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Tech Data (TECD) Down 6.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Tech Data (TECD). Shares have lost about 6.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Tech Data due for a breakout? 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 catalysts.

Tech Data's Q4 Earnings Beat Estimates, Sales Down Y/Y

Tech Data reported better-than-expected earnings and sales for fourth-quarter fiscal 2020. Also, the bottom line grew year over year and marked the sixth straight quarter of beat. However, the company’s top line decreased on a year-over-year basis.

The company is on track with its definitive agreement to be acquired by Tiger Midco, LLC, an affiliate of funds managed by affiliates of Apollo Global Management, which is a leading global alternative investment manager. The deal is valued at $145 per share. The transaction is likely to conclude in the first half of calendar year 2020.

Q4 Details

Tech Data’s fourth-quarter adjusted earnings came in at $4.88 per share that surpassed the Zacks Consensus Estimate of $4.79. Further, the metric rose 7% year over year in the reported quarter.

Net sales of $10,380.8 million exceeded the consensus mark of $10,346 million but declined 1% year over year. Moreover, net sales were flat on a constant-currency (cc) basis.

Net sales from the Americas (41% of global net sales) rose 1% to $4,291.8 million. Sales from Europe (56% of global net sales) declined 2% to $5,760.6 million. Sales from the Asia Pacific (3% of global net sales) remained almost flat at $328.4 million. On a cc basis, net sales rose 1% in the Americas but remained flat in the Asia Pacific and Europe.

Margins

The company’s gross profit rose 3% to $666.2 million in the reported quarter. Gross margin expanded 22 basis points (bps) to 6.4%. Adjusted selling, general & administrative (SG&A) expenses increased 7% to $414.2 million. As a percentage of sales, adjusted SG&A expenses expanded 28 bps to nearly 4%.

The company’s adjusted operating income of $252 million decreased 3% from $260.9 million in the year-ago quarter. Meanwhile, adjusted operating margin contracted 6 bps to 2.4%. Segment-wise, adjusted operating margin contracted 32 bps to 2.6% in the Americas and 110 bps to 1.9% in the Asia Pacific. Nevertheless, adjusted operating margin expanded 18 bps to 2.4% in Europe.

Balance Sheet and Cash Flow

As of Jan 31, 2020, Tech Data had cash and cash equivalents of $841.4 million, long-term debt, less current maturities, of $1,338.1 million, and total stockholders’ equity of $3,119.5 million.

The company generated net operating cash flow of $180 million during the fiscal fourth quarter. Cash from operations totaled $593.1 million in fiscal 2020. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -30.18% due to these changes.

VGM Scores

Currently, Tech Data has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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