Earnings Season Always Helps Predict The Future, And This One Looks Good

Nothing, in my opinion, is a better indicator of the market and its future direction than the health of these players. The percentage of IT deployments that include components supplied by distribution is astronomical, and their results provide a diverse picture of the entire sector.

The very best firm in terms of closely tracking these players is Raymond James. I'm a close reader of its reports and in particular those with either Bob Anastasi's or Brian Alexander's name attached. (In the interest of full disclosure, I should mention that CRN co-sponsors an annual investor conference on supply chain issues with Raymond James.)

When earnings season arrives each quarter and Raymond James releases analyses at a fast and furious rate, it's fun,and a good indicator of trends.

Avnet, Arrow, Agilysys, PC Connection, CDW, Insight and Bell Micro have all reported recently. Given that baseball spring training camps open this week and one of the most visible advertisements inside the best ballpark in America (that would be Fenway Park) is PC Connection's, let's start there.

PC Connection is the smallest of the three big guys in the e-marketer category. The company's recent fourth-quarter report of $358 million in sales and earnings of 7 cents per share was certainly not a barn burner, but the results exceeded expectations on a top-line basis, with gross margins continuing to show pressure. Insight, the No. 2 player in the category, exceeded expectations on its earnings-per-share metric, posting 25 cents vs. an expected 22 cents. Its revenue hit $748 million, compared with expectations of $743 million for the quarter. CDW, of course, is the big gorilla of the group, with $1.349 billion in sales for the quarter.

Raymond James raised its expectations for all three companies, with CDW getting the biggest endorsement going forward.

All three e-marketers are showing growth, and that bodes well given that they all play heavily in the small-business market. Continued growth in spending by small businesses is the best possible news since they represent the biggest portion of the market.

Arrow, Avnet and Bell Micro also reported recently. These distributors see a larger percentage of their product sales ending up in enterprise-type companies. The good news is all three companies also showed better-than-expected results.

Arrow looked strongest with earnings per share of 31 cents vs. 9 cents a year ago. It easily beat the consensus estimate for 23 cents. Given Arrow's worldwide customer base and broad product line, which includes semiconductors as well as computer products, the fact that its revenue was up 22 percent (excluding the impact from its Pioneer acquisition) bodes well.

Avnet, Arrow's strongest competitor, also beat expectations at 21 cents per share vs. expectations of 18 cents.

And Bell Micro, a smaller player in the field, also topped expectations with strength across geographies.

The numbers posted already by the distributors and e-marketers signal growth in the overall market and that bodes well for the future.

Ingram Micro is scheduled to report Feb. 24, and that will provide another indication of the year going forward. Tech Data is on a bit different fiscal year, so we won't get to see its numbers until March 17. Given that it also happens to be St. Patrick's Day, maybe we should expect lots of green and cheer in Tech Data's numbers. That would make it worth the wait.

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