Tech Data Corporation, distributor of IT products, today announced results for the first quarter ended April 30, 2009.
Net sales for the first quarter ended April 30, 2009, were $5.0 billion, a decrease of 17.7 percent from $6.1 billion in the prior-year first quarter. The strengthening of the U.S. dollar against certain foreign currencies negatively impacted the year-over-year first-quarter net sales comparison by approximately ten percentage points. Operating income for the first quarter was $49.9 million, or 1.01 percent of net sales. This compared to operating income of $42.4 million, or .70 percent of net sales in the prior-year first quarter. First-quarter net income attributable to shareholders of Tech Data Corporation increased 48.6 percent to $31.8 million, or $.63 per diluted share compared to $21.4 million, or $.40 per diluted share for the prior-year period.
"We were pleased to deliver a solid first-quarter performance in a difficult economic environment. Our net sales were affected by the decline in IT spending, but our strength in execution and prudent management disciplines drove continued improvement in our overall operating income performance," said Robert M. Dutkowsky, chief executive officer, Tech Data Corporation. "During the quarter, we completed several targeted, tuck-in acquisitions that will strengthen and further diversify our product and customer portfolio in Europe. In the Americas, several leading technology companies joined our vendor portfolio – a clear endorsement of Tech Data’s value-proposition in the IT marketplace. With $635 million in cash, our strong financial position provides a solid and flexible foundation, one which enables us to wisely maneuver the current market environment while also investing in our future."
First-Quarter Financial Highlights
Net sales in the Americas (including North America and Latin America) were $2.21 billion, or 44 percent of worldwide net sales, representing a decrease of 18.1 percent over the prior-year first quarter. The Americas’ net sales were affected by the declining economy and related slowdown in IT spending as well as competitive pricing pressures. Net sales in Europe totaled $2.78 billion, or 56 percent of worldwide net sales, representing a decrease of 17.4 percent (2.6 percent decrease on a euro basis) over the prior-year first quarter. Excluding the impact of the euro, Europe’s net sales were also affected by the challenging economic environment, however, the company benefited from the prior year acquisition of Nordic-based Scribona AB as well as share gains in certain markets.
Gross margin for the first quarter was 5.28 percent compared to 4.86 percent in the prior-year first quarter. The year-over-year increase in gross margin was primarily attributable to solid execution of the company’s inventory, pricing and freight management practices, most notably in Europe, partially offset by competitive pricing conditions in the Americas.
Selling, general and administrative expenses (SG&A) were $213.4 million, or 4.27 percent of net sales compared to $252.3 million, or 4.16 percent of net sales in the prior-year first quarter. The decrease in SG&A expenses, on a dollar basis, was attributable to prudent cost management actions including adjustments to headcount and reductions in payroll related expenses, as well as the decline in the value of certain foreign currencies year-over-year and the associated translation impact. As a percent of net sales, the increase in SG&A expenses was primarily due to the lower level of net sales in the current quarter.
Considering the factors noted in the highlights above, operating income in the Americas for the first quarter was $25.3 million, or 1.14 percent of net sales compared to $40.7 million, or 1.51 percent of net sales in the prior-year first quarter. In Europe, the company generated operating income of $27.4 million, or .99 percent of net sales compared to operating income of $4.3 million, or .13 percent of net sales in the prior-year first quarter. Stock-based compensation expense is not included in the regional segment reporting results. These expenses are presented as a separate line item in the company’s segment reporting (see "Supplementary Information" table attached).
Cash provided by operations during the first quarter totaled $115.3 million. The company continues to enjoy excellent liquidity and financial flexibility with a cash position of $634.8 million at April 30, 2009.
The company recorded ($.2) million of noncontrolling interest during the first quarter, representing the company’s Brightstar Europe joint venture partner’s share of the loss incurred for the quarter.
The company’s effective tax rate for the first quarter was 23.7 percent compared to 41.0 percent in the prior-year period. The year-over-year decrease in the effective tax rate was primarily attributable to improved operating performance in the European region.
During the first quarter, the company adopted Financial Accounting Standards Board Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) ("FSP 14-1"), which requires the company to separately account for the liability and equity components of its convertible debt instrument and to reflect interest expense at its market rate of borrowing as if the debt were not convertible. For the quarter ended April 30, 2009, the company recognized $2.5 million of non-cash interest expense related to FSP 14-1. The provisions of FSP 14-1 require retrospective application to prior periods and for the quarter ended April 30, 2008, the company adjusted the income statement to include non-cash interest expense of $2.5 million (approximately $.03 per diluted share after-tax). In addition, the convertible debentures are carried at face value less the debt discount associated with the adoption of FSP 14-1. As such, the carrying value of the convertible debentures as of January 31, 2009 was adjusted to $320.4 million from $350.0 million with the discount reflected as an increase to shareholders’ equity. For the full fiscal year ending January 31, 2010, results are expected to include approximately $10.0 million in non-cash interest expense related to the adoption of FSP 14-1. The comparable fiscal 2009 year has also been adjusted to include approximately $10.0 million in non-cash interest expense.
Business Outlook
Statements made regarding the company’s business outlook are based on current expectations and the company’s internal plan. Due to the strength of the U.S. dollar against certain foreign currencies, combined with the current macro-economic environment and related decline in IT spending, net sales for the second quarter ending July 31, 2009 are anticipated to decline year-over-year at a rate similar to the first quarter. The company also believes it may see a sequential decline in gross margin.
