Information technology software provider Synnex (SNX 88.04, +3.14, +3.70%) continues to build on modest gains on Thursday. Shares initially
traded lower last night and opened mostly flat this morning as it appears the
company’s tepid guidance for the fourth quarter may be outweighing the third
quarter earnings beat and solid fiscal 2019 guide.
Firstly, Synnex reported a decent third quarter. Earnings per share of $2.57 were higher than expected and revenue growth of 14.8% to $4.91 bln narrowly edged out market views. Gross margins were 8.8% in Q3, an improvement of 6 basis points from the prior year.
Technology Solutions and Concentrix both reflected expansions in gross margins. The increase in Synnex’s Technology Solutions gross margin was driven by the Westcon-Comstor acquisition and due to product and services mix. Concentrix’s gross margins were materially higher than the prior year period.
Breaking it down by business segment Synnex’s largest business, Technology Solutions, saw revenue growth of 17% to $4.4 bln. Non-GAAP operating income was $120 mln, or 2.7% of segment revenue, in the fiscal third quarter of 2018, compared to $101 mln, or 2.7% of segment revenue, in the prior fiscal year third quarter.
The smaller Concentrix business saw revenues decline about 1% to $492 mln on non-GAAP operating income was $43 mln, or 8.7% of segment revenue, in the fiscal third quarter of 2018, compared to $39 mln, or 7.8% of segment revenue, in the prior fiscal year third quarter.
The company’s outlook, though, appears to have trumped the aforementioned performance in early reactions to the report. For Q4, Synnex’s EPS guidance of $2.90-3.10 was in-line with market views but missed on the midpoint. What’s more, revenue guidance of $5.2-5.4 mln, too, missed on the midpoint of market expectations.
The Convergys portion of this revenue range is expected to be approximately $425 mln with an adjusted operating margin of approximately 10%. The company also offered some revenue headwinds that relates to its net revenue. Synnex’s forecast reflects an approximate 5% increase in Technology Solutions net revenue compared to the prior quarter given its continued increase in sales of specialty services in cloud solutions such as software, licenses and hardware, and software bundled services.
Management also offered expectations for fiscal 2019 non-GAAP EPS of $11.40-11.90, firmly above market expectations at this point. The company also believes this can be accomplished as a result of the combination of organic earnings growth in its legacy business and the expected mid to high single-digits in accretion expected from the Convergys deal.
The above guidance mentions the company's pending acquisition of Convergys, which management commented last night is expected to close on Friday, October 5, 2018.
As the session has progressed, shares of SNX have ticked higher after trading down 8.8% at one point last night. The stock opened roughly 0.2% higher this morning, yet still trades firmly under both the 50-day simple moving average (94.28) and the 200-day (109.61) with YTD losses north of 35%.
- OUR VIEW
- LEARNING CENTER