Tech Data (TECD) Misses Q2 EPS by 10c, Revenues Beat; Offers 3Q EPS Guidance Below Consensus

Tech Data (NASDAQ: TECD) reported Q2 EPS of $2.01, $0.10 worse than the analyst estimate of $2.11. Revenue for the quarter came in at $8.89 billion versus the consensus estimate of $8.73 billion.

• Net sales were $8.9 billion, an increase of 10 percent compared to the prior-year quarter. On a constant currency basis, net sales increased 8 percent.
  • Americas: Net sales were $4.0 billion (46 percent of worldwide net sales), an increase of 7 percent compared to the prior-year quarter.
  • Europe: Net sales were $4.5 billion (51 percent of worldwide net sales), an increase of 13 percent compared to the prior-year quarter. On a constant currency basis, net sales increased 9 percent.
  • Asia Pacific: Net sales were $0.3 billion (3 percent of worldwide net sales), an increase of 5 percent compared to the prior-year quarter. On a constant currency basis, net sales increased 7 percent.
• Gross profit was $527.0 million, an increase of $11.4 million, or 2 percent compared to the prior-year quarter. As a percentage of net sales, gross profit was 5.93 percent compared to 6.37 percent in the prior-year quarter.
• Selling, general and administrative expenses ("SG&A") were $415.3 million, or 4.67 percent of net sales, compared to $410.6 million, or 5.07 percent of net sales in the prior-year quarter. Non-GAAP SG&A was $392.1 million, an increase of $4.4 million, or 1 percent, compared to the prior-year quarter. As a percentage of net sales, non-GAAP SG&A was 4.41 percent, compared to 4.79 percent in the prior-year quarter.
• Worldwide operating income was $110.4 million, or 1.24 percent of net sales compared to $103.5 million or 1.28 percent of net sales in the prior-year quarter. Non-GAAP operating income was $135.0 million, an increase of $7.1 million, or 6 percent, compared to the prior-year quarter. As a percentage of net sales, non-GAAP operating income was 1.52 percent, compared to 1.58 percent in the prior year quarter.
  • Americas: Operating income was $87.9 million, or 2.17 percent of net sales, compared to $88.0 million, or 2.33 percent of net sales in the prior-year quarter. Non-GAAP operating income was $95.4 million, an increase of $10.7 million, or 13 percent, compared to the prior-year quarter. As a percentage of net sales, non-GAAP operating income was 2.36 percent, an improvement of 11 basis points from the prior-year quarter.
  • Europe: Operating income was $29.1 million, or 0.64 percent of net sales, compared to $18.5 million, or 0.46 percent of net sales in the prior-year quarter. Non-GAAP operating income was $44.3 million, an increase of $0.9 million, or 2 percent, compared to the prior-year quarter. As a percentage of net sales, non-GAAP operating income was 0.97 percent compared to 1.07 percent in the prior-year quarter.
  • Asia Pacific: Operating income was $1.3 million, or 0.45 percent of net sales, compared to $5.1 million, or 1.81 percent of net sales in the prior-year quarter. Non-GAAP operating income was $2.5 million, a decrease of $4.2 million, or 63 percent, compared to the prior-year quarter. As a percentage of net sales, non-GAAP operating income was 0.86 percent compared to 2.39 percent in the prior-year quarter.
• Stock-based compensation expense was $8.0 million, essentially flat from the prior-year quarter. This includes $0.7 million of acquisition and integration-related stock compensation expense. These expenses are excluded from the regional operating results and presented as a separate line item in the company's segment reporting (see the GAAP to non-GAAP reconciliation in the financial tables of this press release).
• Net income was $75.9 million, compared to $47.5 million in the prior-year quarter. Non-GAAP net income was $77.7 million, an increase of $11.0 million, or 16 percent, compared to the prior-year quarter.
• Earnings per share on a diluted basis ("EPS") were $1.97, compared to $1.24 in the prior year quarter. Non-GAAP EPS was $2.01, an increase of $0.27, or 16 percent compared to the prior-year quarter.
• Net cash generated by operations during the quarter was $561 million.
• Return on invested capital for the trailing twelve months was 5 percent, compared to 10 percent in the prior-year period. The adjusted return on invested capital for the trailing twelve months was 11 percent, compared to 12 percent in the prior-year period.

"Fueled by strong demand for Endpoint Solutions, Q2 worldwide sales grew 10 percent to $8.9 billion — the high end of our guidance range,' said Rich Hume, chief executive officer. "Non-GAAP earnings per share improved 16 percent from the year-ago quarter to $2.01, however, came in at the lower end of our expected range largely due to product mix. The strength in high-velocity sales generated exceptionally strong cash from operations of $561 million and produced a return on invested capital of 11 percent. Looking ahead, we will continue to build on our strengths – the powerful combination of our global scope with local expertise; strong operations; valued channel partner relationships; and dedicated colleagues, as we invest in both our people and our business. The Global Business Optimization Program we announced today will enable us to accelerate our strategic priorities and set a new standard in our industry by creating a more efficient and agile organization, and to secure our next wave of sustainable, profitable growth."

GUIDANCE:

Tech Data sees Q3 2019 EPS of $2.00-$2.30. Tech Data sees Q3 2019 revenue of $8.7-9 billion, versus the consensus of $8.85 billion.

For earnings history and earnings-related data on Tech Data (TECD) click here.

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