Systemax Misses Estimates - Analyst Blog

Systemax Inc. (SYX) reported third quarter 2010 earnings at 23 cents per share and failed to beat the Zacks Consensus Estimate of 35 cents per share. The earnings per share (EPS) also decreased 32.4% from the year-ago quarter. The EPS excludes one-time charges, after tax, of 5 cents per per diluted share for costs related to WStore integration.

Quarter In Detail

Systemax reported record sales of $862.7 million, increasing 14.4% from the prior-year quarter. Zacks Consensus Estimate had expected the sales to be $867 million, however, so therefore the record sales figure fell short of the estimate by half percentage.

The consolidated sales was boosted by strong performance of the industrial operations and business-to-business (B2B) technology which increased 24.5% year-over-year to $435.2 million.

Consumer channel sales also increased 5.7% year-over-year to $427.5 million.

However, management is worried of the challenging consumer environment and competitive scenario, which makes the gross margin and operating margin face stiff pressure.

Gross margin decreased 1.5 percentage points year-over-year to 13.5% mainly due to the effect of discounted freight, start up costs of $1.4 million for the company's new Georgia facility and competitive consumer pricing.

Operating margin also declined 1.2 percentage points from the year-ago quarter to 1.4%. The decline was attributable to the impact of $2.9 million of one-time charges related to WStore integration.

Net margin decreased to 1.0% from 1.7% in the same quarter last year, and the effective tax rate for the quarter was 37.3% compared to 38.0% in the year ago quarter.

As on September 30, 2010, Systemax had a working capital of $29.5 million. Total short and long term debt as of that date was $32.4 million, and increased $18.6 million sequentially.

Conclusion

Management is focused on improving of the bottom-line performance and expects to control costs and increase operational efficiency.

The estimates had remained stable in the run up to the earnings report, with no analysts revising estimates in the last 30 days. The full-year estimate for the year remains $1.44 per share and for fiscal 2012 it is $1.70 per share.

We currently have a Zacks #3 rank for Systemax, which translates into a Hold rating on short-term basis.