Tech Data Misses Q3 Mark, Despite Increased Sales, Earnings

Tech Data, reporting third quarter returns Monday, earned $53.5 million or $1.26 per diluted share on sales of $6.59 billion, compared to analysts' projections of $1.27 per share on $6.74 billion in sales. In the year-ago quarter, Tech Data earned $50.5 million or $1.08 per share on $6.16 billion in sales.

The distributor's results were the result of increasingly difficult economic conditions, particularly in Europe with local currency issues, said CEO Bob Dutkowsky in a statement.

"Tech Data posted record third-quarter results despite some very challenging market conditions," said Dutkowsky in a statement. "Our teams in both regions successfully navigated a moderating demand environment - selecting pockets of opportunity and delivering year-over-year sales and earnings growth."

Tech Data shares were trading at $46.15 Monday morning, down $1.75. Overall, the market was down 2.4 percent in both the Dow Jones and Nasdaq indices as growing concerns of global debt continue to weigh on investors.

Tech Data's sales in the Americas increased 3 percent to $2.78 billion in the third quarter while European sales increased 10 percent to $3.81 billion. "It was competitive in both markets. That's a symptom of a market that's slowing down," Dutkowsky said.

Brian Alexander, managing director at Raymond James & Associates, noted that Tech Data is executing well in a challenging environment.

Americas revenue increased approximately 3 percent on a sequential basis, which is in line with normal seasonality of a low-single-digit increase. The Americas operating margin of 1.89 percent increased 18 [basis points year over year]. This quarter marked the highest level of profitability Tech Data has achieved in any quarter going back to F4Q03 for the Americas," Alexander wrote in a report Monday.

Dutkowsky expects fourth-quarter sales in both regions to be flat to low single-digit growth.

"In Europe, we are currently realigning our resources to more closely match our cost structure and our skills portfolio with market opportunities, which will result in incremental costs of approximately $15 million in the fourth quarter," Dutkowsky said. "Despite this, we still expect a solid fourth quarter and another record-setting year for Tech Data."

The floods in Thailand also impacted a number of Tech Data's vendors, particularly around hard drives, Dutkowsky said on a conference call with analysts.

"A handful of vendors have begun to experience product constraints but it's still too early to [determine] an impact. We continue to closely monitor the situation," Dutkowsky said. "We hope the Thailand situation works itself out, but we anticipate getting our fari share of product and selling it."