Tech Data Takes Big Q4 Charge For Brazil, Colombia Exit

Tech Data saw a big chunk of its fourth fiscal quarter profits lowered because of its decision to close operations in Brazil and Columbia. The distributor also posted flat sales in the quarter, compared to the year-ago period, and its shares fell almost 6 percent in trading Tuesday morning.

Sales in the Americas, including North America and South America, fell 1 percent in the fourth quarter to $4.37 billion, while sales in Europe increased 1 percent for the same period.

"From a regional perspective, European operations had record 4Q sales in both dollars and Euros. Sequential growth of 21 percent in Euros shows that despite headlines, demand continues in that region," Tech Data CEO Robert Dutkowsky said in a conference call with analysts.

The moves to exit Brazil and Colombia were made because those two countries were unprofitable, said Dutkowsky in a statement. He added that the action should result in a healthier business for 2012.

In the fourth fiscal quarter ended Jan. 31, Tech Data reported $54.1 million in net income, or $1.29 per share, on $7.11 billion in sales.

The results include a charge of 46 cents per diluted share for losses attributable to exiting Brazil and Colombia. Excluding the charge, Tech Data would have earned $73.3 million, or $1.75 per diluted share.

Analysts had projected earnings of $1.66 per diluted share before charges on sales of $7.16 billion. In the year-ago quarter, Tech Data reported $77.3 million in earnings, or $1.63 per diluted share, on $7.11 billion in sales.

For the current quarter, analysts expect earnings of $1.22 per share on sales of $6.37 billion. Tech Data did not provide expected sales or earnings guidance for the first fiscal quarter, saying only that it expected flat sales.

For the 2012 fiscal year, Tech Data earned $206.4 million, or $4.66 per diluted share, on $26.49 billion in sales. Those numbers compare to $214.2 million, or $4.36 per share, on $24.38 billion in sales for fiscal 2011.

From a product standpoint, systems accounted for 35 percent of all sales in fiscal 2012, up from 33 percent in fiscal 2011 and 31 percent in fiscal 2010. Peripherals revenue declined to 29 percent in fiscal 2012, down from 32 percent in fiscal 2011 and 35 percent in fiscal 2010. Networking sales increased from 18 percent in fiscal 2011 to 19 percent in fiscal 2012. Software sales accounted for 17 percent of all revenue, the same as last year.

Tech Data's SMB sales grew at a double-digit rate in the fourth quarter in the Americas and some European countries as the commercial sector continued to outpace the consumer space, Dutkowsky asid.

"Even in an unsteady economic environment in the second half of the year, SMB remained a strong point for us. The VARs we talk to continue to see good opportunities in that space and so we remain optimistic," Dutkowsky said. "In the consumer space, we still don't see a spark of optimism in that space, but having said that, we sell almost every tablet we can get our hands on and a lot of that goes into the consumer space."

Dutkowsky noted that Tech Data's exposure to recent hard drive constraints due to flooding in Thailand was not significant because of the change in the mix of business over the past couple of years.

"We consciously deselected peripherals as an area that didn't give us the right profitability and return on invested capital. We began to exit the hard drive business several years ago and the remaining hard drive business is relatively small for Tech Data," Dutkowsky said in the conference call.

Tech Data shares were trading at $54.02 Tuesday morning, down $3.42 per share.