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Tech Data (TECD) Down 6.2% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Tech Data (TECD - Free Report) . Shares have lost about 6.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Tech Data due for a breakout? Before we dive into how investors and analysts have reacted as 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.

Tech Data Q2 Earnings Lag Estimates, Revenues Beat

Tech Data reported lower-than-expected adjusted earnings of $2.01 per share in the second quarter of fiscal 2019 owing to product mix. Although the figure increased 16% on a year-over-year basis, it missed the Zacks Consensus Estimate of $2.14.

Revenues of $8,886.1 million increased 10% year over year and surpassed the consensus mark of $8,728.3 million, driven by robust demand for Endpoint Solutions. Net sales rose 8% on a constant-currency (cc) basis.

Quarterly Details

Net sales from the Americas (45.5% of revenues) rose 7.3% to $4 billion. Sales from Europe (51.2%) and the Asia-Pacific (3.3% of revenues) grew 12.5% and 5% to $4.5 billion and $293.6 million, respectively.

Gross margin contracted 44 basis points (bps) from the year-ago quarter’s level to 5.93%. Non-GAAP selling, general & administrative (SG&A) expenses as a percentage of revenues decreased 38 bps to 4.41% in the reported quarter.

Adjusted operating margin contracted 6 bps to 1.52%. Segment wise, operating margin expanded 11 bps for the Americas while it contracted 10 bps for Europe and 153 bps for Asia Pacific.

Balance Sheet and Cash Flow

As of Jul 31, 2018, Tech Data had approximately $792.9 million in cash and cash equivalents compared with $1,033.3 million as of Jul 31, 2017.

Tech Data generated cash from operations of $561 million in the reported quarter compared with $567 million in the previous quarter.

Global Business Optimization Program

During the reported quarter, Tech Data launched a Global Business Optimization Program (GBO Program) in a bid to become a more flexible and cost-effective organization. This will enable the company to work toward achieving sustainable long-term growth.

The components of the program include improving the company's regional go-to-market models to deliver higher value to channel partners; digital processes to create a more responsive, empowered and agile work environment; and improving productivity with the help of increased centralization and standardization throughout the organization.
 
Moving ahead, the company anticipates annual cost savings of $70-$80 million from this program, out of which half the savings will be invested to speed up the company’s strategic priorities. Management noted that through Jul 31, 2018, the company incurred GBO Program-related costs of roughly $18 million.

Outlook

Tech Data issued third-quarter fiscal 2019 view, wherein net sales are forecasted to be around $8.7-$9 billion and adjusted earnings to be $2.00-$2.30 per share. The tax rate is expected to be 24-26%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -9.68% due to these changes.

VGM Scores

Currently, Tech Data has a great Growth Score of A, though it is lagging a bit on the Momentum Score 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 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.

Outlook

Tech Data has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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