Tech Data Corp.TECD reported weak fourth-quarter fiscal 2015 results. Non-GAAP earnings of $1.96 per share lagged the Zacks Consensus Estimate of $2.03. Earnings were also lower than the prior-year quarter’s figure of $2.10. The results were primarily impacted by adverse currency translations owing to the strengthening of the U.S dollar.

Despite the earnings miss, the company’s shares increased 0.5% following the announcement and closed at $57.60 on Mar 20.

Quarter Details                     

Tech Data’s fourth quarter revenues dropped 7.9% from the year-ago quarter to $7,339 million and missed the Zacks Consensus Estimate of $7,742 million.

Revenue from the Americas (35% of revenues) and Europe (65% of revenues) decreased 5% and 9% year over year, respectively.

Revenues in America were impacted by lower demand and the company’s ongoing exit from lower margin businesses in order to focus on higher-margin operations.

The company’s business in Europe was primarily impacted by adverse currency translations owing to the strengthening of the U.S. dollar. On a constant currency basis, the region witnessed low single-digit sales growth.

The company’s gross profit in the quarter was $372.3 million, down from $398 million in the year-ago quarter. However, gross margin increased 80 basis points (bps) from the year-ago quarter to 5.1%.

Non-GAAP selling, general & administrative (SG&A) expenses decreased 7.2% year over year to $260.5 million in the reported quarter. As a percentage of revenues, SG&A expenses declined 360 bps due to improved expense management and operating leverage.

Operating profit declined 4.8% year over year to $111.7 million. Operating margin however improved 50 bps on a year over year basis to 1.52%. Geographically, operating profit increased 8.3% in the Americas but decreased 7.8% in Europe.

Non-GAAP net income was $74.9 million compared with $80.4 million in the year-ago quarter.

Tech Data had approximately $543 million in cash and cash equivalent at the end of fiscal 2015 compared with $570 million reported in the previous year. Total debt was $353.1 million compared with $254.1 million at the end of fiscal 2014.

Outlook

For the first quarter of fiscal 2016, management expects low single-digit sales growth in both regions in local currency. The guidance is inclusive of $75 million loss of sales owing to Tech Data's exit from its businesses in Chile, Peru and Uruguay. The company expects a non-GAAP effective tax rate of 33% to 35% and average U.S. dollar to euro currency exchange rate of $1.05 to euro 1.00.

Our Take

The company has been undertaking strategic initiatives to review and strengthen its operations. The exit from its businesses in less-profitable regions like Chile, Peru, and Uruguay is also a positive.

In the reported quarter, Tech Data introduced a number of new products, won contracts and collaborated with the likes of AT&T, Inc. T, Springpath, Reticare, EMC Corp. EMC and Microsoft MSFT, which are likely to drive growth going forward. Moreover, the company also launched its Mobility Solutions and Retail division in this quarter to enhance its business.

However, the ongoing business transition is likely to affect financials in the near term. Moreover, Tech Data’s performance will significantly depend on demand for personal computers.

Currently, Tech Data has a Zacks Rank #4 (Sell).

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