How trade uncertainty is playing out at Tech Data

Tech Data Corp. is taking steps to protect itself in the face of escalating trade tension.

Tech Data (Nasdaq: TECD), a Clearwater-based technology distributor and the largest company in the Tampa-St. Pete area based on revenue, has cut inventory of some products, Chuck Dannewitz, chief financial officer, said during a conference call Thursday morning.

“We’re closely monitoring developments concerning trade relations between the United States and China, and related matters such as security risks and export controls that may affect the market for certain technology products. Our inventory of products that may be impacted by these developments was approximately 50 percent lower at the end of Q2 as compared to the end of Q1,” Dannewitz said.

Tech Data has a relatively small number of products from vendors that could be impacted by the trade war, said Rich Hume, CEO.

“Last quarter, we talked about it being 4 percent of the overall inventory. You can do the math from there,” Hume told analysts on the Thursday call.

Trade uncertainty has impacted Tampa-St. Pete companies of all sizes in a variety of ways.

Related story: EY Entrepreneur of the Year among local leaders speaking out on tariffs

Tariffs had little impact on Tech Data’s financial results for the second quarter of fiscal year 2020, ended July 31, and so far in the third quarter of the fiscal year, there’s been no material tariff implications for the business, Hume said.

Rich Hume, CEO, Tech Data

“That being said, we’ll watch to see how things unfold and then respond accordingly,” he said. “Our experience has been that if vendors want to increase prices based on any cost increment, they do so immediately and concurrent with their price change, we flow that through our system. Under most circumstances, we would not be impacted by such moves. In fact, as we talked about, it could provide us with a bit of a financial benefit.”

Overall, a stable demand environment and strong execution boosted Tech Data Q2 FY2020 results, Hume said

The company reported net income of $79.3 million, or $2.16 a share, on sales of $9.1 billion for the three months ended July 31. Sales were up 2 percent from the same quarter a year ago, net income was up 4 percent and earnings per share were up 10 percent, according to a news release.

Tech Data historically has been a high-volume, low-margin business. Hume implemented a new “higher value” strategy and a solutions-based approach that he says is leading to new business wins.

“Recently we provided a regional reseller a quote on several endpoint devices for PC hardware deployment. As our team learned more about the end user needs, we presented a more holistic subscription-based solution that included devices, services and software to meet the end user budget. They were delighted with the per-month offering, which allowed them to expand their technology buy and secure a better solution that met their business requirements. In addition, the new devices were preferred by the business users, which improved the user experience and enhanced their productivity. This solution-based proposal grew our reseller partner’s overall profit dollars substantially, in addition to significantly growing the total value of the deal,” Hume said.

He also said the global optimization program Tech Data announced a year ago is on track to hit its goal of annual cost savings of $70 million to $80 million by the end of fiscal year 2021, with half the savings being reinvested back into the business.

Tech Data separately announced an additional $200 million stock buyback, supplementing the $75 million that remained authorized and available, as of July 31 under a previous share repurchase program.

Tech Data’s stock was trading up nearly 20 percent at mid-day Thursday after the earnings and buyback announcements.