Tech Data Corp. (TECD) has declared encouraging financial results for the second quarter of fiscal 2010. Total revenue was $5.2 billion compared to $6.2 billion in the prior-year quarter. However, this was above the Zacks Consensus Estimate of $5.04 billion.
The year-over-year decline in sales is mainly attributable to the adverse movement of exchange rates of the U.S. dollar with respect to certain foreign currencies, as well as a challenging global economy that has resulted in a slowdown in IT spending.
Net income in the second quarter of fiscal 2010 was $35.2 million compared to $22.1 million in the year-ago quarter. EPS in the same quarter was an income of 70 cents compared to an income of 42 cents in the prior-year quarter. This was significantly above the Zacks Consensus Estimate of an income of 45 cents.
The primary reasons for the improvement of net income were an outstanding effort on working capital management coupled with effective operating cost control.
Prudent execution of Tech Data’s inventory pricing and freight management practice resulted in quarterly gross margin of 5.2% compared to 4.9% in the prior-year quarter. Selling, General & Administrative expenses in the reported quarter was $215.2 million compared to $257 million in the year-ago quarter. Previously implemented restructuring activities that resulted in headcount reduction and lower credit costs are the main reasons for the improvement in operating cost structure.
During the reported quarter, Tech Data generated $410.2 million of cash from operations and capital expenditure was $5.2 million, resulting in a massive free cash flow of $405 million. At the end of the same quarter, the company had approximately $1.1 billion of cash & cash equivalents in its balance sheet compared to just $528 million at the end of the previous fiscal year.
Total debt at the end of the second quarter was $376.7 million compared to $389.1 million at the end of the previous fiscal year. The cash conversion cycle in the second quarter was 25 days compared to 30 days in the prior-year second quarter.
American Region (including North & Latin America) Results
Total revenue was $2.4 billion, down 14.5% year-over-year but an improvement of 8.6% sequentially. The American region constituted 46% of quarterly sales. Operating income was $34.1 million compared to $39.5 million in the prior-year quarter. However, operating margin improved slightly to 1.42% in the reported quarter compared to 1.41% in the year-ago quarter.
European Region Results
Total revenue was $2.8 billion, down 17.1% year-over-year but remained flat sequentially. The European region constituted 54% of quarterly sales. However, operating income was $22.5 million compared to just $5.7 million in the prior-year quarter. Operating margin improved to 0.81% in the reported quarter compared to 0.17% in the year-ago quarter.
Customer Segments
Customer segment wise, value-added resellers accounted for 50% of second quarter revenue. Direct marketers & retailers accounted for 30% of quarterly revenue. Corporate resellers constituted the rest 20% of net sales. In the reported quarter, Hewlett-Packard (HPQ) alone generated 28% of total revenue and remains as the sole 10% customer.
Financial Outlook
Tech Data has forecasted that its third quarter fiscal 2010 revenue will decline slightly year-over-year. The company expects that its sales in the European region may continue to be hurt due to the ongoing economic recession. This could also impact the operating results sequentially.
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