A dismal quarter shows there are no quick fixes as the Clearwater company works on problems in Europe.
By KRIS HUNDLEY, Times Staff Writer
Published August 24, 2006
As Steve Raymund prepares to step aside after two decades as chief executive of Tech Data Corp., the Clearwater computer distributor reported bigger than expected losses Wednesday.
The company said weak demand and poor execution in its European operation contributed to a loss of $155.5-million or $2.81 per share for the quarter ended July 31 on sales of $4.9-billion.
That is the second-largest quarterly loss in the company's history and compares to a loss of $59.4-million or $1.02 a share on sales of $4.8-billion a year ago. The only time Tech Data took a bigger hit was in the midst of the technology meltdown in early 2003, when it wrote off more than $300-million on the value of a German acquisition.
The magnitude of Tech Data's most recent loss was largely discounted by Wall Street because $136.1-million of the total was a non-cash charge for writing down the goodwill value of the company's operations in Europe, Middle East and export sales to Africa. Tech Data's shares closed Wednesday at $34.74, down 8 cents.
Brian G. Alexander, analyst with Raymond James & Associates in St. Petersburg, said Tech Data's goodwill charge just confirmed that the turnaround in Europe would be slower than expected.
"But this is a smart management team," he said. "They'll figure out how to execute better in Europe. The question is how long will it take to deliver acceptable results? It could be several quarters or years."
While Tech Data's sales in the Americas during the most recent quarter rose 6.2 percent over a year ago, sales in the European/Middle East/Africa region dropped nearly 4 percent for the quarter.
The decline in Europe was blamed on a sharp drop in demand for Tech Data's products, which include everything from computer systems to software. But Raymund also said there were "lingering echoes" from a major restructuring in Europe that began in May 2005 and involved nearly 360 job cuts.
"Obviously we're not where we want to be," said Raymund, who said the restructuring was largely complete and no further cuts were planned. "But we're working in a rather different organizational structure than we had a year ago. And, on balance, we feel cautiously encouraged by what we're seeing."
Despite its optimism, Tech Data declined, for the first time in its history, to provide earnings estimates for the quarter ending Oct. 31. The company said it expects sales for quarter to range from $5.1-billion to $5.25-billion.
Raymund, 50, who announced his decision to step down as chief executive in January, said the company had narrowed its search for a successor and expected to make an announcement within a few weeks.
But he admitted second thoughts about leaving day-to-day operations with the company's European operations still in recovery mode.
"I feel quite ambivalent and regretful about stepping down at this juncture, given the woeful performance in Europe," Raymund said during an interview following a conference call with analysts. "But I'll continue as chairman and hopefully be of some service to the team."
Alexander, the Raymond James analyst, said a personnel change at the top always creates uncertainty about the direction of the company.
"But depending on who they bring on," he said, "if he or she has expertise operating on a global basis, it might help the situation in Europe."
