A month has gone by since the last earnings report for Tech Data (TECD). Shares have added about 3.9% 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 drivers.
Tech Data Beats Earnings and Sales Estimates in Q1
Tech Data reported better-than-expected earnings and sales for first-quarter fiscal 2021. Also, the bottom line grew year over year and marked the seventh straight quarter of a beat. However, the company’s top line declined on a year-over-year basis.
Moreover, the company is on track with its definitive agreement to be acquired by the affiliates of Apollo Funds. The latter will acquire Tech Data’s entire outstanding shares for $145 a share in cash. On Feb 12, 2020, the company’s shareholders approved the merger agreement. Moreover, the company has obtained all regulatory approvals with respect to the completion of the merger deal, except the Australian Foreign Investment Review Board’s approval. The deal is likely to be concluded in the first half of 2020.
Tech Data’s first-quarter adjusted earnings came in at $2.22 per share that surpassed the Zacks Consensus Estimate of $1.65. Further, the metric rose 8.8% year over year in the reported quarter.
Net sales of $8,175.2 million exceeded the consensus mark of $7,891 million but declined 3% year over year, mainly because of portfolio optimization actions. Moreover, net sales dropped 1% on a constant-currency (cc) basis.
Net sales from the Americas (48% of global net sales) rose 4% to $3,944.8 million. Sales from Europe (49% of global net sales) declined 8% to $3,971.1 million. Sales from the Asia Pacific (3% of global net sales) plunged 16% to $259.3 million. On a cc basis, net sales rose 5% in the Americas, while the same declined 5% and 12% in Europe and Asia Pacific, respectively.
The company’s gross profit rose 4% to $531.7 million in the reported quarter. Gross margin expanded 44 basis points (bps) to 6.5%.
Adjusted selling, general & administrative (SG&A) expenses increased 4.7% to $402.8 million. As a percentage of sales, adjusted SG&A expenses expanded 35 bps to nearly 4.9%. However, adjusted operating income of $128.9 million increased 3.3% from the year-ago quarter. Meanwhile, adjusted operating margin expanded 10 bps to 1.6%. Segment-wise, adjusted operating margin contracted 12 bps to 2.1% in the Americas and 110 bps in the Asia Pacific. Nevertheless, adjusted operating margin expanded 25 bps to 1.3% in Europe.
Balance Sheet and Cash Flow
As of Apr 30, 2020, Tech Data had cash and cash equivalents of $828.9 million, long-term debt, less current maturities, of $1,337.5 million, and total stockholders’ equity of $3,106.5 million. During the reported quarter, net cash used by operating activities was $7.7 million.
Moreover, adjusted return on invested capital for the trailing 12 months came in at 15% versus 14% in the prior-year period.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
Currently, Tech Data has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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.
Tech Data has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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