Tech Data stock rises on 'solid start' as company watches tariff and trade issues

The Clearwater global technology distributor touted its growth in earnings, positive cash flow and return on invested capital, but acknowledged that it's 'closely monitoring' the U.S.-China trade war.
"A solid start" is how Tech Data chief executive officer Rich Hume described the company's first-quarter performance on Thursday. The company is watching developments emerging from the trade war between the United States and China but, at this point, does not expect a Trump administration crackdown on Chinese telecom company Huawei to have a material impact on its finances worlwide.  JIM DAMASKE   |   Times (2018)
"A solid start" is how Tech Data chief executive officer Rich Hume described the company's first-quarter performance on Thursday. The company is watching developments emerging from the trade war between the United States and China but, at this point, does not expect a Trump administration crackdown on Chinese telecom company Huawei to have a material impact on its finances worlwide. JIM DAMASKE | Times (2018)
Published May 30
Updated May 30

CLEARWATER — Tech Data's stock rose Thursday on news that it's off to a "solid start" this year, though the global technology and software distributor is watching developments on tariffs and trade restrictions such as the Trump administration's recent crackdown on Chinese telecommunications maker Huawei.

Tech Data reported net sales of $8.4 billion and gross profit of $509.4 million for the three months ending on April 30. It also reported first-quarter earnings of $2.04 per share and projected earnings of $2.15 to $2.45 per share for the second quarter.

"It's a very solid start," Tech Data chief executive officer Rich Hume said in a telephone interview, with double-digit growth in earnings per share, positive cash flow and an industry-leading return on invested capital.

But it's not getting easier.

"I think the bar is a bit higher than it might have been in the past," Hume said, because of shortages of microprocessors and geopolitical issues like Brexit, tariffs and emerging trade restrictions. "It's a bit more complex navigating, but I think my colleagues at Tech Data have done an excellent job."

The microprocessor shortage cut Tech Data's first-quarter net sales by $100 million, Hume said. So far, tariffs have not impacted Tech Data's business or its numbers, he said, as suppliers and Tech Data have passed along tariff-driven price increases, and customers have not stopped buying.

"I think the bigger question that everybody is contemplating or considering is will there be a macro-economic slowdown because of the influence of tariffs making everything more expensive," Hume said,

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Meanwhile, Hume said it's clear that to succeed companies of all sizes need to focus on transforming their digital operations, a priority at Tech Data. The company has more than 2,000 employees in Clearwater and $37.2 billion in annual revenues, which makes Tech Data Florida's second largest publicly traded company by revenue. (The largest, according to the Fortune 500, is Miami-based World Fuel Services.)

During a call with analysts, the company got several questions about its potential exposure to lost sales because of the Trump administration's decision this month to put the Chinese telecom giant Huawei on a blacklist that effectively bars U.S. companies from supplying it with computer chips, software and other components without government approval. U.S. officials have raised alarms that Huawei's technology could put the company in a position to spy for China on customers who use its products.

THE U.S.-CHINA TRADE WAR: New escalations, with maybe more to come

In response, Tech Data executives did not mention Huawei by name because of a company practice not to identify suppliers who account for less than 10 percent of their net sales, and Hume noted later that Tech Data does business with a number of Chinese vendors. (For the record, the top three companies on Tech Data's list are Apple at 13 percent of net sales, Cisco Systems at 11 percent and Hewlett-Packard at 10 percent. Tech Data buys computer equipment from those major vendors, then ships it through a network of logistics centers to information technology customers in the Americas, Europe and the Asia-Pacific market.)

Still, executives made clear in their responses to inquiries about Huawei that the controversy affects just 4 percent of their global inventory, that the company would expect to see any fall-off in sales as a result of the restrictions to take place in Europe, and that current rules allow it to sell the inventory that it has in stock. Hume also said the company will "absolutely comply with U.S. laws."

"We are closely monitoring developments concerning trade relations between the United States and China and related matters such as security risks and export controls that may affect the market for certain technology products," Tech Data executive vice president and chief financial officer Charles Dannewitz told analysts. While Tech Data handles some of those disputed products, the operating income they generate is "not material" to its annual worldwide financial results, he said, though the company is watching in case rules change and prohibit it from selling products in its inventory.

Tech Data shares closed Thursday at $97.13, up nearly 6 percent.

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Contact Richard Danielson at rdanielson@tampabay.com or (813) 226-3403. Follow @Danielson_Times

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