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Why Is Tech Data (TECD) Up 14.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Tech Data (TECD - Free Report) . Shares have added about 14.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tech Data due for a pullback? 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 Q4 Earnings Beat Estimates, Sales Miss

Tech Data posted fourth-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate, while sales lagged the same. Further, shares of the company fell 6.8% during the trading session on Mar 7. This might be due to the company’s soft bottom-line view of $1.80-$2.10 per share for first-quarter fiscal 2020 whose midpoint of $1.95 clearly came below the Zacks Consensus Estimate of $2.09.

Q4 Details

The company reported adjusted earnings of $4.55 per share in the reported quarter. The figure not only surpassed the Zacks Consensus Estimate of $4.10 but also increased 30% on a year-over-year basis.

Moreover, net sales of $10,464.5 million increased 4% year over year, backed by solid sales performance in the Americas with robust growth in cloud, storage, networking and notebooks. However, the figure lagged the consensus mark of $10,706 million. Net sales rose 8% on a constant-currency (cc) basis.

Net sales from the Americas (41% of global net sales) rose 10% to $4.2 billion. Sales from Europe (56% of global net sales) remained flat at $5.9 billion. Sales from Asia-Pacific (3% of global net sales) increased 8% to $327.7 million.

Margins

The company’s gross profit improved 5% to $649.1 million in the reported quarter. Gross margin expanded 5 basis points (bps) from the year-ago quarter to 6.2% driven by hike in vendor price due to a change in trade policy. Adjusted selling, general & administrative (SG&A) expenses rose 3% to $388.3 million in the quarter under review. Adjusted selling, general & administrative expenses as percentage of revenues decreased 29 bps to 3.7% in the reported quarter.

Adjusted operating income came in at $260.9 million, up 21% from $216 million in the year-ago quarter. Adjusted operating margin expanded 34 bps to 2.5%. Segment wise, operating margin expanded 74 bps for the Americas, 4 bps for Europe and 52 bps for Asia-Pacific.

Balance Sheet and Cash Flow

As of Jan 31, 2019, Tech Data had cash and cash equivalents of approximately $799.1 million, long-term debt of $1,300.6 million and total stockholders’ equity of $2,936.7 million.

During the quarter, the company bought back 808,000 shares for $63 million. Tech Data generated cash from operations of $231 million.

Outlook

Tech Data issued first-quarter fiscal 2020 view, wherein the company anticipates sales to be $8.3-$8.6 billion. Further, it expects results to be affected by unfavorable currency movement. Notably, currency headwinds will affect the bottom line by roughly 7 cents and the top line by nearly 4%. Capital expenditure is projected to be $90-$100 million along with tax rate of 24-26% for first-quarter fiscal 2019.

The company projects top-line growth in low-single digit, while adjusted earnings are expected to rise about 10% for fiscal 2020. Moreover, adjusted operating income is expected to grow mid-single digits on the back of the GBL program, which aims at cost efficiencies. Also, management announced additional $100 million to its existing share repurchase program.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Tech Data has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, 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.

Outlook

Tech Data has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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