Tech Data expects to report lower-than-expected sales for its fiscal second quarter ended July 31.

Scott Campbell, Contributor

August 2, 2006

2 Min Read

Tech Data expects to report lower-than-expected sales for its fiscal second quarter ended July 31.

Clearwater, Fla.-based Tech Data said it had revenue of $4.94 billion in the period, which falls short of the distributor's previous forecast of $4.95 billion to $5.10 billion.

In addition, Tech Data expects its second-quarter earnings to break even, excluding any restructuring charges. The company previously had projected a profit of $17 million to $20 million, or 30 cents to 36 cents per diluted share.

Tech Data said the earnings decline stems from lower-than-expected gross margin in its Europe, Middle East and Africa (EMEA) operations. The company also said its EMEA income caused its estimated effective tax rate to be more than 80 percent, compared with its original outlook of 38 percent. That accounted for about one-third of the second-quarter earnings shortfall.

"We are clearly disappointed with our operating performance in EMEA. While our restructuring program and related efforts to realign our EMEA organization over the last year have provided benefits, the internal disruptions related to such initiatives, coupled with the challenging market environment and competitive margin conditions, have hindered our progress. It will undoubtedly take longer than originally anticipated to improve our operating performance in EMEA," said Tech Data Chairman and CEO Steve Raymund in a statement.

In the Americas, Tech Data had mid-single-digit revenue growth in the second quarter, Raymund said Wednesday in a conference call with financial analysts.

"We are focusing on a more profitable portfolio of business. This is a decent performance, considering the excellent growth we had in the prior year and a competitive market environment. It offers some decent growth potential in the mid-upper single digits," he said.

Raymund said the second-quarter results won't affect the search for a new CEO. He announced in late January that he would step aside once a three- to six-month search for a successor was completed. He intends to remain the distributor's chairman.

Tech Data doesn't anticipate layoffs or a more extensive restructuring program because of the results, Raymund said.

"The plan going forward is to continue to focus on growing our business in the VAR segment and to make sure we have the right purchasing programs to maximize availability and minimize inventory investment," he said.

Tech Data shares fell $2.05 to $34.71 Wednesday morning, down 5.6 percent. The company plans to report its full results on Aug. 23.

The second-quarter announcement comes two days after Tech Data said its senior vice president of sales, Tom Ducatelli, resigned. The move was effective immediately.

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