Why Is Tech Data (TECD) Up 7.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Tech Data (TECD). Shares have added about 7.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Tech Data Q1 Earnings Beat Estimates, Increase Y/Y

Tech Data posted first-quarter fiscal 2020 results, which marked the third straight quarter of earnings beat. The company’s bottom line also registered double-digit growth year over year despite a decline in the top line. This increase can be attributed to lower costs of products sold and reduced operating expenses.

Moreover, management now envisions earnings of $2.15-$2.45 per share for second-quarter fiscal 2020. The midpoint of $2.30 indicates a sharp improvement from $2.01 reported in the year-ago period.

We also noticed that while Americas and Asia Pacific regions witnessed net sales growth, Europe encountered soft sales. This led to a year-over-year decline in the overall net sales that also fell short of the Zacks Consensus Estimate.

Q1 Details

The company reported adjusted earnings of $2.04 per share in the reported quarter. The figure not only surpassed the Zacks Consensus Estimate of $1.98 but also increased 11% on a year-over-year basis.

However, net sales of $8,406.4 million decreased 2% year over year. Also, the figure lagged the consensus mark of $8,453 million. Net sales rose 3% on a constant-currency (cc) basis.

Net sales from the Americas (45.1% of global net sales) rose 5% to $3,789.2 million. Sales from Europe (51.3% of global net sales) declined 8% to $4,309.5 million. Sales from Asia-Pacific (3.6% of global net sales) increased 15% to $307.7 million.

Margins

The company’s gross profit fell 2.6% to $509.4 million in the reported quarter. Gross margin shrunk 6 bps to 6.1%. Adjusted selling, general & administrative (SG&A) expenses declined 3.6% to $384.6 million in the quarter under review. Adjusted selling, general & administrative expenses as percentage of revenues contracted 9 bps to 4.6%.

Adjusted operating income came in at $124.8 million, up 0.6% from $124.1 million in the year-ago quarter. Adjusted operating margin expanded 3 bps to 1.5%. Segment wise, operating margin contracted 14 bps to 2.2% for the Americas, while the metric expanded 12 bps to 1.1% for Europe and 51 bps to 0.9% for Asia Pacific.

Balance Sheet and Cash Flow

As of Apr 30, 2019, Tech Data had cash and cash equivalents of approximately $797.5 million, long-term debt of $1,297.9 million and total stockholders’ equity of $2,915.9 million.

During the quarter, the company bought back 346,000 shares worth $36 million. Tech Data generated cash from operations of $63.2 million.

Outlook

Tech Data issued second-quarter fiscal 2020 view, wherein the company anticipates sales to be $8.6-$8.9 billion. Although growth in IT market has slowed down, going ahead management sees robust demand for its products.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Tech Data has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.