Tech Data (TECD) Q2 Earnings & Sales Beat Estimates, Stock Up

Tech Data Corporation (NASDAQ:TECD) reported top and bottom-line beat in second-quarter fiscal 2020, which marked the fourth straight quarter of earnings beat. Further, results reflected sales beat for the company after two consecutive misses. Results benefited from strong and balanced growth across all regions, which led to top-line gain, and double-digit growth in operating income and earnings. Moreover, the company generated solid operating cash flow during the quarter.

Shares of Tech Data rose sharply, following the solid second-quarter fiscal 2020 results. The stock recorded growth of 15.7% during the trading session on Aug 29. We note that shares of this Zacks Rank #3 (Hold) company have gained 15.7% year to date compared with the industry’s growth of 3.4%. The chart clearly reflects strong rally witnessed yesterday, which caused most of growth in the year-to-date period.

Q2 Details

Tech Data’s adjusted earnings of $2.69 per share in the fiscal second quarter improved 34% year over year and surpassed the Zacks Consensus Estimate of $2.33.

Tech Data Corporation Price, Consensus and EPS Surprise

Tech Data Corporation Price, Consensus and EPS Surprise

Tech Data Corporation price-consensus-eps-surprise-chart | Tech Data Corporation Quote

Net sales of $9,092.2 million grew 2% year over year and beat the consensus mark of $8,745 million. Moreover, net sales rose 5% on a constant-currency (cc) basis. Sales gained from broad-based growth across geographies along with stable demand and solid execution.

Net sales from the Americas (47% of global net sales) rose 7% to $4,316.7 million. Sales from Europe (49% of global net sales) declined 2% to $4,439.6 million. Sales from the Asia Pacific (4% of global net sales) grew 14% to $335.9 million. On a cc basis, net sales rose 7% in the Americas, 2% in Europe and 17% in the Asia Pacific.

Margins

The company’s gross profit rose 7% to $561.7 million in the reported quarter. Gross margin expanded 25 bps to 6.2%. Adjusted selling, general & administrative (SG&A) expenses increased 5% to $410.2 million. As a percentage of sales, adjusted SG&A expenses expanded 10 bps to 4.5%.

Adjusted operating income of $151.4 million grew 12% from $110.4 million in the year-ago quarter. Meanwhile, adjusted operating margin expanded 15 bps to 1.7%. Segment wise, adjusted operating margin expanded 14 bps to 2.5% in the Americas, 10 bps to 1.1% in Europe and 42 bps to 1.3% in the Asia Pacific.

Balance Sheet and Cash Flow

As of Jul 31, 2019, Tech Data had cash and cash equivalents of approximately $738.3 million, long-term debt of $1,297.2 million, and total stockholders’ equity of $2,889.6 million.

The company generated net operating cash flow of nearly $40 million during the fiscal second quarter. Cash from operations totaled $103 million in the first half of fiscal 2020, of which the company returned $118 million to shareholders through share buybacks. In the fiscal second quarter, it bought back 833,000 shares for $82 million.

Keeping in lines with its commitment to return value to shareholders, the company authorized a new $200 million worth of share repurchase program. The new authorization will add to the $75 million remaining under its current buyback program that was announced in July. Combining the latest announcement and the authorizations made in July and October, the company has authorized share buybacks worth of $500 million since October 2018.

Outlook

Tech Data issued third-quarter fiscal 2020 view, wherein it anticipates net sales of $9.2-$9.5 billion.

Further, the company expects earnings (GAAP) of $2.33-$2.63 per share in the fiscal third quarter, with adjusted earnings of nearly $2.85-$3.15 per share. It assumes effective tax rate of 24-25% in the quarter.

Moreover, the company notes that the second half of fiscal 2019 was exceptionally strong. Hence, it anticipates growth rates in the second half of fiscal 2020 to be moderate compared with the prior year. Additionally, it expects adverse currency rates to linger through the rest of the fiscal year.

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