Tech Data Q3
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Tech Data Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* By Dale Wettlaufer (MF Raleigh)
Tech Data Corporation ALEXANDRIA, VA, September 11, 1996/FOOLWIRE/-- TECH DATA CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TECD)") else Response.Write("(NASDAQ: TECD)") end if %> announced on September 10, 1996 record sales and earnings for the second quarter ended July 31, 1996. Net income for the second quarter increased 248% to $12.0 million, or $0.30 EPS, up from $3.4 million, or $.09 per share in the second quarter last year. Sales in the second quarter increased 50.0% to $1.06 billion from $708.8 million last year.
Net income for the first six months of fiscal 1997 increased 324% to $22.4 million, or $0.57 EPS, compared with $5.3 million, or $.14 per share, in the same period last year. Sales for the six-month period this year grew 52.6% to $2.05 billion compared with $1.34 billion in the same period last year.
The company experienced strong sales in all product segments, led by its systems division which grew 63% during the quarter. Domestic sales increased by 53% while international business advanced 33%. Selling, general and administrative expenses for the period declined to 4.6% of sales, representing the lowest level achieved in company history.
In addition to gaining market share, particularly in the U.S., Tech Data continues to benefit from strong customer relations as well as improved operational efficiencies -- many made possible by the company's electronic commerce initiatives and substantial investment in internal systems infrastructure over the past two years.
"We built tremendous momentum during the first half of our fiscal year, and we expect our growth to continue as we enter the holiday buying season," Tech Data Chairman and CEO Steve Raymund said, noting that the recent appointment of industry veteran Tony Ibarguen to President of the Americas will add even greater depth to the company's senior management team. "Quality employees and top-notch management are the ultimate driving forces behind Tech Data's success, and our second quarter results once again reflect this collective commitment to excellence."
-- The Company's current internal plan for the third quarter of fiscal 1997 is for sales in the $1.120 to $1.150 billion range. In addition, the Company estimates fiscal 1997 sales in the $4.400 to $4.460 billion range, an increase of 43% to 44% over fiscal 1996 sales.
-- Based on the Company's current internal plan, estimated net income for the third quarter of fiscal 1997 ranges from $12.8 to $13.7 million, or $.29 to $.31 per share. In addition, the Company currently estimates net income for fiscal 1997 in the range of $49.6 to $51.3 million, or $1.19 to $1.23 per share. These estimates give effect to the Company's July 1996 public offering of 4.6 million shares of common stock.
Sequential sales growth, vs. Q1 1997, equaled 7.9% in the quarter. Gross profit was 7% vs. 7.1 for this quarter last year and 7%. SG&A expense was 4.6% of sales vs. 4.7% in Q1 97. SG&A increased $3 million over Q1 as a result of headcount additions. Operating income was $25 million, or 2.35% of sales. Interest expense was $5.7 million; pre-tax income, $19.7 million; average tax rate, 39%; and EPS was $0.30 on 39.3 million shares.
Accounts receivable days-sales-outstanding (A/R DSO) was 44 days on A/R of $509 million; bad debt allowance amounted to $24.2 million. Inventory was $440 million and inventory turned 9.1 times. Inventory turnover accelerated in the quarter due to allocations and general product delivery delays from the company's vendors. Pre-paid expenses includes $19.9 million in pre-paid inventory and deferred income taxes of $10.4 million; the balance of $6.6 million relates to normal pre-paid operating expenses.
Revolving credit loans total $236 million, down from $300 million at the end of Q1 97. The company achieved net proceeds of $83.4 million in an equity offering completed in July. $314 million was available on the credit facility at the end of the quarter. Domestic operations comprise 88% of consolidated sales, up from $86% in Q1. Domestic sales growth was 53% year/year and international growth was 3%.
Depreciation and amortization were approximately $4.8 million in the quarter. Headcount was 2,196, up 21 from last quarter.
The company is planning for next quarter sales of $1.15 billion and FY 1997 sales of $4.46 billion, an increase of 43-44% for the full year. Estimated net income for Q3 1997 is $0.29-0.31 EPS.
QUESTION AND ANSWER
Tax rate going forward should be in the 39% range.
The company's only European sales are made in France -- growth there has been "pretty decent," running at or ahead of fairly aggressive plans. Pricing is fairly stable in the US. Front-end margins have declined somewhat in Q3 -- other costs have been reduced or are under control. Availability of merchandise can be spotty. The company has seen some shortages from disk drive makers, especially from Western Digital Corporation. Some systems suppliers have been slow in delivery. The company may have picked up market share in France and the distribution channel there for the entire industry may be becoming healthier. Some systems companies, like H-P and Compaq, have shifted from direct sales to wholesalers such as Tech Data in the last few years. Apple is also making that transition. The same phenomenon is also occurring in other product areas now. Systems business was up 63% year over year.
The company has made a good deal of progress in "other cost of goods," in freight charges, non-merchandise credits, and better accuracy in shipping. These improvements are helping to mitigate margin deterioration that the company might otherwise see with more lower-margin systems sales. Systems accounted for 25% of sales in the quarter, which didn't differ substantially from trend.
The company is adding to headcount in expectation of continued growth in H2 1997.
Retail and direct marketers sales grew by about 260% year over year and now account for 13% of total revenues; the company is enjoying "tremendous success with Office Depot."
Tech Data is looking forward to good growth in Latin America, where year over year sales were up about 100% in the last quarter.
The two strongest segments of Tech Data's business were retail/mass merchandisers and Latin America. The next step would be direct investment in Latin America, starting off with Brazil, which presents the largest market in the region. The company would limit its direct investments to markets offering sufficiently large sales opportunities to justify such efforts.
With EDI (electronic data interchange), electronic commerce continues to set record, both in percentage of sales and in absolute numbers. As a percentage of revenues, the company is now running comfortably between 15 and 20 percent of sales in EDI. The company is probably strongest in its DirectNet dial-up communications capabilities.
The company will begin to break out revenues for the value added reseller (VAR), corporate reseller/franchisee, and retail/direct marketers businesses. For the six months ended in July, VAR was 63% of revenues; corporate resellers/franchisees, 25%; and retail/direct marketers, 12%. During the last quarter, those numbers were similar. The company expects to put in a good quarter notwithstanding the possibility of OEM allocations and delays in vendor deliveries in the coming 90 days. Forecast sales growth would equal year over year growth of 40% if the company executes to plan. Last year's Q3 included $30-31 million in Windows 95 one-time revenues. Backing out those revenues for the sake of comparison gives the 40% projected year/year growth.
Tech Data's opinion is that a sale of Merisel's European operations would not significantly improve that company's ability to compete in the domestic sphere.
With the balance sheet being "stronger than anyone else in the industry," the stock trading at this level, and the back office "humming...it's hard to imagine a better time to look at expanding internationally."
Revenues in August came in almost exactly with expectations and the company is starting to experience an expected sales acceleration in September. Seasonally, September is always much stronger than August. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |