The IT products distributor, Tech Data Corp. (TECD) reported better-than-expected fourth quarter 2011 earnings per share (EPS), beating the Zacks Consensus Estimate of $1.43 by 20 cents. Both revenue and EPS were a record high in the quarter attributed to strong demand for technology products in both the Americas and Europe, thereby leading to strong sales in the quarter.
Total revenue for the reported quarter was $7.12 billion, an increase of 13.3% from $6.28 billion in the prior-year quarter. This was above the Zacks Consensus Estimate of $6.14 billion. However, results were partially affected by a stronger U.S. dollar that negatively impacted sales by 6 percentage points in the quarter. Sequentially, revenues increased 15.5%.
North America and Latin America (representing 39% of total sales) increased 10.8% to $2.78 billion and European sales (representing 61% of total sales) increased 14.9% to $4.34 billion. The increase in net sales in both regions was due to strengthening demand.
Operating Performance
Net income for the reported quarter was $77.3 million compared with $64.7 million in the year-ago quarter. EPS was $1.63, compared with $1.25 cents in the prior-year quarter.
The year-ago quarter included a net benefit of approximately $5.4 million or 10 cents per share credited to the reversal of a deferred tax valuation allowance in the European region effective February 1, 2010, Tech Data reclassified certain foreign currency exchange gains or losses within the cost of sales from Other (income) expense.
A prudent execution of Tech Data’s inventory, pricing and freight management practices along with higher revenues resulted in a quarterly gross margin of 5.3%, compared with 5.2% in the prior-year quarter.
Selling, General & Administrative (SG&A) expenses in the reported quarter were $261.0 million (3.7% of total sales) compared with $233.7 million (3.7% of total sales) in the year-ago quarter.
On a dollar basis, SG&A expenses upped 11.7% year over year, primarily due to the inclusion of operating expenses of five European companies acquired in fiscal 2011 as well as increased costs to support growth, partially offset by the impact of weak foreign currencies.
Overall, operating income grew 27.1% year over year to $117.8 million or 1.7% of net sales, compared with an operating income of $92.7 million or 1.5% of net sales in the year-ago quarter.
Geographically, operating income in the Americas was $48.6 million or 1.8% of net sales, compared with $43.7 million or 1.7% of net sales in the year-ago quarter. Operating income in Europe was $71.6 million or 1.7% of net sales, compared with $51.6 million or 1.4% of net sales.
During the reported quarter, Tech Data generated $175.7 million of cash from operations versus $105.0 million cash used in the previous quarter. At quarter end, the company had approximately $839.9 million of cash compared with $706.5 million of cash in the previous quarter. Total long-term debt at the end of the quarter was $494.5 million versus $392.4 million in the previous quarter.
The company authorized a share repurchase program worth $100 million during the quarter. Since April, 2005, the company has completed share repurchases of more than 16 million shares totaling $600 million.
Outlook
Tech Data, which distributes products made by Apple Inc. (AAPL) and Hewlett-Packard Co. (HPQ) expects continued year-over-year growth in both the U.S. and Europe regions. The company expects year-over-year double-digit growth in operating income, net income and earnings per share in fiscal year 2012.
We expect the recent IT demand trends to continue in the first quarter of 2012. We, thus, maintain our long-term Outperform rating on the stock. Currently, the stock has a Zacks #2 Rank, implying a short-term Buy rating.
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