Tech Data outperforms in Q3, continues profitable growth

Rick ReidTech Data on Monday reported earnings for its fiscal third quarter that topped analyst expectations, fueled by significant growth in the Americas and the continued evolution of its European business.

The distributor notched profits of $50.46 million (U.S.) on sales of $6.16 billion for the quarter, up 17 per cent and 12.6 per cent respectively versus the year-ago quarter. But both CEO and Tech Data Canada president agreed the biggest success of the quarter was the continuation of the distributor’s drive towards profitable growth.

“Europe is clicking, the Americas are on fire, and [] contributed nicely to our overall results – it was a real win-win-win situation,” Reid said on the heels of the results. “The industry must be starting to turn around because we’ve become a little bit more selective in the revenue we take, but we’re still seeing better revenue growth.”

That focus on profitable growth is really starting to pay off, Reid said, allowing the distributor’s Canadian operations to grow revenues, but more importantly, grow its operating income at the same time. Reid called it “one of our best quarters ever” when it came to one key metric inside , return on capital, and that “we hit on every metric we get measured on.” Reid said the Canadian operation’s operating income was in line with the overall Americas operating income figure of 1.71 per cent.

“We can’t revolutionize the pricing model of the industry, but we think a fair price for the value we provide is a reasonable expectation and it’s an expectation that’s being met,” he said.

Highlights in Canada for the quarter included the distributor’s usual hot spots – software (particularly server and ERP), storage, servers and networking. If there was one disappointment in the quarter, it was the distributor’s performance in the client space, Reid said. For Tech Data Canada, it’s a bit of a balancing act between the commoditized nature of the client business and the need to be a strategic partner to its vendors, many of which prominently feature end-user devices.

“We’ll pick up our pace there,” he said. “We can’t say no all the time to that client business. It’s an important part of many of our vendors’ product mixes and we need to remain relevant.  We’re in this as their partners, and we have to do what’s right for the partnership.”

Reid said picking up the pace in clients will mean looking at “more distribution-friendly deals,” including larger deals, deals that involve delivery to a central location and other “things that make it a little less costly.”

The quarter saw considerable improvements for the distributor’s European operations, which came in over one per cent operating income, driving the company-wide figure to 1.31 per cent worldwide.  Reid said the Americas “always outperform” Europe, but that the European operations is catching up on that gap, improving every quarter, particularly in the wake of European acquisitions that have been “significantly accretive.”

For the company’s fourth quarter (November through January), Dutkowsky said Tech Data expects “solid demand” and sales that “could exceed historical seasonal patterns.” Reid said that in Canada, Q4 is always better than Q3. The company’s focus on VARs means it doesn’t see quite the holiday pop that its competitors might, but Reid said he expects to see continued growth, particularly in Tech Data Canada’s hot spots of software, servers, storage and networking. He said he also expects a natural increase in the client business as “there’s always something bigger, faster and better” new in the space, and client computing device refresh continues to be driven by the increasing adoption of Windows 7 in business environments.

“It’s year-end and that causes a lot of commercial accounts to spend budgets and plan for the future,” Reid said. “There have been a lot of people holding off on refresh, and you can only hold off for so long.”

Already, Reid said the quarter is “starting out nicely” in November, and Reid expects that trend to continue at least through the end of the year. But it wouldn’t be Reid if he didn’t take time to touch on the topic of the Canadian distribution market – one he’s made it clear he feels is “overdistributed.”

“Canada’s a relatively small market, but we have all the same in some cases more competitors as much-larger regions,” he said. “Every day, we get up and it’s a fight to eke out that day’s business. But it’s a fight we’re good at.”

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