Core Viewpoint - ScanSource reported quarterly earnings of $0.85 per share, missing the Zacks Consensus Estimate of $0.89 per share, representing an earnings surprise of -4.49% [1][2] Financial Performance - The company posted revenues of $747.5 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 10.78%, and a decline from year-ago revenues of $879.58 million [2] - Over the last four quarters, ScanSource has surpassed consensus EPS estimates only once [2] Stock Performance - ScanSource shares have increased by approximately 5.4% since the beginning of the year, outperforming the S&P 500's gain of 2.7% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.79 on revenues of $778.8 million, and for the current fiscal year, it is $3.51 on revenues of $3.24 billion [7] - The estimate revisions trend for ScanSource is mixed, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - The Industrial Services industry, to which ScanSource belongs, is currently in the bottom 15% of over 250 Zacks industries, which may negatively impact stock performance [8]

Financial Performance - Net sales for the quarter ended December 31, 2024, were $747,497,000, a decrease of 15.5% compared to $884,792,000 for the same quarter in 2023[18]. - Gross profit for the six months ended December 31, 2024, was $203,342,000, down from $207,256,000 in the same period of 2023, reflecting a decline of 1.9%[18]. - Net income for the quarter ended December 31, 2024, was $17,053,000, a decrease of 47.9% compared to $32,726,000 for the same quarter in 2023[18]. - Net income for the six months ended December 31, 2024, was $34,028,000, compared to $48,158,000 for the same period in 2023, reflecting a decrease of approximately 29.4%[27]. - Basic earnings per share for the quarter ended December 31, 2024, were $0.72, compared to $1.31 for the same quarter in 2023, a decline of approximately 45%[57]. - Comprehensive income for the quarter was $(1,425) thousand, compared to $33,866 thousand in the prior year, indicating a significant decline[20]. Assets and Liabilities - Total current assets decreased to $1,283,765,000 as of December 31, 2024, from $1,404,699,000 as of June 30, 2024, representing a decline of 8.6%[15]. - Total liabilities decreased to $801,867,000 as of December 31, 2024, from $854,777,000 as of June 30, 2024, a reduction of 6.2%[15]. - The company’s total assets decreased to $1,702,529,000 as of December 31, 2024, from $1,779,032,000 as of June 30, 2024, a decrease of 4.3%[15]. - Total debt as of December 31, 2024, was $139,899,000, a decrease from $144,056,000 as of June 30, 2024[63]. - The company’s retained earnings increased to $1,031,934,000 as of December 31, 2024, from $1,013,738,000 as of June 30, 2024, an increase of 1.8%[15]. Cash Flow and Investments - The company reported a net cash provided by operating activities of $38,642,000 for the six months ended December 31, 2024, a significant decrease from $156,757,000 in the prior year[27]. - Cash and cash equivalents at the end of the period were $110,520,000, down from $185,460,000 at the beginning of the period, indicating a decrease of 40.4%[27]. - The company reported a net cash used in investing activities of $58,452,000, compared to a net cash provided of $13,113,000 in the previous year[27]. - The company incurred a cash outflow of $56,673,000 for business acquisitions during the six months ended December 31, 2024[27]. Segment Performance - The Specialty Technology Solutions segment reported sales of $723.277 million for the quarter ended December 31, 2024, down from $861.514 million in the same quarter of 2023, representing a decrease of approximately 16.1%[95]. - The Intelisys & Advisory segment achieved sales of $24.220 million for the quarter ended December 31, 2024, compared to $23.278 million in the same quarter of 2023, reflecting an increase of approximately 4.0%[95]. - Operating income for the Specialty Technology Solutions segment was $14.077 million for the quarter ended December 31, 2024, down from $19.696 million in the same quarter of 2023, a decrease of approximately 28.0%[95]. Restructuring and Expenses - The company reported a restructuring expense of $5,381,000 for the six months ended December 31, 2024, compared to no such expense in the same period of 2023[18]. - The company executed restructuring programs in January and September 2024, expected to yield annualized savings of approximately $20.5 million in selling, general, and administrative expenses[112]. - The company recorded depreciation and amortization expenses of $8.131 million for the quarter ended December 31, 2024, compared to $7.258 million in the same quarter of 2023, an increase of approximately 12.0%[95]. Tax and Compliance - The Company recorded a discrete net tax benefit of $3.0 million for the quarter ended December 31, 2024, compared to a $3.8 million benefit in the same quarter of 2023[106]. - The effective tax rate for the quarter ended December 31, 2024, was 13.5%, down from 18.3% in the same quarter of 2023[107]. - The Company was in compliance with all covenants under the Amended Credit Agreement as of December 31, 2024[67]. Future Outlook and Strategy - The company plans to focus on market expansion and new product development to drive future growth[18]. - The company is currently evaluating the impact of new accounting standards on its consolidated financial statements and disclosures[40].

Financial Performance - Net sales for Q2 FY25 totaled $747.5 million, a decrease of 15.5% year-over-year[4] - Gross profit increased by 1.0% year-over-year to $101.7 million, with a gross profit margin of 13.6%, up from 11.4% in the prior-year quarter[5] - Operating income for Q2 FY25 was $18.4 million, down 31.2% from $26.8 million in the prior-year quarter[6] - GAAP net income decreased by 47.9% to $17.1 million, or $0.70 per diluted share, compared to $32.7 million, or $1.29 per diluted share, in Q2 FY24[7] - Non-GAAP net income for Q2 FY25 was $20.7 million, or $0.85 per diluted share, compared to $21.6 million, or $0.85 per diluted share, in the prior-year quarter[7] - Adjusted EBITDA for Q2 FY25 decreased by 8.2% to $35.3 million, representing 4.72% of net sales[7] - Net income for the quarter was $17,053 thousand, down 47.9% from $32,726 thousand in the prior year[29] - Adjusted EBITDA for the quarter was $35,299 thousand, compared to $38,459 thousand in the same quarter of 2023, reflecting a decrease of 5.6%[34] - Diluted EPS for the quarter was $0.70, down from $1.29 in the same quarter last year, representing a decrease of 45.7%[46] Revenue and Sales - Recurring revenue grew by 31.2% year-over-year, contributing to 32.4% of gross profit[5] - Net sales for the quarter ended December 31, 2024, were $747,497 thousand, a decrease of 15.5% compared to $884,792 thousand in the same quarter of 2023[29] - Non-GAAP net sales in the United States and Canada were $678,538,000, reflecting a 14.7% decline from $795,382,000 in the prior year[42] - Net sales in Brazil decreased by 32.5% to $60,386,000 in Q2 2024 from $89,410,000 in Q2 2023[42] - The company reported a foreign exchange impact of $10,718,000 on consolidated net sales for the quarter ended December 31, 2024[42] Cash Flow and Assets - Free cash flow for the first six months of FY25 was $34.3 million, with share repurchases totaling $52.3 million[8] - Cash and cash equivalents at the end of the period were $110,520 thousand, down from $185,460 thousand at the beginning of the period[31] - Free cash flow for the quarter ended December 31, 2024, was $(8,164,000), a significant decrease from $60,675,000 in the same quarter of 2023[43] - The company experienced a significant decline in GAAP operating cash flow, reporting $(6,190,000) for the quarter compared to $63,224,000 in the same quarter of the previous year[43] Expenses and Liabilities - The company reported a restructuring charge of $313 thousand for the quarter, with total selling, general and administrative expenses increasing to $73,920 thousand from $66,921 thousand year-over-year[29] - Total current assets decreased to $1,283,765 thousand from $1,404,699 thousand, a decline of 8.6%[27] - Total liabilities decreased to $801,867 thousand from $854,777 thousand, a reduction of 6.2%[27] - SG&A expenses for Q2 2024 were $73,920,000, an increase from $66,921,000 in Q2 2023[46] Guidance and Future Outlook - For FY25, the company reaffirms guidance of net sales between $3.1 billion and $3.5 billion[10] - The adjusted return on invested capital (Adjusted ROIC) for the quarter was 13.3%, slightly up from 13.2% in the previous year[34]

Industry Overview - The Zacks Industrial Services industry provides industrial equipment products and MRO services, serving customers across commercial, government, healthcare, and manufacturing sectors [3] - The industry's products include power tools, hand tools, lubricants, and personal protective equipment, which are used in production and plant maintenance but are not directly related to customers' core products [4] - The manufacturing sector contributes around 70% to the industry's revenues, with customer activity trends historically correlated to changes in the Industrial Production Index [5] Industry Trends - The manufacturing sector has been in a prolonged contraction, with the Institute for Supply Management's manufacturing index remaining below 50% for most of 2024, indicating contraction [6] - The New Orders Index showed expansion in November and December 2024 after seven consecutive months of contraction, but consistent growth has not been sustained since May 2022 [7] - The industry is experiencing significant inflation levels, including higher prices for labor, freight, and fuel, leading to pricing actions and cost-cutting measures [8] - E-commerce is a key growth driver, with global e-commerce revenues expected to reach $4,791 billion in 2025 and a CAGR of 7.83% between 2025 and 2029 [10] Industry Performance and Valuation - The Industrial Services industry has underperformed its sector and the S&P 500, growing 9.6% over the past year compared to the sector's 14.9% and the S&P 500's 24.3% [13] - The industry is currently trading at a forward 12-month EV/EBITDA ratio of 28.52X, higher than the S&P 500's 13.96X and the Industrial Products sector's 19.84X [14] Key Companies - **Eos Energy Enterprises**: Projects 2025 revenues between $150 million and $190 million, driven by increased production and supply chain improvements [15][16] - **ClearSign Technologies**: Received a significant follow-on purchase order in December 2024 and expanded its partnership with Zeeco, Inc., positioning the company for solid growth [17][18][19] - **Grainger**: Delivers robust results with margin improvements and strong operating performance, focusing on e-commerce and digital capabilities [21][22] - **ScanSource**: Shifting business mix and cost-saving efforts are driving stronger earnings and cash flow, with recent acquisitions enhancing its advisory channel model [24][25] Growth Catalysts - The rise in e-commerce activities is a key catalyst for the industry, with companies leveraging strategies to capitalize on this demand [2] - Companies are focusing on lowering costs, increasing productivity, and investing in automation and digitization to aid growth [2]

Group 1 - Momentum investing contrasts with the traditional "buy low and sell high" strategy, focusing instead on "buying high and selling higher" to capitalize on fast-moving stocks [1] - Identifying the right entry point for momentum stocks can be challenging, as they may lose momentum if future growth does not justify their high valuations [1] - A safer investment approach involves targeting bargain stocks that exhibit recent price momentum, utilizing tools like the Zacks Momentum Style Score [2] Group 2 - ScanSource (SCSC) is highlighted as a strong candidate for momentum investing, having experienced a 7.3% price increase over the past four weeks [3] - SCSC has shown a significant 11.3% price gain over the last 12 weeks, indicating its ability to deliver positive returns over a longer timeframe [4] - The stock has a beta of 1.44, suggesting it moves 44% more than the market, indicating fast-paced momentum [4] Group 3 - SCSC holds a Momentum Score of B, suggesting it is an opportune time to invest in the stock to leverage its momentum [5] - The stock has achieved a Zacks Rank 1 (Strong Buy) due to upward revisions in earnings estimates, which typically attract more investor interest [6] - SCSC is trading at a Price-to-Sales ratio of 0.40, indicating it is undervalued, as investors pay only 40 cents for each dollar of sales [6] Group 4 - SCSC is positioned for further growth, with potential for fast-paced momentum [7] - There are additional stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, suggesting a broader opportunity for investors [7] - Various Zacks Premium Screens are available to assist in identifying winning stock picks based on different investing styles [8]

Core Viewpoint - ScanSource (SCSC) has demonstrated strong stock performance, achieving a 52-week high and significantly outperforming its industry and the S&P 500 year-to-date, driven by improved margins and strategic acquisitions despite lower revenues due to cautious technology spending [1][2][20]. Financial Performance - SCSC reported adjusted earnings per share of 84 cents for Q1 fiscal 2025, exceeding the Zacks Consensus Estimate of 77 cents, marking a 14% year-over-year increase [9]. - The company experienced an 11.5% decline in net sales to $776 million, which was below the Zacks Consensus Estimate of $799 million, but showed a 4% sequential increase, indicating potential demand recovery [10]. - Gross margin improved to 13.10% from 12.15% year-over-year, attributed to a higher contribution of recurring revenues [12]. - As of September 30, 2024, SCSC had cash and cash equivalents of $145 million and total debt of $143.6 million, with a total debt-to-total capital ratio of 13.5%, down from 21.3% a year ago [13]. Strategic Acquisitions - SCSC completed the acquisition of Resourcive, enhancing its advisory capabilities in IT sourcing solutions [14]. - The acquisition of Advantix allows SCSC to offer hardware combined with recurring revenue streams, creating the Integrated Solutions Group (ISG) focused on value-added services [15]. Guidance and Estimates - SCSC affirmed its fiscal 2025 revenue guidance of $3.1-$3.5 billion, indicating a midpoint growth of 1% year-over-year, with adjusted EBITDA expected between $140 million and $160 million, reflecting a 7% growth from fiscal 2024 [16]. - The Zacks Consensus Estimate for fiscal 2025 earnings has increased, reflecting better-than-expected results and a favorable revenue mix [17]. Valuation and Market Sentiment - SCSC is trading at a forward earnings multiple of 14.56X, which is a discount compared to the industry average of 28.19X, indicating an attractive valuation [20]. - The stock is currently above its 50-day and 200-day moving averages, suggesting strong upward momentum and positive market sentiment regarding its financial health [5][6].

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use tried-and-true metrics and fundamental analysis to find compa ...

Momentum investing is essentially the opposite of the tried-and-tested Wall Street adage -- "buy low and sell high." Investors following this investing style typically avoid betting on cheap stocks and waiting long for them to recover. They believe instead that one could make far more money in lesser time by "buying high and selling higher."Everyone likes betting on fast-moving trending stocks, but it isn't easy to determine the right entry point. These stocks often lose momentum when their future growth po ...

Investors interested in Industrial Products stocks should always be looking to find the best-performing companies in the group. Has ScanSource (SCSC) been one of those stocks this year? By taking a look at the stock's year-to-date performance in comparison to its Industrial Products peers, we might be able to answer that question.ScanSource is a member of the Industrial Products sector. This group includes 213 individual stocks and currently holds a Zacks Sector Rank of #12. The Zacks Sector Rank gauges the ...

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors rely on traditional forms of a ...