Price erosion pummels Tech Data profits

Distributor's chief executive admits Q2 results were below expectations

Tech Data's second-quarter results trailed expectations as its profits were trampled by savage price erosion and a costly SAP rollout.

For the three months to 31 July, the distribution heavyweight's sales fell eight per cent year on year to $5.96bn (£3.78bn) as the weakening euro pummelled its top line.

Allowing for currency effects, a change in the way it recognises vendor warranty sales and its recent exit from Brazil and Colombia, Tech Data's sales were actually up by about five per cent and exceeded its expectations.

European sales rose a handsome nine per cent in euros (12 per cent allowing for the warranty sales changes), but fell five per cent when converted to dollars. Its European operations generated the region's highest Q2 sales and operating profit, in euros, in its history.

However, chief executive Robert Dutkowsky admitted that profits had fallen short of expectations, laying the blame on the changing product mix as well as price erosion in both America and Europe. Operating profit fell from $78.8m to $59.3m year on year, with almost all the delta attributable to the Americas.

"The gross margin pressure was compounded by the implementation of certain modules of SAP in the US during the quarter," Dutkowsky explained.

"We are confident that our post-implementation efforts will return us to improved levels of profitability over the next couple of quarters."

Tech Data repurchased $143m of stock during the quarter, which it said underscores its commitment to creating value for its shareholders.