Tech Data (TECD) Up 8.9% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Tech Data (TECD). Shares have added about 8.9% 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 the most recent earnings report in order to get a better handle on the important drivers.

Tech Data Q2 Earnings & Sales Beat Estimates

Tech Data Corporation reported top and bottom-line beat in second-quarter fiscal 2020, which marked the fourth straight quarter of earnings beat. Further, results reflected sales beat for the company after two consecutive misses. Results benefited from strong and balanced growth across all regions, which led to top-line gain, and double-digit growth in operating income and earnings. Moreover, the company generated solid operating cash flow during the quarter.

Q2 Details

Tech Data’s adjusted earnings of $2.69 per share in the fiscal second quarter improved 34% year over year and surpassed the Zacks Consensus Estimate of $2.33.

Net sales of $9,092.2 million grew 2% year over year and beat the consensus mark of $8,745 million. Moreover, net sales rose 5% on a constant-currency (cc) basis. Sales gained from broad-based growth across geographies along with stable demand and solid execution.

Net sales from the Americas (47% of global net sales) rose 7% to $4,316.7 million. Sales from Europe (49% of global net sales) declined 2% to $4,439.6 million. Sales from the Asia Pacific (4% of global net sales) grew 14% to $335.9 million. On a cc basis, net sales rose 7% in the Americas, 2% in Europe and 17% in the Asia Pacific.

Margins

The company’s gross profit rose 7% to $561.7 million in the reported quarter. Gross margin expanded 25 basis points (bps) to 6.2%. Adjusted selling, general & administrative (SG&A) expenses increased 5% to $410.2 million. As a percentage of sales, adjusted SG&A expenses expanded 10 bps to 4.5%.

Adjusted operating income of $151.4 million grew 12% from $110.4 million in the year-ago quarter. Meanwhile, adjusted operating margin expanded 15 bps to 1.7%. Segment wise, adjusted operating margin expanded 14 bps to 2.5% in the Americas, 10 bps to 1.1% in Europe and 42 bps to 1.3% in the Asia Pacific.

Balance Sheet and Cash Flow

As of Jul 31, 2019, Tech Data had cash and cash equivalents of approximately $738.3 million, long-term debt of $1,297.2 million, and total stockholders’ equity of $2,889.6 million.

The company generated net operating cash flow of nearly $40 million during the fiscal second quarter. Cash from operations totaled $103 million in the first half of fiscal 2020. The company returned $118 million to shareholders through share buybacks. In the fiscal second quarter, it bought back 833,000 shares for $82 million.

Keeping in lines with its commitment to return value to shareholders, the company authorized a new $200 million worth of share repurchase program. The new authorization will add to the $75 million remaining under its current buyback program that was announced in July.

Outlook

Tech Data issued third-quarter fiscal 2020 view, wherein it anticipates net sales of $9.2-$9.5 billion.

Further, the company expects earnings (GAAP) of $2.33-$2.63 per share in the fiscal third quarter, with adjusted earnings of nearly $2.85-$3.15 per share. It assumes effective tax rate of 24-25% in the quarter.

Moreover, the company notes that the second half of fiscal 2019 was exceptionally strong. Hence, it anticipates growth rates in the second half of fiscal 2020 to be moderate compared with the prior year. Additionally, it expects adverse currency rates to linger through the rest of the fiscal year.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

At this time, Tech Data has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Tech Data has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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