Tech Data to divest 'some business segments'

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Tech Data to divest 'some business segments'

After posting record earnings for fiscal year 2019, Tech Data CEO Rich Hume told investors that in the coming year, the distribution powerhouse is intent on moving towards high-growth areas such as cloud, analytics, IoT, and security.

“We have always been very focused on our portfolio and managing the health of our portfolio, but as we move forward, we are going to be more deliberate in terms of calling out those things that do not provide a good return for our company or our shareholders,” Hume said during an earnings call.

Analysts focused on those comments to see what areas the company would be moving away from. Hume said there are one of three courses that the company may follow: working with vendors to get better margins on products, increasing prices at the risk of losing business – but having a better financial return, or divesting “some segments of our business.”

When asked, Hume told analysts this does not mean Tech Data is moving away from being an end-to-end distribution solution.

“I would just suggest that you think about in the context of the overall portfolio things that provide little or no return are the things we are getting after and we are going to use that cash to really fuel our future in terms of where there is more growth within the market,” he said. “Again, I want to reiterate that this is something that we have done for many, many years. But we are going to just be a little bit more aggressive as it relates to those actions.”

Building on Hume’s comments, without getting into specifics, Charles Dannewitz, executive vice president, chief financial officer, said Tech Data would be taking “actions” on parts of the portfolio, then reinvesting that free cash in M&A.

“We are looking at portfolio actions on those pieces of the business that are significantly below our weighted average cost of capital,” he said. “The second thing is, is that we are going to use that cash as it’s freed up to reinvest in the business through selective M&A, very targeted selective M&A, as well as our share repurchases.”

Revenues at the distributor were higher for the quarter and on the year, both ending Jan. 31. Fiscal year sales for 2019 were up 11 percent, to US$32.7 billion, while fourth quarter sales were higher by four-percent, to US$10.4 billion.

This article originally appeared at crn.com

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