Nine months after stepping into the CEO spot at Tech Data Corp., Rich Hume says his growth plans are on track.
The Clearwater-based IT distributor is focusing on next-generation technology and managing its portfolio to focus on the products that provide the highest returns. It’s working to put its sales processes in sync with customer preferences and it’s beefing up product offerings in locations where there are gaps.
The four-pillar strategy is key to the future of Tech Data (Nasdaq: TECD), the largest company by revenue in Florida and one of the largest employers in the Tampa Bay area. In an interview with the St. Pete Catalyst, Hume detailed how each part of the plan is working out.
Next-generation technology, specifically cloud, security, analytics and Internet of Things, and services.
“These areas not only provide higher growth attributes but generally provide better financial returns as well. We’re trying to make sure we get more of that good stuff so we’re investing heavily in those four emerging technology areas,” Hume said.
For instance, Tech Data launched its “Cloud Solutions Factory,” a portfolio of cloud products, last month.
Optimize the portfolio. The company has always managed its portfolio of products, but is getting more “prescriptive” in that management, taking out parts of the portfolio that might not have as good a return as the company wants.
Hume cited personal computers, a very large segment for Tech Data.
“Within that PC segment, we might have some vendor products that provide a lower return versus our targets or expectations. We go to that vendor and say we need a better return and would you like to work with us on improving that return. They can say yes, we’ll provide better incentives, or they can say no, you’ll just have to live with the return you’re getting. If they say no, our alternative is to increase our prices. As we increase our prices, some folks will go elsewhere to buy the PC as opposed to through Tech Data, and if they do that and our business become a bit smaller, the piece that remains at a higher price gives us a better return,” Hume said.
Digital transformation, driven by changing preferences in the way people want to make purchases.
“We have many customers who say just give me the tools to acquire what I want to acquire and I can do it through your e-commerce engine or through Stream One Cloud capability. I don’t require as much interaction and we have higher velocity in executing our joint business together,” Hume said. “There’s less arms and legs touching transactions on both sides of the equation and if you get it right the customer experience improves and you get productivity benefits.”
Tech Data has been cutting jobs in a global business optimization program. Overall employment levels won’t change dramatically, but there could be a change in the mix of jobs, Hume said.
“As we invest in cloud and analytics and IoT and security and services, then we need to get people internally to transition their skills through education and development to move to those areas, or we hire new resources that have expertise in that category,” Hume said. “We could shed resources that worked on legacy technologies and hire new skill sets. We do both. We provide opportunities for people to transition into new areas as they build the right set of skills and we hire in some emerging talents.”
Grow the global footprint, which involves investing in specific geographies where there might be gaps in order to have a strong portfolio of products.
“We’re making good progress on all of those fronts,” Hume said.
On Thursday, Tech Data reported $340.6 million in net income, or $8.89 a share, on $37.2 billion in sales for the fiscal year ended Jan. 30. Sales were up 11 percent and net income jumped 192 percent.
The gains came despite a $47 million non-cash impairment charge Tech Data took in the fourth quarter of fiscal year 2019 for its operations in the Asia-Pacific region. Tech Data picked up that region in the biggest acquisition in its history, the $2.6 billion purchase of the Technology Solutions business of Avnet in February 2017.
Now, two years later, Hume says the company was “a little optimistic” about its expectations for the Asia-Pacific region.
“A bit of optimistic assumptions along with some tactical operational issues in the geography required us to take down the value of the asset,” Hume said.
The company also plans to buy back more of its stock. A $100 million stock repurchase authorization announced Thursday follows an earlier $200 million stock buyback plan. About $107 million of stock has been repurchased from the initial buyback.
Historically, Tech Data has used the cash generated from its operations to reinvest in its business, make acquisitions and return cash to shareholders through buybacks.
When Tech Data bought Technology Solutions in 2017, it used all its cash and took on some debt, Hume said. Now that most of that debt has been repaid, the company is back to its practice of selectively doing small deals and stock repurchases, he said.
Tech Data stock closed at $93.67 a share Thursday, down about 6.8 percent from the previous day’s close. The stock price dropped because the company missed sales estimates for the fourth quarter of FY 2019 and issued weak guidance, according to TheStreet.com.