IT distributor and computer giant Tech Data has reported a hefty 62 percent plummet in its first quarter profits.
The company reported income of $12.9 million compared with $33.5 million for the same period the year before. Apart from declining sales (2.4 per cent down on the previous year) Tech Data felt the weight of massive restructuring charges for its EMEA division where it has spent $37.4 million, including $6.5 million during Q1 this year. The earnings drop in this quarter followed the pattern set by the previous year, where Tech Data reported earnings of $26.6 million for its year ended January 2006, down from $162.5 million the year before.
So that’s what the numbers say, but what’s really happening at the Clearwater-based company? In the company’s annual report CEO Steve Raymund revealed how the drop in earnings cut deep. The firm’s 25-year veteran, who recently announced he is standing down from his current officer position to become soley the company’s chairman, spoke of looking back at his reign with "considerable pride" but being "especially disappointed" over the company’s performance in EMEA in the last financial year.
Speaking exclusively to OPI, Tech Data’s SVP of Tax and Tresurer Chuck Dannewitz said there were clear reasons for the poor performance and was more than optimistic for the future.
"Earnings decreased on a year over year basis during the first quarter of 2007’s financial year, primarily due to a few factors," said Dannewitz. "One significant area of additional cost incurred during Q1 relates to our European restructuring program that we announced and initiated last year. In addition, we are currently in the process of consolidating certain facilities. Although this project will produce significant future savings, the consolidation does result in a level of duplicate personnel and rent costs as we transition into the new facilities." Total costs of the restructuring are anticipated to be in the $50-$55 million range with annualised savings estimated to be about the same.
The programme was originally planned for completion by the end of the company’s Q3 of the current fiscal year (ending October 31). Dannewitz said the programme is "on track" and the firm is anticipating most actions and related costs to be taken by the end of Q2 (July 31). "We have invested in a team of experienced staff who are assisting our country management teams with various initiatives including ensuring the use of best practices in purchasing, pricing, vendor and customer engagement, etc," he added. "This investment in incremental staff is to ensure the restructuring has a lasting impact and significantly improves our European operations and profitability."
