Tech Data's Earnings Confirm Industry-Wide Weakness

Tech Data (TECD) reported fourth quarter and FY2007 results this morning:

Net sales for the fourth quarter ended January 31, 2007, were $6.1 billion, an increase of 10.7 percent from $5.5 billion in the fourth quarter of fiscal 2006 and an increase of 12.7 percent compared to the third quarter of the current fiscal year.

The numbers were well ahead of the $0.58 consensus number, which is partially explained by the company’s very low margins - it doesn’t take much of a margin improvement or sales increase to have a large effect on earnings.

For the fourth quarter of fiscal 2007, operating income was $65.5 million, or 1.07 percent of net sales. This compared to operating income of $55.3 million, or 1.00 percent of net sales in the fourth quarter of fiscal 2006.

You see - going from razor-thin margins to wafer-thin margins can help a lot.

As far as the health of technology spending, our main interest when looking at Tech Data (whose status as one of the largest tech distributors makes it a decent read on the overall industry,) it didn’t look so hot. Excluding any currency effects sales were up about 5% year/year. Nothing to write home about (though Dell would take it). Overall, it supports what we’ve seen throughout the industry - a mid-single digit growth rate, roughly in line with nominal GDP growth. Given the double-digit long-term growth estimates we see provided for many tech companies (Yahoo shows 10% for TECD and 15% for the distributors as a whole - what a laugh) investors are presumably hoping for better.

They won’t get it. The company’s outlook:

For the first quarter ending April 30, 2007, the company anticipates net sales to be in the range of $5.20 billion to $5.35 billion. This assumes year-over-year mid-single digit growth in the Americas region and flat year-over-year growth in Europe on a local currency basis. The company also anticipates an effective tax rate for the first quarter of fiscal 2008 in the range of 42 percent to 44 percent.

Consensus was for 5.36 billion in sales. And if that long-term growth rate doesn’t come down, it won’t be the last disappointment for either Tech Data or the industry.

TECD 1-yr chart: