Tech Data (TECD) is rallying 6% today after reporting Q1 (Apr) results. In case you're not familiar, Tech Data is one of the world's largest wholesale distributors of technology products and services. It enables 115,000 resellers to efficiently and cost effectively support the technology needs of end users in more than 100 countries. TECD is large with nearly $28 bln in revenue last year but it's a very thin margin business as you might expect. Operating margins are in the sub-1% range.
TECD serves as a link in the technology supply chain by bringing products from the world's major IT vendors to market. Its customers include value-added resellers (VARs), direct marketers, retailers and corporate resellers. TECD primarily serves the Americas and Europe. TECD has 26 logistics centers where each day, tens of millions of dollars of technology products are received from vendors, picked and packed and shipped to customers.
Turning to the Q1 (Apr) results, non-GAAP EPS rose 11% YoY to $0.80 while revenue fell 12.5% year/year to $5.89 bln. Both were above expectations. In terms of margins, we said they were thin and they are. Non-GAAP operating margin in Q1 was just 0.85% but that was up from 0.76% in the prior year period.
Breaking down the sales figures, in the Americas, sales were $2.3 billion (approximately 40% of total sales), a decrease of 6% YoY. Excluding from both periods net sales generated in Chile, Peru and Uruguay due to the company's previously announced exit from those countries, and the impact of weaker foreign currencies against the US dollar, sales decreased approximately only 1%. In Europe, sales were $3.5 billion (60% of total revenue), a decrease of 17% YoY although FX currency effects had a big impact.
TECD says it's pleased with its "excellent start" to FY16. Strong execution by its European team, supported by a better than expected demand environment, allowed TECD to overcome significant currency headwinds and a shortfall in its Americas region. In addition, TECD generated strong cash flow and earned a return on invested capital of 11%, well above the company's cost of capital.
Looking ahead to Q2 (Jul), the company expects a low to mid-single-digit YoY sales decline in the Americas, and mid-single digit sales growth in Europe, in local currency. This outlook takes into account the loss of approximately $70 million of net sales due to the Company's exit from Chile, Peru and Uruguay.
Overall it was a good quarter for TECD. After a miss in Q4, the company responded with a nice size beat in Q1 and the stock reaction shows that investors are pleased with the result.
Semtech trades lower following worse than expected Q1, soft Q2 guidance
Semtech (SMTC 21.47, -3.16) is trading lower by about 12.8% this afternoon following the company's worse than expected first quarter results. Shares of SMTC were halted last night ahead of the report; SMTC reported worse than expected Q1 earnings per share (EPS) of $0.27 on worse than expected revenues of $130.1 million. The company also guided Q2 revenues worse than expected, and increased its share buyback.
SMTC reported net sales for the period of $130.1 million, down 2.1% year-over-year. The company noted strong demand from enterprise computing and communication end-markets.
However, the company specified that demand from the company's largest smartphone customer was much lower than anticipated, leading to results that were at the lower end of management's guidance. Guidance called for EPS in the range of $0.27-0.30 on revenues of $130-136 million.
In accordance with the results, SMTC's Board announced an increase to the company's stock repurchase authorization to $100 million. Prior to the increase, SMTC had about $30.0 million remaining on the previous stock repurchase allotment.
SMTC also issued downside EPS guidance for Q2 of $0.21-0.26. In addition, SMTC sees worse than expected Q2 revenues in the range of $120-130 million.
In sum, the soft guidance and current period shortfall is dragging shares lower this afternoon. Shares trade down, as does the broader market (S&P 500 2119.19, -4.29).
Broadcom (BRCM 55.70, -1.45, -2.5%) confirmed this morning that it will be acquired by Avago Technologies (AVGO 141.00, -0.49, -0.3%) for $37 billion. Upon the completion, the combined company will be valued at $77 billion with ~15 billion in annual revenues.
Under the terms of the agreement, Avago will acquire Broadcom for $17 billion in cash consideration and the economic equivalent of approximately 140 million Avago ordinary shares, valued at $20 billion as of May 27, 2015, resulting in Broadcom shareholders owning approximately 32% of the combined company. Avago intends to fund the $17 billion of cash consideration with cash on hand from the combined companies and $9 billion in new, fully-committed debt financing from a consortium of banks.
Avago expects the deal to be immediately accretive to Non-GAAP EPS and free cash flow. Additionally, the company expects to achieve $750 million of projected annual cost synergies expected to be achieved within 18 months.
Avago also reported Q2 earnings results this morning, beating EPS estimates by $0.13 on revenues that rose 137.7% year/year to $1.65 billion. Furthermore, it issued upside guidance for Q3, forecasting Q3 revenues of $1.715-1.765 billion, excluding non-recurring items, vs. $1.68 billion consensus.
In sum, the deal, which is expected to close by the end of 1Q16, makes a strong growth story even better by creating one of the most diversified communications platforms in the semiconductor industry. Shares of Avago are just shy of the new all-time high it reached yesterday on speculation of the deal. Broadcom is also slightly off yesterday's high shortly after the open this morning.
WTI Oil And Natural Gas Hit New Lows For The Day Ahead Of Data
The dollar index is trading modestly higher this morning, which is helping weigh on commodity prices.
In morning trade, energy futures such as WTI oil and natural gas have been weak and just now, both commodities fell to new lows for today ahead of the weekly EIA storage data.
Natural gas storage data will be released at 10:30 ET, while WTI crude oil storage data will be released at 11am ET today due to the holiday this week.
July crude fell as low as $56.88/barrel, while July nat gas fell as low as $2.79/MMBtu. July crude is now -1.0% at $56.92/barrel. July nat gas is -2% at $2.79/MMBtu.
Big energy names such as Exxon Mobil (XOM) and EOG Resources (EOG) are trading lower pre-market following this weakness in energy commodities.
Silver rallied back to today's high in morning trade, while gold has just been showing modest gains this morning. However, July silver is now +0.2% at $16.68/oz, while July gold is currently +0.03% at $1186.0/oz. July copper is now flat at $2.77/lb.
Sanderson Farms Drops Over 2% Following Quarterly Results/Outlook
Sanderson Farms (SAFM 84.50) is trading lower pre-market, at around $82.62/share, following its quarterly results and near-term forecast, which were released this morning.
The company reported its fiscal second quarter earnings of $3.13 per share, which fell short of expectations. On the top line, revenues rose 8.5% year/year to $716.6 million, which also fell short of expectations.
Profitability for the second quarter also benefited from lower feed costs.
Feed costs in flocks processed decreased 11.8 % compared with last year's second fiscal quarter. Planting progress for 2015 grain crops is ahead of long term averages, and optimism for a second consecutive year of favorable production is supporting lower grain costs.
According to Sanderson, market prices for poultry products were mixed during the second quarter compared with the same period last year.
Compared with the second fiscal quarter of 2014, the average Georgia dock price for whole chickens was approximately 8.1% higher, boneless breast meat prices were approximately 4.4% lower, the average market price for bulk leg quarters decreased approximately 20.3%, and jumbo wing prices were higher by 40.3%.
The Company's average feed cost per pound of poultry products processed decreased 3.9 cents per pound, or 11.8%, compared with the second quarter of fiscal 2014, and prices paid for corn and soybean meal, the Company's primary feed ingredients, decreased 10.5% and 21.1%, respectively, compared with the second quarter of fiscal 2014.
Looking ahead, the company says, "we are optimistic as we head into the summer months and what is typically the peak demand period for chicken. Total grain costs remain below last year's prices, and demand for chicken products remains strong. Weekly broiler egg sets continue to run above last year's numbers, and breeder placements are higher. However, macroeconomic conditions continue to improve, and the market has absorbed the increased production well during the first half of our fiscal year."
Box Inc (BOX 17.75) will look to build on yesterday's momentum after it rose 4.5% on news that it is working with the U.S. Department of Justice to deliver file sharing and information management to the agency's workforce. Yesterday's move was its largest daily gain in nearly two months.
BOX's duties will include:
Express Impresses with Q1 Results and Guidance
Some specialty apparel retailers have it and some don't. Express (EXPR 16.62), which caters to the 20 to 30 year old customer, is one of the retailers that has it right now. That was the takeaway from its first quarter earnings report, which contained a lot of encouraging items, including better than expected guidance.
To begin, net sales increased 9% to $502.4 million and comparable sales jumped 7%. Notably, merchandise margins grew by 200 basis points, reflecting the appeal of its product assortment and less promotional activity than the prior year.
The company was able to leverage its solid sales performance to achieve increased profitability. To that end, gross margins expanded 330 basis points to 33.1%, operating margins improved 350 basis points to 6.8%, and diluted earnings per share (EPS) rose to $0.15 from $0.06 in the same period a year ago.
The sales and earnings results were both above analysts' average expectations. The same can be said for the company's second quarter and full year 2015 guidance.
For the thirteen-week period ended August 1, Express is expecting a low single digit increase in comparable sales and diluted EPS to be between $0.13 and $0.16. For the full year, comparable sales are also expected to increase in the low single digits and adjusted diluted EPS, which excludes an expense related to the redemption of Senior Notes in the first quarter, is anticipated to range from $1.11 to $1.22.
Shares of EXPR are up 13% year-to-date, but are poised to improve that impressive showing as they are indicated 12% higher in pre-market action.