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Tessco Results Unchanged With in Line With Estimates

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By on Consumer Staples, S&P 500

Tessco Technologies reported fiscal fourth-quarter EPS of $0.35, unchanged from the same quarter a year ago and in line with our estimate. Upside to our estimate was driven by gross margin, offset by lower revenue (weather-related headwinds), and operating expenses were in line with our estimate (as a percentage of sales). Revenue of $124.5 million was $8.6 million below our estimate, with strength in the public carrier market offset by lower-than-expected retail sales. Total sales declined 21% year-over-year, but core sales, excluding the company’s terminated third-party logistics business, declined only 5%.

The company issued fiscal 2015 EPS guidance of $2.05 to $2.15. While Tessco is transitioning well out of its $213 million third-party logistics segment, inclement weather inhibited growth during the fourth quarter and resulted in 4% core revenue growth for fiscal 2014 (diminishing double digit growth built up during the first half of the year). Nonetheless, the company is seeing strong demand in its public carrier segment (27% of sales) and expects continued strength with its proprietary Ventev product line.

At 15 times our fiscal 2015 EPS estimate, shares are trading above the historical forward EPS range. We maintain our Market Perform rating. Core sales driven by public carrier and Ventev. Sales of $124.5 million were down 21% year-over-year and were $8.6 million below our estimate. Excluding the third-party logistics (3PL) sales, core revenue declined 5% year-over-year. For fiscal 2014, Ventev proprietary product sales grew 20% year-over-year, and public carrier sales grew 34%. Tessco’s fourth-quarter revenue composition was as follows: • Commercial ($91.2 million, 73% of sales). Revenue was down 3.7% year-over-year and was $7.3 million below our estimate. (An exhibit with segment details is included later in this note.) Public carrier revenue grew 2% year-over-year, as carrier spending remains elevated for 4G infrastructure and distributed antenna systems, where Tessco is particularly strong. Commercial dealer/reseller revenue declined 10% year-over-year and private carrier/government sales declined 3% year-overyear.

 Retail ($33.3 million, 27% of sales). Sales excluding the 3PL relationship declined 10% year-over-year due to inclement weather negatively affecting the business as well as indirect sales being affected by changes in retail business models. The 3PL business accounted for roughly $27 million in the year-ago quarter. Operating margin in line with expectations. Gross margin of 24.2% was up 280 basis points annually due largely to improved profitability in commercial dealer and retail, which we attribute to the increase in proprietary product sales. Operating expenses decreased 13% sequentially.

 

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