Tech Data Q2 Profit Jumps 59 Percent, CEO Credits Execution

Tech Data Thursday handily beat analyst expectations for its second fiscal quarter, posting a year-over-year profit increase of 59 percent, even as quarterly revenue tumbled 16 percent.

In an interview with Channelweb.com editors, CEO Robert Dutkowsky credited Tech Data's improvement in execution, the diversification of its product line and geographies and its ability to innovate as reasons for the strong showing.

"When you put that all together in a quarter, you get the results like we've had," he said. "It takes a while for that hard work to settle in. My view of the results is we're seeing the results of the hard work of a lot of people -- and that's in a soft economy. If the economy were better around the globe, they'd be even better."

In the quarter ended July 31, the distributor reported earnings of $35.2 million, at 70 cents per share, up from $22.1 million, or 42 cents per share, from the same period a year ago. Revenue was $5.18 billion, down from $6.17 billion a year ago.

A Thomson Reuters poll of analysts had most expecting earnings of 45 cents per share on sales of $5.04 billion. The Q2 earnings report jolted Tech Data's stock in morning trading Thursday, at one point hitting $37.34, up 9.5 percent from its Wednesday close. That's the highest Tech Data's stock has traded since December 2007.

On the earnings call, Tech Data CFO and Executive Vice President Jeffrey Howells said currency fluctuations -- a stronger dollar and weakening foreign currencies -- benefited the quarterly results. Howells also said he expected sales to continue to decline in Tech Data's third quarter, "but with some moderation compared to the decline in the first half of the fiscal year."

Tech Data's Americas revenue was $2.4 billion, a 15 percent year-over-year decline. In Europe, revenue was $2.8 billion, a seven percent decline when currency fluctuations were factored in. Howells noted that the Americas region seemed to be stabilizing while Europe might suffer continued declines.

In the interview, Dutkowsky said performance of enterprise business vs. small and medium business varied by region.

"All of the segments performed about what we expected them to," he said. "All segments are down year over year, so right now it's a question of whether they declined more than we thought. One reason we may see SMB performing better than others is that we've increased our sales coverage in the SMB in every region. In general, when the economy turns, the enterprise can slow spending down quicker than the SMB. Another point is that the stimulus money might be finding its way to the enterprise faster than the SMB space. I don't have any data to support that, it's just my postulation, but clearly, stimulus dollars get to GM faster than they do the small business corner store in Tampa."

Next: Dutkowsky On Stimulus, Dell And IBM

On the earnings call, Dutkowsky made particular mention of Tech Data's public sector efforts, including its Tech EDG division and Stimulus Watch programs to help VARs capture opportunities presented by the American Recovery and Reinvestment Act.

"It's too early to quantify it. I don't think stimulus dollars are getting all the way down into the VAR channel and SMB space just yet," he said.

Dutkowsky said Tech Data's federal business is up year over year, though he wouldn't provide percentages.

"Our bids for federal in working with our VAR customers are up 32 percent," he said. "That's bids, not deals. The federal government is going to spend $75 billion [this year] and more of our attention is being diverted into there. We're making those kind of portfolio moves in general. What we've been able to do over the last few quarters is divert resources toward market segments and product categories and move away from less profitable opportunities."

Regarding Tech Data's continued distribution deal with Dell, now in its sixth month, Dutkowsky called it a "long journey."

"We see the Dell business as being primarily incremental," he said. "Dell had thousands of customers we didn't have a relationship with at all. We followed our customers' lead in terms of bringing Dell to our line card."

Dutkowsky also said Tech Data has had success luring IBM solution providers who had previously used Synnex for IBM software. Word came in early July that IBM would deauthorize Synnex as a software distributor in the U.S. as of Oct. 1, prompting Tech Data and other distributors such as Ingram Micro, Avnet and Arrow to reach out to the 100 or so VARs the move affects.

"We were obviously informed of that change," Dutkowsky said. "We committed to IBM that we would support those customers not only in sales and product support but also credit. We executed on the jump ball that created and gained more [partners], yes."