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ScanSource Inc (SCSC) Q3 Earnings: Misses Analyst Forecasts Amid Declining Sales

GuruFocus Research
·3-min read

  • Revenue: Reported at $752.6 million, down by 15.0% year-over-year, falling short of estimates of $822.71 million.

  • Net Income: GAAP net income stood at $12.8 million, a decrease of 39.7% from the previous year, significantly below the estimated $21.86 million.

  • Earnings Per Share (EPS): GAAP diluted EPS was $0.50, marking a decline of 39.8% year-over-year, well below the estimated $0.84.

  • Gross Profit Margin: Slightly decreased to 12.55% from 12.62% a year earlier, reflecting a higher percentage of lower-margin Intelisys revenue.

  • Operating Income: Fell sharply by 48.8% to $17.5 million from $34.3 million in the prior-year quarter.

  • Free Cash Flow: Demonstrated strong liquidity with $157.7 million, significantly higher compared to $52.6 million in the same period last year.

  • Share Repurchase Authorization: Announced a new $100 million authorization for share repurchases, supplementing the existing authorization with approximately $45 million remaining.

On May 7, 2024, ScanSource Inc (NASDAQ:SCSC), a prominent hybrid distributor connecting devices to the cloud, disclosed its financial results for the third quarter ended March 31, 2024, through its 8-K filing. The company reported a notable decline in both net sales and earnings per share, falling short of analyst expectations for the quarter.

Company Overview

ScanSource Inc operates primarily through two segments: Specialty Technology Solutions and Modern Communications and Cloud. The company is known for its value-added services in technology markets, focusing on products ranging from mobility and barcode technologies to POS and payment systems. A majority of its revenue is generated in the United States, positioning it as a key player in the specialty technology distribution space.

Financial Performance Summary

The third quarter saw ScanSource posting net sales of $752.6 million, a decrease of 15% from the previous year's $885.5 million, and falling below the estimated $822.71 million. This decline was attributed to softer demand across its technology segments, particularly in communications hardware and Cisco products. The company's GAAP net income stood at $12.8 million, or $0.50 per diluted share, significantly lower than the estimated earnings of $0.84 per share and last year's $0.83 per share.

Operational and Segment Challenges

ScanSource's Specialty Technology Solutions segment experienced a 14.5% drop in sales, while the Modern Communications & Cloud segment saw a 15.9% decrease. Despite these challenges, the company's Intelisys net sales increased by 4.0%, highlighting a mixed performance across different business areas. The gross profit margin slightly decreased to 12.55% from 12.62% the previous year, reflecting a shift in revenue mix towards Intelisys, which records revenue on a net basis.

Strategic Financial Movements

Amidst the financial downturn, ScanSource announced a new $100 million share repurchase authorization, supplementing an existing authorization with approximately $45 million remaining. This move underscores the company's ongoing commitment to returning value to shareholders and strengthening its balance sheet.

Updated Financial Outlook

Looking ahead, ScanSource has adjusted its full-year financial outlook, now expecting net sales to reach at least $3.3 billion, down from the previously projected $3.5 billion. However, the company has raised its free cash flow expectation to at least $275 million from $200 million, indicating a strong focus on liquidity and operational efficiency.

Conclusion and Forward Look

Despite the current setbacks, ScanSource's management remains optimistic about leveraging its robust balance sheet and diversified business model to navigate the evolving market dynamics. The company's revised strategy and capital allocation plans are aimed at sustaining growth and profitability in a challenging economic environment.

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Investors and stakeholders will likely keep a close watch on how ScanSource adapts to these challenges and capitalizes on potential growth opportunities in upcoming quarters.

Explore the complete 8-K earnings release (here) from ScanSource Inc for further details.

This article first appeared on GuruFocus.