Tech Data Beats, Ups Guidance

Tech Data Corp. (TECD - Analyst Report) announced encouraging financial results for the third quarter of fiscal 2010. Net income was $43.1 million compared to $16.8 million in the year-ago quarter. Earnings per share (EPS) in the same quarter were 84 cents compared to an income of 33 cents in the prior-year quarter.
 
Earnings for the quarter were significantly above the Zacks Consensus Estimate of an income of 71 cents a share. The primary reasons for the improvement of net income were an outstanding effort on working capital management coupled with effective operating cost control.
 
Moreover, Tech Data benefited from a lower effective tax rate of 27.3% compared to 37.4% in the prior-year period. The year-over-year decrease in the effective tax rate was primarily attributable to improved operating performance in the European region.
Total revenue for the reported quarter was $5.64 billion, a decrease of 8.1% from the year-ago period. Tech Data sees some stability in IT spending. Moreover, movement of exchange rates of the U.S. dollar with respect to certain foreign currencies positively impacted sales by 2% in the quarter. In the reported quarter, Hewlett-Packard (HPQ - Analyst Report) alone generated 28% of total revenue and remains the sole customer in the 10% bracket.
 
North and Latin America (representing 44% of total sales) fell 10.9% to $2.46 billion, while European sales (representing 56% of total sales) declined 5.7% to $3.2 billion. Excluding the effects of foreign exchange, sales were down 9% in Europe. The decline in net sales in both regions is attributable to the softened demand environment.
 
Results for the quarter exceeded management’s expectation as interest expenses reduced 36.5% and foreign-exchange loss fell 95.9% from last year, which more than offset a decline in revenue. Moreover, a prudent execution of Tech Data’s inventory pricing and freight management practice resulted in quarterly gross margin of 5.3% compared to 4.9% in the prior-year quarter.
 
Selling, General & Administrative (SG&A) expenses in the reported quarter was $230.5 million (4.1% of total sales) compared to $238.9 million (3.9% of total sales) in the year-ago quarter. As a percent of net sales, the increase in SG&A was primarily due to the lower sales.
 
During the reported quarter, Tech Data generated $62.6 million of cash from operations. At quarter-end, the company had approximately $1.2 billion of cash & cash equivalents compared to $1.1 billion at the end of the previous quarter.
 
Total long-term debt at the end of the quarter was $336.2 million, compared to $376.7 million at the end of the previous quarter. Return on capital employed (ROCE) improved to 14.5% in the quarter.
 
Financial Outlook
 
Tech Data has forecasted that its fourth quarter fiscal 2010 revenue will increase in the low-to-mid single digit range year-over-year. This increase is due to improving IT demand combined with the strength of certain foreign currencies versus the U.S. dollar. Exchange rate gains will positively impact the company’s operating results.

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