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Tech Data (TECD) Q3 Earnings & Revenues Top Estimates

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Tech Data Corp. (TECD - Free Report) reported third-quarter fiscal 2017 results wherein both non-GAAP earnings of $1.44 per share and revenues of $6.490 billion topped the respective Zacks Consensus Estimate of $1.27 and $6.335 billion.

 

On a year-over-year basis, earnings and revenues were up nearly 12.5% and 1%, respectively. On a constant currency basis, revenues grew 4%.

Despite an overall weaker-than-expected demand environment, cost control measures helped the company to post stellar earnings. Region wise, both Americas and Europe, witnessed revenue growth.

Revenues from the Americas (40% of revenues) grew 2% to $2.6 billion, while the same from Europe (60%) was up 1% to $3.9 billion on a year-over-year basis.

The company’s gross profit in the quarter was $315.8 million, almost flat from the year-ago quarter.

Non-GAAP selling, general & administrative (SG&A) expenses were down 3.8% year over year to $234.7 million in the reported quarter. As a percentage of revenues, SG&A expenses were 3.62% compared with 3.79% in the year-ago quarter.

As a result, non-GAAP operating income grew 14.4% year over year to $81.1 million. Non-GAAP operating margin was 1.25%, up 15 basis points (bps) year over year.

Geographically, non-GAAP operating income increased 16% in the Americas and 11% year over year in Europe.

TECH DATA CORP Price, Consensus and EPS Surprise

TECH DATA CORP Price, Consensus and EPS Surprise | TECH DATA CORP Quote

Balance Sheet and Cash Flow

At the end of the quarter, Tech Data had approximately $691.6 million in cash and cash equivalents compared with $531.2 million as of Jan 31, 2016. In the quarter, cash provided by operations was $27 million.

Outlook

For the fourth quarter of fiscal 2017, management expects revenues in a range of $7.4 billion to $7.6 billion. Tech Data projects non-GAAP earnings per share in the range of $2.11 to $2.21.

For the fiscal year, capex is expected to be $44 million

Our Take

Tech Data is well positioned to achieve strong growth based on increasing demand for data center systems, cloud and mobility offerings in the long run. Increased spending in these areas is expected to drive revenue growth for Tech Data as the company consolidates its position in the fast-growing domain of data center, mobile technology, software and integrated supply chain.

Plus, Tech Data has a diversified customer base in both North America and Europe. In addition, the company continues to strengthen its position in the small and medium-business (SMB) customer segment in several countries, both organically and through acquisitions. 

Acquisitions have been an integral part of the company’s growth strategy. Recently, the company announced the acquisition of the Technology Solutions unit from Avnet, Inc in a cash and stock deal worth $2.6 billion. The major benefit of this transaction will be Tech Data’s access to newer markets, i.e. in the Asia-Pacific region. The deal will expand Tech Data’s reach to 35 countries from the existing 21 countries. The buyout will also strengthen Tech Data distribution capabilities in Europe and the Americas. 

However, its exit from businesses in less profitable regions, though a positive in the long run, will weigh on near-term results. Also, Tech Data’s business has been affected by sluggish demand owing to a slowdown in the PC market.

Currently, Tech Data has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the tech space include TiVo Corp. (TIVO - Free Report) , Sabre Corporation (SABR - Free Report) and Facebook Inc. (FB - Free Report) While TiVo sports a Zacks Rank #1 (Strong Buy), Sabre and Facebook carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TiVo, Sabre and Facebook have posted positive earnings surprises of 97.76%, 9.67%, and 21.11%, respectively, in the trailing four quarters.

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