Tech Data's (TECD) Q4 Earnings Miss Estimates, Revenues Beat

Tech Data Corp. (NASDAQ:TECD) 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 3 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 2018, resulted in nearly 19.7% drop in share price in after-hours trading.

Quarterly Details

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 (NASDAQ: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.

Tech Data Corporation Price, Consensus and EPS Surprise

Tech Data Corporation Price, Consensus and EPS Surprise | Tech Data Corporation Quote

Margins

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.

Outlook

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 the fiscal 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.

Zacks Rank and Stocks to Consider

Tech Data carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader retail-wholesale sector are PC Connection Inc. (NASDAQ:CNXN) and Sonic Automotive, Inc. (NYSE:SAH) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Long-term earnings growth for PC Connection and Sonic Automotive is projected at 8% and 3%, respectively.

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