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Tech Data Corp. (TECD - Analyst Report) is scheduled to release its fiscal second quarter 2013 results before the market opens on August 21, 2012.

In the run up to the earnings release, there have been a couple of negative estimate revisions. However, Tech Data has outperformed the Zacks Consensus Estimate by an average of 6.76% over the last four quarters, and we expect this to continue in the second quarter.

First Quarter Highlights

Tech Data reported mixed first quarter results. The bottom line of $1.24 surpassed the Zacks Consensus Estimate of $1.17 and was up 20.4% on a year-over-year basis, aided by lower costs and margin expansions.

However, the company’s top line of $5.89 billion not only missed the Zacks Consensus Estimate of $6.18 billion, but was down 6.9% on a year-over-year basis. Revenues declined due to unfavorable foreign exchange rates, revised representation of sales of vendor warranty services and certain fulfillment contracts.

For further details please read: Tech Data Reports Mixed 1Q

Earnings Estimate Trends

Over the past 30 days, two out of nine analysts covering the stock revised their estimates downward with no upward revision. The Zacks Consensus Estimate for the second quarter dropped a couple of cents to $1.18 per share in that time.

Analysts covering the stock expect a decline in the top line due to weaker-than-expected demand in the PCs and servers segment. Looking at the individual regions, the company’s revenue mix is highly skewed to Europe, which is reeling under economic pressure. This will act as a headwind going forward. Though the bottom line of has outperformed the estimates of late; analysts expect a slide in its earnings due to sluggish revenue.

Recommendation 

We believe that Tech Data faces a number of headwinds in the near term, including a volatile European market (approximately 60.0% of revenue) and a lack of visibility in U.S. government spending. Moreover, it faces tough competition from Ingram Micro Inc. (IM - Analyst Report) and SYNNEX Corp (SNX - Snapshot Report).

However, we believe that the company’s profitability will be driven by higher HDD pricing in the near term. Tech Data’s strategy of shifting resources from lower-performing regions to higher-growth regions, cost reductions and accretive acquisitions will drive growth over the long term.

Thus, we maintain our long-term Neutral recommendation on the stock. Currently, the stock holds a Zacks #4 Rank, implying a short-term ‘Sell’ rating.

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