TD Synnex boss upbeat despite currency volatility
TD Synnex celebrated its first full year since the merger between Tech Data and Synnex with the publication of Q3 results this week showing a 7% growth in worldwide revenue to $15.4 billion. CEO Rich Hume (pictured) said the combined business had generated $62 billion in revenue in 12 months.
During the conference call with analysts, Europe was, perhaps surprisingly, mentioned a number of times. First, there was the reference by CFO Marshall Witt to the impact of euro devaluation on overall revenue, accounting for “an approximate $700 million headwind year-over-year”.
He added that the company was guiding the euro at 1.01 v the dollar, noting “it wasn’t that long ago when we were at 1.18 or 1.19”.
The distributor also benefited from an increase in average sales price (ASP) in the PC segment, Witt revealed: “If we look at our Q3 results, volume was probably in the low-to-single digit growth rate and ASP was probably in the high-single to low double-digit growth rate. So, all in net-net, we grew in the PC ecosystem business.”
Within that context, Hume admitted that Europe was “a little bit more tricky to figure out from an ASP perspective” because of the consequences of a fall in the value of the euro. A weaker euro would result in an increased ASP because the industry “is pretty much a dollar-based industry”. That meant it would take “a lot more euro” to buy in the PC category. “So I think that, that ASP dynamic in Europe might have a bit longer of a life relative to what we might see in other jurisdictions,” Hume stated.
Adam Tindle at Raymond James said that some people would find it surprising that the distributor’s strength in Europe had contributed to non-GAAP operating income growth in the mid-teens in constant currency.
Witt replied that demand had strengthened year-on-year by month in Europe. “We saw continued strength in August, and our guide continues to reflect that confidence as we think about Q4,” he said. “I don’t know if the word is surprising, but it is definitely something we didn’t expect to see, that kind of strength to continue and grow.”
Hume added that the distributor had “a pretty robust outlook” for Q4 in Europe. “So we, like you, read the headlines relative to the challenges in Europe, yet technology seems to be a solution to help in driving some efficiencies for a lot of business entities,” he said.
Hume suggested that it could reflect the truism that “when things are tough, IT outpaces GDP”. His own personal opinion was IT was such a useful and necessary tool for businesses to remain competitive going forward. “Right now, we see a pretty solid environment in the third quarter and as part of the projection in the fourth as well,” he added.
Another interesting snippet was that increased interest costs were having an effect on the distributor’s earnings per share (EPS) projections. As Witt admitted regarding interest expense: “When we guided Q3, we guided at $45 million and, of course, we came above that at $50 million. We guided for Q4, it’s $60 million. So that’s probably the biggest EPS difference in terms of where we thought we’d be.”
TD Synnex also revealed inventories were up around $1.3 billion from the prior quarter at $9.8 billion. Witt noted that “more than half of the inventory increased within our distribution network. This increase was due to strong revenue growth and the elevated backlog”.
He stressed that the majority of the inventory “is covered by price protection agreement and recovery of inventory carrying costs”, adding that “we expect this inventory to translate to revenue and profit generation in Q4 and beyond. All in, we expect inventory returns to improve in Q4 and into fiscal ’23”.
Witt concluded that “despite the current economic headlines, we are confident in our business and bullish on the growth prospects for our company, given our participation in large and growing markets, our solid history of execution and shareholder value creation and our decades of experience in managing through economic cycles”.
Subscribers 0
Fans 0
Followers 0
Followers