarter to $6.84 billion. Favorable foreign currency contributed 2% to the year-over-year revenue growth. The Americas (39.8% of revenues) and Europe (60.2% of revenues) increased 3.7% and 11.3% year over year, respectively.
The year-over-year growth in the Americas was primarily driven by strong growth in the U.S. and Canada. The U.S. results were aided by robust performance by small and medium size business and strong growth in the education and healthcare segments.
Product-wise, robust sales of Advanced Infrastructure Solutions as well as personal computers 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, Germany, Iberia, Italy and Switzerland posted double-digit sales improvement during the quarter.
Tech Data has been distributing Apple’s (AAPL - Analyst Report) iPhone and related accessories since Nov 2013, which also drove sales in the region. Apple was its second-largest customer contributing 13% of second-quarter sales just behind Hewlett-Packard (HPQ - Analyst Report) accounting for 20% of the sales.
Gross margin expanded 10 basis points (bps) from the year-ago quarter, driven by lower inventory cost in Europe.
Selling, general & administrative (SG&A) expenses increased 3.5% year over year to $277.1 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 54.7% year over year to $74.3 million. Operating margin increased 30 bps on a year-over-year basis to 1.1%. Geographically, operating profit in the Americas increased 12.1% from the year-ago quarter, while European operating profit soared 155.2%.
GAAP net income was $39.3 million compared with $14.7 million in the year-ago quarter. Adjusting acquisition-related amortization of intangibles ($7.4 million), restatement-related expenses ($12.2 million) and value added tax assessment ($6.2 million) net income on a non-GAAP basis was $74.3 million or $1.12 per share. Non-GAAP net income was much higher than $48 million or 73 cents reported in the year-ago quarter.
Tech Data had approximately $611.5 million in cash and cash equivalent, up from $675.6 million reported in the previous quarter. Total debt was $402.5 million compared with $404 million at the end of the last quarter.
Tech Data expects improved profitability for fiscal 2015. For the third quarter of fiscal 2015, management expects sales to grow in low-to-mid single-digit range on a year-over-year basis in the Americas and mid-to-high single digit sales in Europe (in €). Management expects gross margin percentage to be in line with the recent levels.
Non-GAAP effective tax rate is expected in the range of 31% to 33%. For fiscal 2015, Tech Data expects non-GAAP effective tax rate in the range of 31% to 33%.
We believe that Tech Data will benefit from pent-up demand for personal computers in the rest of 2014. Tech Data’s partnership with the likes of Cisco (CSCO - Analyst Report), VMware, Google and Xerox will drive its 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 result will significantly depend on sustaining demand for personal computers, which is a headwind.
Currently, Tech Data has a Zacks Rank #3 (Hold).