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Tech Data (TECD) Down 1.6% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Tech Data Corporation TECD. Shares have lost about 1.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted 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 Beats Q1 Earnings on Strong Sales Growth

Tech Data reported first-quarter fiscal 2018 non-GAAP earnings of $1.87 per share, comfortably beating the Zacks Consensus Estimate by $0.48 and jumped 78.1% from the year-ago quarter.

The massive growth was driven by robust top-line performance, which surged 28.5% to $7.66 billion, well ahead of the Zacks Consensus Estimate of $7.32 billion.

The year-over-year sales growth was primarily attributed to strong contribution ($1.6 billion for two months) from the recently acquired Avnet’s Technology Solutions business.

Excluding contribution from Technology Solutions, Tech Data's organic net sales increased almost 5% on a constant currency (CC) basis.

Quarter Details

Net sales from the Americas (45.3% of revenues) surged 45.3% to $3.47 billion. Technology Solutions contributed $1.0 billion to net sales. Organically net sales increased approximately 5% at CC.

Net sales from the Europe (52.3%) increased 12.1% to more than $4.00 billion on a year-over-year basis. Technology Solutions contributed $500 million to net sales. Organically net sales increased approximately 5% at CC.

Net sales from the APAC were $188.3 million in the quarter.

Non-GAAP gross margin expanded 100 basis points (bps) from the year-ago quarter to 6%, primarily due to the addition of Technology Solutions.

Non-GAAP selling, general & administrative (SG&A) expense as a percentage of revenues increased 40 bps to 4.4% in the reported quarter.

Non-GAAP operating margin expanded 60 bps to 1.6%. Segment wise, Americas and Europe expanded 50 bps and 10 bps, respectively.

Balance Sheet and Cash Flow

As of Apr 30, 2017, Tech Data had approximately $861.5 million in cash and cash equivalents compared with $2.13 billion as of Jan 31, 2017. In the quarter, cash provided by operations was $224 million, significantly lower than $445 million generated in the previous quarter.

Outlook

For second-quarter fiscal 2017, Tech Data forecasts net sales in the range of $8.55–$8.80 billion. Non-GAAP earnings are anticipated to be in the range of $1.95–$2.08 per share.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower. In the past month, the consensus estimate has shifted lower by 5.1% due to these changes.

Tech Data Corporation Price and Consensus

 

VGM Scores

At this time, Tech Data's stock has a strong Growth Score of 'A', a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

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

Based on our scores, the stock is equally suitable for value, momentum and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.


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