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TESSCO Technologies Inc. Reports Operating Results (10-Q)

August 11, 2010 | About:
10qk

10qk

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TESSCO Technologies Inc. (TESS) filed Quarterly Report for the period ended 2010-06-27.

Tessco Technologies Inc. has a market cap of $103.6 million; its shares were traded at around $14 with a P/E ratio of 11.7 and P/S ratio of 0.2. The dividend yield of Tessco Technologies Inc. stocks is 2.9%. Tessco Technologies Inc. had an annual average earning growth of 5.7% over the past 10 years.TESS is in the portfolios of Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Our first quarter revenues increased by 30.5% compared to the first quarter of last year. This increase was driven by growth in our network infrastructure and mobile devices and accessories commercial lines of business, partially offset by a decline in our installation, test and maintenance commercial line of business. Gross profits also increased in our network infrastructure and mobile devices and accessories commercial lines of business, and were partially offset by a decline in our installation, test and maintenance commercial line of business. This overall increase in gross profit, partially offset by an increase in operating expenses to support our growth initiatives and increased order volume, resulted in a 8.2% increase in net income and a 4.0% increase in diluted earnings per share over the prior-year quarter.

Revenues. Revenues for the first quarter of fiscal year 2011 increased 30.5% as compared with the first quarter of fiscal year 2010, primarily due to a 30.9% increase in commercial revenues, and to a much lesser extent, a 16.7% increase in consumer revenues. Sales increased in our network infrastructure and mobile devices and accessories lines of business, but were partially offset by decreased sales in our installation, test and maintenance line of business.

Sales in the mobile devices and accessories line of business increased 43.8% in the first quarter of fiscal year 2011, as compared with the same period last year. The increase was due to a 45.6% increase in commercial sales, and to a much lesser extent, a 16.7% increase in consumer sales. The increase in commercial revenues for mobile devices and accessories, which are sold primarily to resellers, was primarily due to increased sales to a large national tier-one carrier, AT&T Mobility, as well as smaller resellers and users. Sales of mobile devices and accessories to public carriers and network operators and SMUs and governments also increased.

Gross Profit. Gross profit for the first quarter of fiscal year 2011 increased 11.5% as compared with the first quarter of fiscal year 2010. Total commercial gross profit increased 10.6%, while consumer gross profit increased 36.5%. Gross profit margin decreased to 22.8% in the first quarter of fiscal year 2011 as compared to 26.7% the first quarter of fiscal year 2010. Gross profit margin in our network infrastructure segment decreased from 28.1% in the first quarter of fiscal year 2010 to 25.8% in the first quarter of fiscal year 2011. This decrease in gross profit margin was a largely a result of lower margin sales of products related to larger carrier builds during this quarter as compared with last years first quarter. Gross profit margin in our mobile devices and accessories segment decreased to 20.1% in the first quarter of this fiscal year from 26.8% in the first quarter of last fiscal year. This decrease was primarily attributable to the commercial gross profit margin in our mobile devices and accessories line of business, which decreased to 19.3% in the first quarter of fiscal year 2011 from 26.7% for the first quarter of fiscal year 2010, principally due to product mix and a significant increase in sales to a large tier-one carrier, AT&T Mobility. Consumer gross profit margin in our mobile devices and accessories line of business increased to 34.5% in the first quarter of this fiscal year from 29.5% for the first quarter of last fiscal year. Gross profit margin in our installation, test and maintenance line of business increased from 22.5% in the first quarter of fiscal year 2010 to 27.3% in the first quarter of fiscal year 2011, primarily due to the large reduction in our Nokia relationship discussed above. Generally, our gross margins by product within these segments have been sustained, except as noted above, and these variations are related to sales mix within the segment product offerings. We account for inventory at the lower of cost or market, and as a result, write-offs/write-downs occur due to damage, deterioration, obsolescence, changes in prices and other causes.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses increased by 12.2% in the first quarter of fiscal year 2011 as compared with the first quarter of fiscal year 2010. Selling, general and administrative expenses as a percentage of revenues decreased to 20.4% in the first quarter of fiscal year 2011 from 23.7% in the first quarter of fiscal year 2010 primarily as a result of a significant increase in revenues partially offset by increased selling, general and administrative expenses. The largest factors contributing to the increase in total selling, general and administrative expenses were increased compensation and freight expenses during the first quarter of fiscal year 2011.

Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate in the first quarter of fiscal year 2011 was 38.4% as compared with 39.2% in the first quarter of fiscal year 2010. The decrease in the tax rate is primarily attributable to changes in our state tax effective rate. As a result of the factors discussed above, net income for the first quarter of fiscal year 2011 increased 8.2% and diluted earnings per share increased 4.0% compared to the corresponding prior-year quarter.

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