Tech Data CEO Credits Monster $9B Quarter To Having Disciplined Responses To Strong Endpoint Demand, Legacy Data Center Tech

Distribution powerhouse Tech Data bounced back from a disappointing quarter by delivering a record-setter and CEO Bob Dutkowsky credits the company's ability to adopt and share best practices with Avnet Technology Solutions.

The Clearwater, Fla.-based Tech Data cited timely reactions to higher-than-anticipated channel need for endpoint devices and a surprisingly weak data center market in just its second quarter since the $2.6 billion purchase of Avnet closed.

"We didn't change our management system one bit," Dutkowsky told Wall Street analysts on Monday evening. "We didn't change compensation systems or reorganize the business at all. We turned our attention toward execution. We're good at looking where the best practice exists in our company around the world … Those processes are becoming more mature in our execution every single day. We're beginning to see the benefit of that enhanced execution against a broader footprint of vendors and customers."

[Related: Meet 11 Rising Stars From Tech Data's Acquisition Of Avnet]

As Tech Data continues to focus on aligning policies between its legacy business and Avnet, Dutkowsky outlined a long-term strategy for the distributor that has involved a renaming of its solutions divisions. On one side, the company has its endpoint solutions business – PC systems, printers and endpoint software among that – and the data center-focused advanced solutions segment on the other.

Across both portfolios, Dutkowsky said the company would be prioritizing investment in next-gen solutions such as cloud, IoT, security, and analytics – areas that the company said performed positively during the quarter.

"The new Tech Data, it has the breadth to be flexible and respond to those markets better than legacy Tech Data was able to do," he said.

Dutkowsky also believes those same next-gen technologies are influencing the cross-market weakness Tech Data claims to have experienced in recent months around its data center business.

"The data center is clearly in a period of transition as companies move from legacy technologies to next-gen platforms," he said. "Software-defined networking, converged, hyper-converged, and the effect cloud has on all of that. The data center is a bit of a dynamic marketplace. When a company sits down and tries to call demand in the data center, it is several different dynamics we need to look at all at the same time."

Faced with what Dutkowsky called a "clearly" competitive IT distribution market, Tech Data found success by staying disciplined on pricing, pursuing business with adequate profitability and finding the "sweet spot" in the growth market, which he said was in the low single-digit range.

In addition to better execution, Dutkowsky said the distributor benefited from a more optimized customer-product mix and better vendor rebate negotiations.

Those improvements paid off in the form of 53 percent year-over-year growth in its Americas business sales ($4 billion) and 25 percent year-over-year growth in its European dealings ($4.8 billion). CFO Chuck Dannewitz indicated that the company's United States SMB sales grew by double digits again during the quarter.

Tech Data reported company-record revenues of $9.14 billion for the third fiscal quarter ended Oct. 31, up 41 percent from last year's third-quarter mark of $6.49 billion. That beat Seeking Alpha's projections by $30 million.

Net income for the quarter was $37.3 million, or diluted earnings of 97 cents per share, up 2 percent from $36.5 million, or $1.03 diluted per share, compared with the year-ago quarter. On a non-GAAP basis, Tech Data saw net income of $76.7 million, or $2.00 per share, up 51 percent from $50.9 million, or $1.44 per share. The performance also beat Seeking Alpha's projections by 8 cents per share.

Tech Data stock was up $4.28 (4.59%) to $97.50 per share in after-hours trading.

Through the first nine months of fiscal 2017, Tech Data has netted $25.68 billion in sales – a year-over-year increase of 37 percent – and expects total revenue to fall between $10.25 billion and $10.8 billion for the fourth quarter ended Jan. 31, 2018.