IT products distributor Tech Data Corp. (TECD: Quote) reported Tuesday a decline in second-quarter profit as sales were hurt by weak currency and the absence of Brazil and Colombia operations. Competitive pricing in its regions hurt margins. Quarterly earnings per share fell short of analysts' estimates, while net sales beat their view.
Chief Executive Officer Robert Dutkowsky said, "After reporting a solid first quarter, our second quarter earnings fell short of our expectations and last year's results. Although worldwide net sales came in slightly ahead of plan and our European operations generated the region's highest second-quarter sales and operating income, in euros, in its history, our gross margin was impacted by mix, as well as competitive pricing in both regions."
For the second quarter, net income attributable to shareholders slid to $34.5 million or $0.88 per share from $50.1 million or $1.10 per share last year. On average, 9 analysts polled by Thomson Reuters expected earnings per share of $1.17 for the quarter. Analysts' estimates typically exclude one-time items.
Net sales fell 8 percent to $5.96 billion from $6.45 billion last year. Analysts estimated revenues of $5.83 billion.
According to the company, the weakening of certain foreign currencies against the U.S. dollar negatively impacted net sales by nearly 8 percentage points. Also, a revision in its presentation of sales of vendor warranty services and certain fulfillment contracts negatively impacted net sales by approximately 3 percentage points. Meanwhile, the prior year results included in-country operations of Brazil and Colombia, which the company exited at the end of fiscal 2012. Excluding these impacts, net sales increased by approximately 5 percent.
Net sales in the Americas dropped 11 percent and European sales fell 5 percent. In euro terms, European sales grew 9 percent.
Gross margin was 5.05 percent compared to 5.28 percent in the prior year. Operating margin fell to 0.99 percent from prior year's 1.22 percent. The company noted that there was negative effect on gross margin and operating leverage in the Americas due to the implementation of the sales, inventory and credit management modules of SAP in the U.S. during the quarter.
Looking ahead to the third quarter, Tech Data said it sees sales growth of mid-single digits in Europe, and a mid-single digit year-over-year sales decline in the Americas. The comparisons would reflect the fiscal 2013 change in presentation of vendor warranty services and certain fulfillment contracts, the exit of Brazil and Colombia at the end of fiscal 2012, and general market conditions, the company noted.
Further, Tech Data anticipates sequential improvement in gross and operating margins and estimates the average U.S. dollar to euro currency exchange rate to be $1.23 to 1.00 euros for the remainder of fiscal 2013.
Dutkowsky added, "We are confident that our post-implementation efforts will return us to improved levels of profitability over the next couple of quarters."
Tech Data shares closed Monday's trading at $52.15, up $1.22 or 2.40 percent.
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by RTT Staff Writer
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