Tech Data Beats Street

Tech Data Beats Street

Tech Data (TECD) If the market wasn’t a forward-looking entity, there would be plenty of reason to be excited about TECD’s prospects right now. For FY00, TECD’s net income soared 40% to $178 mln, or $3.14 per diluted share, and sales increased 20.2% to $20.4 bln. The year ended on a solid note for the distributor of IT products, too, as Q4 sales were up 11.2% to $5.3 bln and net income jumped 42.3% to $52.7 mln, or $0.92 per diluted share– $0.06 ahead of consensus estimates. With respect to sales and earnings, that was pretty much where the good news ended. In its press release, and on its conference call, TECD sounded a cautious note on the business outlook. In fact, the company said visibility is so poor that it isn’t comfortable providing guidance beyond its fiscal first-quarter ending in April. As for Q1, TECD expects earnings in the range of $0.45 to $0.53 per share and sales of $4.6-$4.8 bln. The latter would be 2-7% lower than the yr-ago period. The earnings forecast is tantamount to a warning since the current First Call consensus is $0.74. For the full year, the First Call EPS consensus is $3.48, but in light of the company’s lack of visibility, you can pretty much forget about that. Having listened to the conference call, here are some things you might want to remember: 1) TECD indicated that its European business began showing signs of weakness in February as sales growth in local currencies decelerated to the low- to mid-single-digit range from roughly 18% in January. 2) Gross margins are expected to drop 20-30 bp sequentially due, largely, to lacklustre demand that should prompt a competitive pricing environment. 3) The company isn’t looking for much– if any– sales growth in its U.S. business versus the prior quarter. 4) CPQ accounted for 20% of total sales in FY00 and 19% in Q4; HWP accounted for 19% of total sales in FY00 and Q4. 5) It expects to benefit from distributor consolidation in Europe and from weaker players falling by the wayside due to a lack of access to capital. 6) It will seek to gain market share while others struggle, but it will do so without employing an acquisition strategy. 7) TECD believes it has a better feel for the current state of end-user demand than just about anybody (not the most hopeful claim considering its sales and earnings outlook). 8) Networking sales, which involve products from the likes of NT, COMS and CSCO, was its greatest area of weakness, but better strength was seen in desktop PCs, servers and notebooks. 9) Its own inventory position is in good shape, but it can’t really speak for the industry. Overall, the outlook isn’t that encouraging. Not surprisingly, traders have responded in kind. TECD is down more than a point in the after-hours session. While its stock appears cheap at these levels (7.2x est. FY01 earnings), bear in mind that the P/E multiple is based on a fuzzy EPS estimate. Until the news flow from the tech sector improves, we expect traders will be apt to view signs of interim strength as a selling opportunity. The first resistance is at 32. Related competitors include IM and MSEL

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