CDW Corporation

CDW delivered a mixed set of results for the quarter with revenues falling significantly below analyst expectations despite the company’s broad portfolio of technology solutions. There was decent performance across software, security, cloud, and service but the company’s top-line just was not up to the mark. However, net sales declined in the quarter impacted by a significant change in client device demand. The magnitude of the decline in client accessories and devices was steeper than anticipated. The K-12 market was the primary driver, which represented around half of the client device decline. With the increase in uncertainty, CDW saw a general moderation in the client device demand. An extreme mix shift to solutions and services in the quarter resulted in dampened net sales growth, customer spending growth, and healthy gross margins that drove the delivery of gross profit. On the supply side, there was a bit of improvement across categories, however, pockets of pressure stay, particularly in the solution space. The good thing was that there was an increase in gross profit and it managed to deliver an earnings beat. There was an increase in non-GAAP SG&A mainly because of higher payroll consistency with a higher coworker count and higher gross profit attainment. The overall IT market growth rate sentiment was mixed, and CDW continues to expect growth in netted-down revenues. We give CDW Corporation a ‘Hold’ rating with a revised target price.