It appears as though we may be in for another wild ride today, courtesy of a little more uncertainty, this time brought on by the Super Committee's inability to reach a deal on budget cuts. This should not be a big surprise, but Mr. Market may be saying otherwise; we'll see as the day progresses. This was a bad idea from the start, and unless the members can pull something out of their hat at the last minute, which appears unlikely, it's game over for the Super Committee. It should probably be renamed the Stupid Committee, which is not a judgment on its membership, but rather on the notion that it could be successful in the first place. What will make this more interesting, however, is the doomsday provision, which calls for automatic budget cuts if the committee fails to reach an agreement. This is new territory, and it reads like a bad movie script.
Meanwhile, back in the real world, Tech Data (TECD), a member of my JIMS CRAB FEST portfolio for cheapskates, issued its third-quarter results this morning. Net sales rose 7% to $6.594 million, and net income rose 6% to $53.5 million, or $1.26 per share. Earnings were a penny shy of consensus estimates, while revenue came up short of the $6.74 billion estimate. While the company's operating margin improved during the quarter from 1.31% to 1.36%, the net profit margin fell from .82% to .81%. This is indeed a very low-margin business.
While the revenue shortfall and company guidance for the fourth quarter, which suggests flat-to-low-single digit sales growth, may weigh on the stock in the near term, I still like what I see on the balance sheet. Tech Data ended the quarter with $900 million or more than $21 per share in cash, and $473 million in debt. At Friday's close, the shares were trading at about 1.29x net current asset value (NCAV), a number that will likely drop today given a likely negative reaction to the third-quarter results. Based on third-quarter data, the shares are still trading very close to book value.
The company continues to voraciously repurchase its stock -- management bought back another $100 million worth during the quarter. By my calculation, Tech Data has reduced its shares outstanding by more than 27% since year-end 2005. During that period, the shares are up just 14%, or less than 2% per-year annualized, which is on par with the performance of the Russell 2000 during the same period. (We'll save the debate over whether it would have been better to pay a cash dividend rather than buy back shares for another day.)
Buckle up: It could be yet another wild day, both for the markets as a whole, and for Tech Data. While I'm intrigued by the stock, I'm staying on the sidelines, at least for now.