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Tech Data (TECD) Down 18.8% Since Earnings Report: Can It Rebound?

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It has been more than a month since the last earnings report for Tech Data Corporation (TECD - Free Report) . Shares have lost about 18.8% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Tech Data reported fiscal second-quarter 2018 non-GAAP earnings of $1.74 per share, which missed the Zacks Consensus Estimate of $2.06. Earnings were marred by a combination of execution challenges as well as market dynamics, added management.  

However, revenues of $8.88 billion came in well ahead of the consensus mark of $8.71 billion.

On a year-over-year basis, earnings and revenues grew 22.5% and 39.8%, respectively. The year-over-year sales growth was primarily attributed to strong contribution from the recently acquired Technology Solutions business from Avnet. Tech Data's net sales increased almost 41% on a constant currency (CC) basis.

Quarter Details

Net sales from the Americas (47% of revenues) surged 57% to $4.2 billion. Sales from Europe (50%) grew 20% to $4.4 billion. Driven by the acquisition of Technology Solutions, revenues from Asia Pacific (3%) came in at $288 million.

The company said it was on track to achieve $50 million in the year from the date of closing of the technology solutions acquisition. It will achieve another $50 million by the second year.

Gross margin expanded 80 basis points (bps) from the year-ago quarter to 5.8%, primarily due to the addition of Technology Solutions.

Non-GAAP selling, general & administrative (SG&A) expense as a percentage of revenues increased 62 bps to 4.37% in the reported quarter.

Non-GAAP operating margin expanded 21 bps to 1.44%. Segment wise, Americas and Europe expanded 57 bps and 18 bps, respectively.

Balance Sheet and Cash Flow

As of Jul 31, 2017, Tech Data had approximately $1.03 million in cash and cash equivalents compared with $2.13 billion as of Jan 31, 2017. In the quarter, cash provided by operations was $146 million. For the first six months, cash flow from operations was $371 million.

Outlook

For third-quarter fiscal 2018, Tech Data forecasts net sales in the range of $9–$9.35 billion. Non-GAAP earnings are anticipated to be in the range of $1.84–$2.04 per share.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in  fresh estimates. There has been one revision lower for the current quarter. In the past month, the consensus estimate has shifted lower by 11.8% due to these changes.

Tech Data Corporation Price and Consensus

 

At this time, Tech Data's stock has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.




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