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

August 12, 2009 | About:

TESSCO Technologies Inc. (TESS) filed Quarterly Report for the period ended 2009-06-28.

TESSCO Technologies Inc. is a leading provider of the services products and solutions required to build operate maintain and use wireless voice data messaging location tracking and Internet systems. The company provides marketing and sales services knowledge and supply chain management product-solution delivery and control systems utilizing Internet and information technology. The company\'s guiding vision is to be The Vital Link between buyers and manufacturers. For its customers the company provides a total source of product knowledge and solutions. TESSCO Technologies Inc. has a market cap of $74.9 million; its shares were traded at around $15.59 with a P/E ratio of 12.6 and P/S ratio of 0.2. TESSCO Technologies Inc. had an annual average earning growth of 6% over the past 10 years.

Highlight of Business Operations:

Our first quarter revenues decreased by 10.9% compared to the first quarter of last year. This decrease was driven by a decline in each of our commercial lines of business. Gross profits also declined in each of our commercial lines of business. This overall decrease in gross profit, partially offset by a decrease in operating expenses, resulted in a 7.3% decline in net income but a 2.7% increase in diluted earnings per share over the prior-year quarter. The increase in diluted earnings per share was driven by a decrease in outstanding shares as a result of our stock buyback program and a large share repurchase made through a private transaction during the second quarter of fiscal year 2009.

Despite the unfavorable comparables to last years first quarter, we experienced growth in both revenues and gross profits as compared with the prior year fourth quarter. Revenues and gross profits had sequential growth of 10.8% and 6.1%, respectively. Net income and diluted earnings per share increased 143.5% and 137.5%, respectively. While the current global economy is still having a negative affect on our business (as further discussed below), we have been able thus far to successfully navigate through a difficult environment to achieve these results.

Revenues. Revenues for the first quarter of fiscal year 2010 decreased 10.9% as compared with the first quarter of fiscal year 2009, primarily due to a 11.6% decrease in commercial revenues, partially offset by a 21.2% increase in consumer revenues. Sales decreased across all commercial lines of business.

Sales in the mobile devices and accessories line of business decreased 7.6% in the first quarter of fiscal year 2010, as compared with the same period last year. The decrease was due to a 9.0% decrease in commercial sales, partially offset by a 21.2% increase in consumer sales. The decrease in commercial revenues for mobile devices and accessories, which are sold primarily to resellers, was primarily due to decreased sales to smaller resellers and users. Sales of mobile devices and accessories to public carriers and network operators and SMUs and governments also decreased.

Gross Profit. Gross profit for the first quarter of fiscal year 2010 decreased 6.4% as compared with the first quarter of fiscal year 2009. Total commercial gross profit decreased 6.5%, while consumer gross profit decreased 4.5%. Gross profit margin increased to 26.7% in the first quarter of fiscal year 2010 from 25.4% in first quarter of fiscal year 2009. Gross profit margin in our network infrastructure segment increased from 27.2% in the first quarter of fiscal year 2009 to 28.1% in the first quarter of fiscal year 2010. This increase in gross profit margin was a result of changes in product mix. Gross profit margin in our mobile devices and accessories segment increased to 26.8% in the first quarter of this fiscal year from 25.2% in the first quarter of last fiscal year. This increase was primarily attributable to the commercial gross profit margin for our mobile devices and accessories, which increased to 26.7% in the first quarter of fiscal year 2010 from 24.6% for the first quarter of fiscal year 2009, principally due to product mix in sales to a large tier-one carrier and other retail customers. Consumer gross profit margin for our mobile devices and accessories decreased to 29.5% in the first quarter of this fiscal year from 37.4% for the first quarter of last fiscal year. Gross profit margin in our installation, test and maintenance line of business increased from 22.4% in the first quarter of fiscal year 2009 to 22.5% in the first quarter of fiscal year 2010. Generally, our gross margins by product within these segments have been sustained, except as noted above, and generally 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 decreased by 6.3% in the first quarter of fiscal year 2010 as compared with the first quarter of fiscal year 2009. Selling, general and administrative expenses as a percentage of revenues increased to 23.7% in the first quarter of fiscal year 2010 from 22.5% in the first quarter of fiscal year 2009. The largest factors contributing to the decrease in total selling, general and administrative expenses were decreased compensation, and marketing and sales promotion expenses during the first quarter of fiscal year 2010.

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