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Tech Data pledges reform after quarter disappoints

By JEFF HARRINGTON
Published May 27, 2005

Ailing from a worse-than-expected slowdown in European sales, Tech Data Corp. chief executive Steve Raymund said Thursday it's time for some "tough medicine." His prescription: spending $40-million to $50-million on restructuring European operations over the next 18 months.

"It's a fairly rash act," Raymund said during a conference call with analysts. "People will lose jobs. There will be substantial cost reductions. You can take this as a sign we're very serious about restoring ... our European operation."

The Clearwater distributor of computers and related parts was not specific about the depth of job cuts or office closings. About 5,200 of Tech Data's employees work in Europe, the Middle East and Africa, and 3,300 work in the Americas. No employees in the Americas will be affected by the job cuts.

The company said it hopes to wring out annual savings of $40-million to $50-million from the restructuring and $15-million to $20-million from an ongoing upgrade of Europe's computer network.

The news came as Tech Data, the largest public company in the Tampa Bay area, reported results for its first quarter ended April 30. Net income fell to $33.5-million, or 56 cents a share, from $34.7-million, or 59 cents, a year earlier. Sales rose 5.3 percent to $5.1-billion.

The numbers fell shy of Tech Data predictions a couple months ago and expectations of the investment community. Analysts were expecting net income of 60 cents a share, on average.

Historically, Tech Data has split its results between two units: the Americas and Europe-Middle East-Africa. Net sales in the Americas were $2.3-billion, or 45 percent of sales; in the European unit, sales were $2.8-billion, or 55 percent.

In the Americas, Tech Data enjoyed another strong quarter, with sales up 10.3 percent from a year ago and 1.5 percent from the fourth quarter. In Europe, by contrast, sales rose 1.7 percent from a year ago and fell 16.9 percent compared with an explosive fourth quarter.

Germany and Italy posted weaker results and the United Kingdom was "a little slower," Raymund said, adding, "In general, I don't think we had too many countries that beat their plans, if any."

Nestor Cano, president of worldwide operations, said the disappointment was spread across all product lines overseas as companies were less aggressive in moving forward with projects.

Raymund said the European situation is "particularly disappointing" given the progress the company had made in the region. Last year, Tech Data more than doubled its operating profits in Europe.

"We view this as a short-term setback," he said. "We have to make adjustments."

Results were announced after the close of market Thursday. Tech Data shares fell more than $2, or 6 percent, in after-market trading after closing the day at $35.61 a share, down 17 cents, or less than 1 percent.

Jeff Harrington can be reached at harrington@sptimes.com or 813 226-3407.

[Last modified May 27, 2005, 00:39:13]