Update: Wayside Q2 '14 Earnings With Mixed Results

Jul.28.14 | About: Wayside Technology (WSTG)


Q2 '14 results were mixed, but Wayside preserves a high dividend yield.

Competition remains strong and pricing pressure is significant.

In my original article, I've stated that gross margin is a key metric that has to be improved.

Wayside Technology Group, Inc. (NASDAQ:WSTG) reported mixed results for Q2 '14. In fact, revenue reached $84.4 million (+14% YoY), and net income was $1.48 million (-4% YoY). Therefore, diluted EPS stood at $0.31 against $0.34 in 2Q13. On the other hand, while gross profit only increased 3% YoY, gross margin - a key metric for the company - declined significantly.

The company shows a solid balance sheet with no debt, and generates an adequate level of cash flow. Wayside also declared a quarterly dividend of $0.17 per share which will translate to a high dividend yield of more than 4%. However, the company faces increasingly strong competition, and pricing pressure is most relevant.

In my original article, I stated that a modest revenue growth and a slight increase in margins will be sufficient to allow the company to see a significant increase in profits. The company has two operating segments: Lifeboat Distribution and TechXtend. Both segments registered adequate increase in net sales. However, gross profit margin has decreased too much. In fact, due to competition pricing pressure Lifeboat gross margin for Q2 '14 was 6.6% compared to 7.4% for Q2 '13. TechXtend gross margin for Q2 '14 was 10.6% compared to 11.3% for Q2 '13. It's a situation that the company has to manage thoroughly as margin issues will continue to be a problem in the near future.

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