Tech Data (TECD 91.00, -19.29, -17.5%) is one of the world's largest wholesale distributors of technology products and this morning it is also one of the market's worst-performing stocks. Shares of TECD are down 17.5% in pre-market trading after the company reported second quarter earnings results that fell well shy of analysts' average expectation.
Specifically, Tech Data reported adjusted earnings of $1.74 per diluted share. That marked a 23% increase over the same period a year ago on a comparable basis, yet it was below the company's own expectations, which were pegged in a range of $1.95 to $2.08 per share.
Revenues of $8.88 billion, up 39.8% year-over-year due primarily to the February acquisition of Technology Solutions from Avnet (AVT 38.57), were above analysts' average expectation and Tech Data's guidance range of $8.55 billion to $8.80 billion.
According to a Thomson Reuters StreetEvents conference call transcript, Tech Data attributed the lower than expected profitability to three specific factors that drove lower than expected gross margin: customer and product mix; a competitive market environment; and underperformance in its global computing components business.
The company clarified that its integration of Technology Solutions did not negatively impact its second quarter performance in a material way, as a combination of execution issues and market dynamics were the influential drivers of the earnings disappointment.
The second quarter disappointment was compounded for investors with disappointing earnings guidance for the third quarter. Tech Data said it expects adjusted earnings to be between $1.84 and $2.04 per diluted share. The high end of that guidance range also fell comfortably below analysts' average expectation ahead of the report.
Third quarter revenues are anticipated to be in the range of $9.0 billion to $9.35 billion. The low end of that range is above analysts' average expectation, so it sounds as if similar profitability issues will persist in the third quarter.
Tech Data is expecting to have a robust fourth quarter, but that expectation, according to the conference call transcript, is dependent on product launches from its major vendors occurring as expected. Apple (AAPL 164.00) accounted for 20% of net sales in fiscal 2017 while HP Inc. (HPQ 19.08) and Cisco Systems (CSCO 32.21) represented 13% and 10% of net sales, respectively. No other vendor accounted for more than 10% of net sales.
Based on the fallout in the stock this morning, many investors don't appear content to sit around and wait for that operating success to avail itself.
Related competitors include the likes of Synnex Corp. (SNX 119.61), privately-held Ingram Micro, and Arrow Electronics (ARW 79.43).