Four things we learned from Tech Data's Q4 figures

Tech Data's bottom line rises, but falls short of Wall Street's expectations, with CEO blaming contract changes by some of its key vendors

Tech Data's shares took a 19 per cent dive after it posted its Q4 results on Thursday, with CEO Robert Dutkowsky pointing the finger at some of the firm's key vendors altering their contracts. Here we round up four key takeaways from its Q4 numbers.

1) Wall Street expected better

The distribution giant's non-GAAP operating income rose 77 per cent to $216m (£156m) during the three months ending 31 January. For its FY2018, non-GAAP profits rose by 78 per cent to $602.7m year on year. Non-GAAP margins grew by 31 basis points during the quarter to 1.95 per cent of sales.

However, Tech Data missed analyst targets, according to Thomson Reuters.

As a result, Tech Data had a rocky trading day with shares plunging 20 per cent on 8 March, closing at $86.40, down from $99.39. Shareholders are unlikely to be pleased, as Tech Data's value is now down nearly 10 per cent for the year to date.

2) Vendors programme changes have hurt performance

In a Q4 earnings call transcribed by Seeking Alpha, Dutkowsky said a major pain point in Q4 was several of its vendors changing their partner programmes, resulting in lower margins.

When pressed on the issue, he insisted that vendor recalibration is affecting the rest of the distributor market.

"This is not a Tech Data issue, it's a moment in time where the vendors are adjusting programmes," he said.

"As we look out over the course of the year and we look at the programmes that were announced to us, they happened to touch vendors that we have large percentages of performance with, so they're impacting Tech Data maybe more than they would a distributor that doesn't have a big relationship with a particular vendor."

He suggested that vendors were feeling the pressure of a "rapidly changing" IT market, and passing it further down into the channel.

"You can look at the profitability of many of our primary vendors, because they've reported within the last 30 to 45 days, and you could see many of their profit profiles are under duress."

Dutkowsky added that it will likely continue to affect Tech Data's margins into the next quarter:

"When we model out the impact of the changes we've seen announced so far, you can see that it will have an impact on our Q1 performance," he said.

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Four things we learned from Tech Data's Q4 figures

Tech Data's bottom line rises, but falls short of Wall Street's expectations, with CEO blaming contract changes by some of its key vendors

3) Avnet TS bolsters Tech Data's top line

The company said revenue for the quarter rose 49.3 per cent to $11.09bn year on year. Tech Data's CFO Chuck Dannewitz attributed the firm's top-line increase as being "primarily attributed to the addition of [Avnet] Technology Solutions", which it acquired in February 2017.

For FY2018, revenues were $36.78bn, up 40 per cent year on year.

It is the first end-of-year results since Tech Data consolidated its acquisitions and relaunched the brand in September 2017.

European revenues, which generate 54 per cent of Tech Data's global sales, grew by 24 per cent to $19.7bn, spurred on by its acquisition of Avnet Technology Solutions.

CEO Dutkowsky added:

"We've spent the last year unveiling the value of the new Tech Data and we are now operating under a single brand with a unified vision, global team, and solutions portfolio."

4) Apple was the big earner

CFO Chuck Dannewitz revealed that Apple was by far Tech Data's biggest vendor, with no other firm coming close.

"Apple represented 19 per cent of worldwide sales…There was no other vendor partner representing 10 per cent or more of our sales," he said.

At a product level, notebooks, desktops, networking products, network security, TVs and cloud software all performed well. However, sales in storage products, servers and tablets declined year on year.

Tech Data also highlighted cloud as "one of our fastest-growing segments in fiscal 2018" following its 2017 launch of its StreamOne cloud marketplace in 47 new countries, extending its cloud marketplace to 67 countries.