Strong 3Q For Tech Data Fueled By PC Sales, Expanded Apple Ties

Profits soared and sales climbed for Tech Data in the third quarter, based off strong demand for PCs globally and mobility products in Europe.

The Clearwater, Fla.-based distributor reported a 14.4 percent jump in earnings for the quarter ended Oct. 31 from $39.6 million to $45.3 million, or $1.18 cents per share on a non-GAAP basis. Analysts polled by Thomson Reuters expected earnings of $1.02 per share.

Sales rose 6.1 percent from $6.37 billion to $6.76 billion, falling just short of analyst expectations of $6.79 billion.

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"We're sitting in better shape than ever, having produced good earnings growth over the first nine months," Jeffery Howells, executive vice president and chief financial officer, said during the earnings call.

Investors sent the company's stock up 0.6 percent since the end of day Monday to $62.98 per share. Earnings were released before the market opened Tuesday.

Europe led the way, with continued strong demand for PC and mobile products, resulting in an 8 percent climb in sales to $4.1 billion.

Data center demand, however, fell slightly on a year-over-year basis, which CEO Bob Dutkowsky said was reflective primarily of softness in the market rather than a subpar performance by Tech Data.

Five of the distributor's European subregions posted double-digit sales growth, Howells said: France, the Nordics, Iberia, Italy and Switzerland.

The Americas posted a more modest 3 percent annual sales growth to $2.6 billion, Howells said, with demand for PCs, networking and storage leading the way.

"We focus very carefully on responsible growth in the Americas," Dutkowsky said, noting the distributor has passed on some growth opportunities in the region.

Double-digit sales growth was enjoyed in Canada, as well as in the education, federal and health-care verticals, Howells said.

Hewlett-Packard is still Tech Data's leading vendor -- making up 20 percent of its overall sales -- but Apple is gaining fast, going from 11 percent to 16 percent of overall sales over the past year.

That stems in large part from Tech Data adding the iPhone to its lineup card in November 2013.

"In the quarter, we sold virtually every iPhone we could buy," Dutkowsky said. "That included iPhone 5 and iPhone 6."

The bulk of Tech Data's Apple sales, though, still comes from Macs and iPads, Dutkowsky said. Howells said the vendor is leveraging Tech Data to broaden its customer base beyond the customer and SMB spaces into the enterprise market.

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PCs and printers still make up 47 percent of Tech Data's overall sales, with the data center, software and mobility coming in at 21 percent, 18 percent and 11 percent, respectively.

Mobility sales have been aided by adding Apple to the lineup card, Howells said, as well as an 18-to-24 month refresh cycle for smartphones and headsets.

"Apple, as you know, has the newest, hottest device on the market," Dutkowsky said.

Though they make up a small percentage of the company's revenue today, Dutkowsky said Tech Data is looking to grow its presence in cloud computing and the Internet of Things (IoT).

The distributor has expanded its cloud relationship with vendors such as IBM and has added a diverse array of cloud solution providers to its program, Dutkowsky said.

The IoT craze is expected to put pressure on the data center, Dutkowsky said, driving more demand for server, storage, networking and security services. Tech Data expects to benefit, in particular, from its expanded relationship to offer Cisco's intelligence and cybersecurity products.

VARs were a smaller portion of Tech Data's customer mix in the quarter, representing just 46 percent of the distributor's net sales, Howells said. Retail/direct marketers and corporate resellers comprised 30 percent and 24 percent of new sales, respectively.

Howells said Tech Data has seen an unusual amount of purchases from corporate resellers due to the Windows XP refresh opportunity. He expects these higher-volume, lower-margin sales to drop off as PC refresh activity moderates.

In fact, Dutkowsky said VAR sales could rise in the coming quarters, based off opportunities related to the more complex Windows Server 2003 refresh.

"Our channel partners are the lifeblood of Tech Data, and have played a key role in the company's success," Dutkowsky said.

Due to the culmination of the PC refresh and moderating tablet sales in Europe, Tech Data is projecting low single-digit, year-over-year sales growth in the fourth quarter for North America and Europe.

The projection also is being constrained by a particularly strong fourth quarter last year.

"We are not forecasting a repeat of the substantial growth we saw last year," Howells said.

PUBLISHED NOV. 25, 2014