Tech Data shows modest increase in sales

Broadline distributor Tech Data saw its net worldwide sales increase 3.8 per cent for the last fiscal year, boosted by a solid fourth quarter in North America.

“We had a very good performance in the Americas, and particularly strong in Canada,” said Tech Data Canada president Rick Reid.

However, its overall fourth quarter performance wasn’t as impressive as competitor Ingram Micro, which had record income in the same period. Tech Data’s net sales for the fourth quarter ending Jan. 31 were $5.5 billion (all figures US), compared to $5.6 billion for the same period in 2005.

Income from continuing operations for the quarter dropped to $28.5 million from $58.1 million the year before. That included $6.8 million in restructuring charges for layoffs and asset write-offs, and $4.4 million in consulting costs relating to changes made in its Europe, Middle East and Africa division (EMEA).

Net sales for the fiscal year totaled $20.5 billion (all figures US), up from $19.7 the year before.

Regionally, net sales in the Americas for the year were $9.5 billion, an increase of 11.6 per cent from the previous year. North, Latin and South American sales accounts for 46 per cent of worldwide sales.

However, European and Middle East sales dropped 2 per cent to $11 billion, in part due to the strength of the European currency against the dollar.

While the company doesn’t break out figures for Canada, Reid said that in the fourth quarter the division showed “close to 22 per cent year-over-year improvement in revenue growth.”

The market, however, apparently keyed in on Tech Data’s near-term outlook, for its stock on the NASDAQ dipped from almost US$38 to $35 when the financial were released. At press time seven days later it was trading at US$36.15.

“We’re not likely to see growth in revenue through the Q1-Q2 period,” said Reid. “Part of that reason is we have a concentrated effort on improving the profitability of the company. And although we’ll see relatively flat revenue performance year over year as we go through the year, we are likely to see more profit as we stop participating with some of the lower-performing product sets, and-or customers.”

He wouldn’t predict which products will be dropped.

Tech Data predicts net sales for the quarter ending April 30 will be in the range of $4.85 to $4.95 billion, with net income of between $16 million to $19 million. Those estimates exclude some $10 million in more EMEA restructuring charges.

The distributor expects a deal to sell most of its EMEA training business this month. While it generated $3.6 million in net income last year, the unit is considered a non-core operation. Reclassifying it to a discontinued operation reduced gross margin by 22 basis points.

That made the gross margin for the past year 4.99 per cent, down from 5.39 per cent from the previous year. The distributor attributed that to the “challenges” in the EMEA region, as well as changes in customer and product mix there and in the Americas.

(On the other hand, the market hasn’t been impressed with Ingram. Its stock on the NYSE has slowly slid from $20.52 to $19.79 since the release of its figures in February.)

Reid said the improvement in his division is partly attributed to resellers. “A lot of business that in the past more direct with some of the vendor community has come back to distribution and to the channel.”

“We had substantial growth the IBM and Cisco. Those two partners alone contributed significantly to our year over year growth in Q4.”

So far, he also said, Tech Data has no short-term plans to follow Ingram in outsourcing a good deal of its back-office functions and shifting some Canadian operations to the U.S.

But, “if our competitors find that a successful exercise then clearly we’ll have to entertain something like that.”

For this year Reid noted the distributor plans to expand the number of its Tech Select partners to 60 from 40 members.

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Jim Love, Chief Content Officer, IT World Canada

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Howard Solomon
Howard Solomon
Currently a freelance writer, I'm the former editor of ITWorldCanada.com and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including ITBusiness.ca and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times. I can be reached at hsolomon [@] soloreporter.com

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