A month has gone by since the last earnings report for Tech Data Corporation (TECD - Free Report) . Shares have lost about 8.5% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is TECD due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Tech Data Corp reported fiscal fourth-quarter 2018 non-GAAP earnings of $3.50 per share, which increased 42.9% on a year-over-year basis but missed the Zacks Consensus Estimate by three cents.
Revenues of $11.1 billion increased 49.4% year over year and beat the consensus mark of $10.5 billion, driven by a strong contribution from the recently acquired Technology Solutions business of Avnet. Net sales rose 40% on a constant-currency (CC) basis.
Growth in data-center and cloud-based solutions are the key drivers for the company. The launch of the cloud engine, StreamOne, has expanded its reach in the cloud marketplace and led to a strong double-digit growth in cloud orders in fiscal 2018.
However, management notes competitive environment and distribution problems with vendors to impact profitability. Thus, the soft guidance, provided by the company for first-quarter fiscal 2019, resulted in nearly 19.7% drop in share price in after-hours trading.
Net sales from the Americas (38.7% of revenues) soared 58.5% to $4.3 billion, driven by resellers serving the state and local, federal and education sectors. The small and medium-business (SMB) customer segment in the U.S. grew in double-digits.
Sales from Europe (58.3%) grew 36.9% to $6.5 billion, backed by growth in smartphones, software subscriptions, data center hardware and consumer electronics. Declining sales of notebooks, desktops and printing products were a dampener.
Driven by the buyout of Technology Solutions, revenues from the Asia Pacific were $338 million.
Tech Data generated 19% of sales in the quarter from Apple (AAPL), with no other vendor contributing more than 10%.
The company informed that it achieved $50 million in fiscal 2018 from the Technology Solutions takeover. It is on track to achieve another $50 million in the current fiscal.
Gross margin expanded 56 basis points (bps) from the year-ago quarter to 5.56%, primarily owing to the addition of Technology Solutions.
Non-GAAP selling, general & administrative (SG&A) expenses as a percentage of revenues increased 26 bps to 3.61% in the reported quarter, due to higher cost, associated with the Technology Solutions’ complex advanced solutions business.
Non-GAAP operating margin expanded 31 bps to 1.95%. Segment wise, operating margin expanded 23 bps for the Americas and 37 bps for Europe.
Balance Sheet and Cash Flow
As of Jan 31, 2017, Tech Data had approximately $955.6 million in cash and cash equivalents compared with $562.6 million as of Oct 31, 2017.
Tech Data generated cash from operations of $657 million in the quarter compared with $70 million in the previous quarter.
Under new revenue recognition standard ASC 606, for first-quarter fiscal 2019, Tech Data forecasts net sales to be around $8-$8.3 billion.
Non-GAAP earnings are anticipated to be $1.30-$1.60 per share.
The tax rate is expected to be 26-28% in first quarter. For fiscal 2019, it is projected to be 26-28%, due to the implementation of U.S. Tax Cuts and Jobs Act.
Management expects the adoption of ASC 606 will lead to a 7% decline in net sales for fiscal 2019.
Non-GAAP operating income is anticipated to witness flat to low single-digit growth.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been three revisions lower for the current quarter. Last month, the consensus estimate has shifted downward by 22.5% due to these changes.
Tech Data Corporation Price and Consensus
At this time, TECD has a strong Growth Score of A, though it is lagging a bit on the momentum front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, TECD has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.