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Tech Data CEO Makes Big Bet To Create More Agile Distributor With Global Business Optimization Plan

Tech Data CEO Rich Hume said the GBO is aimed at setting a "new standard in our industry" by creating a more efficient and agile distributor with an eye toward enhancing the regional go to market model for solution providers.

Tech Data CEO Rich Hume is making a big bet to create a more agile and nimble worldwide distributor with a Global Business Optimization (GBO) Plan.

The GBO, which comes just three months after Hume took the helm, is expected to result in annual cost savings of $70-$80 million in the next two years -- approximately half of that reinvested to accelerate strategic priorities, while the remaining savings will fall to the bottom line to improve Tech Data's profitability.

Hume said the GBO is aimed at setting a "new standard in our industry" by creating a more efficient and agile distributor with an eye toward enhancing the regional go to market model for solution providers.

The GBO plan includes a series of series of cost reduction actions over the next two years to rebuff margin erosion, particularly in its European endpoint business.

The Clearwater, Florida-based distributor said a majority of the expense associated with the $70 million to $80 million in the GBO initiative will stem from workforce optimization and professional services efforts, according to EVP and CFO Chuck Dannewitz.

[Related: Tech Data Says Hybrid IT Spending Drove Q1 Growth]

"I feel really good that we've got the right focus and the right strategy, and we'll go and drive these changes moving forward," Hume told Wall Street analysts Thursday morning during the company's earnings call.

Tech Data's stock price plummeted $14.70 (16.59 percent) to $73.90 in trading Thursday morning. That's the lowest Tech Data's stock has traded since Sept. 16, 2016, or three days before the distributor announced its $2.6 billion plan to acquire Avnet Technology Solutions.

From a big picture perspective, Hume said the GBO program will invest in areas with the most potential for profitable growth, sharpen the distributor's focus on process simplification, and implement operational initiatives to enhance productivity.

Hume said Tech Data will have its eyes on the European endpoint business -- which has suffered continued gross margin erosion due to an increasingly competitive landscape -- as the distributor goes through the GBO program. The company wants to re-position its model in Europe -- which accounts for 51 percent of overall sales -- so that it'll be successful moving into the future, according to Hume.

"There is an emphasis in the European landscape around that piece," Hume said.

A key component of the GBO program is using digital methods to make better, more rapid, and higher-quality decision in Tech Data's business, Hume said. He would like to see Tech Data leverage data within the enterprise for more thoughtful decision-making going forward, particularly as it relates to the use of data analytics from a pricing perspective.

From a business optimization standpoint, Hume said Tech Data will focus on investing in parts of the market with good growth and margin attributes. The push to drive improvement from a P&L standpoint is partially in response to the margin erosion Tech Data has seen in the recent past, according to Hume.

A portion of the digitization effort, according to Hume, will focus on driving more virtual sales through Tech Data's StreamOne cloud aggregation, management and billing platform. Although there will be more emphasis around the endpoint business in Europe, Hume said this will help with both the distributor's endpoint solutions and advanced solutions business globally.

Specific elements of the GBO program include: centralizing and standardizing through the global organization to drive productivity improvements; enhancing regional go-to-market models to deliver value for partners; and digitizing processes to drive a more response and nimble work environment.

Tech Data sales for the quarter ended July 31 climbed to $8.89 billion, up 9.8 percent from $8.09 billion a year earlier. This smashed Seeking Alpha's projection of $8.73 billion.

Net income soared to $75.9 million, or $1.97 per share, up 59.9 percent from $47.5 million, or $1.24 per share, last year. On a non-GAAP basis, net income jumped to $77.7 million, or $2.01 per share, up 16.4 percent from $66.7 million, or $1.74 per share, last year. However, that missed Seeking Alpha's non-GAAP earnings estimate of $2.11 per share in the most recent quarter.

The distributor's largest vendor partners in its most recent quarter were: Apple, which accounted for 14 percent of Tech Data's sales; HP Inc., which accounted for 12 percent of sales; and Cisco Systems, which accounted for 11 percent of sales.

Revenue for the Americas climbed to $4.04 billion, up 7.3 percent from $3.77 billion a year earlier thanks to strength around desktop, notebook, cloud, networking and storage sales.

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