• Gross Profit: $1.2 billion, down 2% year-over-year.
• Gross Margin: 21.8%, flat year-over-year.
• Net Sales: $5.5 billion, down 3.5% on an average daily sales basis.
• Non-GAAP Operating Income: $534 million, down 4% year-over-year.
• Non-GAAP Net Income per Share: $2.63, down 3% year-over-year.
• Adjusted Free Cash Flow: $261 million.
• Net Debt: Approximately $4.9 billion.
• Customer Facing Coworker Count: Approximately 11,200.
• Dividend Increase: Approximately 1% to $2.50 annually.

• Warning! GuruFocus has detected 2 Warning Sign with CDW.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• CDW Corp (NASDAQ:CDW) reported strong growth in cloud solutions, with gross profit from cloud increasing by double digits.
• The company experienced high single-digit growth in client device sales, driven by customer preference for higher-end devices.
• Healthcare was a bright spot, delivering top-line growth of 3% and strong double-digit growth in services and cloud spend.
• CDW Corp (NASDAQ:CDW) maintained its gross margin at 21.8%, consistent with full-year 2023 levels, despite challenging market conditions.
• The company is focusing on expanding its capabilities in high-growth areas like cloud and software services to increase recurring revenue streams.

Negative Points

• CDW Corp (NASDAQ:CDW) faced a 3.5% decline in net sales on an average daily sales basis, reflecting challenging market conditions.
• The company experienced significant double-digit declines in NetCom, storage, and server sales, impacting overall performance.
• Government sales declined by 12%, with both state and local and federal government performance below seasonal expectations.
• CDW Corp (NASDAQ:CDW) noted increased competition and pricing intensity across all end markets, affecting sales and profitability.
• The company anticipates a low single-digit gross profit decline for the full year 2024, with non-GAAP earnings per share expected to be down mid-single digits year-over-year.

Q & A Highlights

Q: Can you explain the negative operating leverage and the restructuring plans? A: Albert Miralles, CFO, explained that while CDW maintains a variable cost model, the fixed cost base has been impacted by the lower demand environment. They have taken actions to reduce fixed costs, including a workforce reduction of about 2%. Christine Leahy, CEO, added that they are prudently right-sizing the business while continuing to invest in growth areas.

Q: How does CDW plan to outgrow the flat US IT market in 2024? A: Christine Leahy, CEO, stated that despite the challenging environment, CDW aims to outperform the market by focusing on growth in cloud, software, and services. They are confident that hardware demand will eventually return, and they are well-positioned to capture opportunities when it does.

Q: Are the declines in infrastructure solutions reflective of the broader market or specific to CDW? A: Christine Leahy, CEO, noted that the declines are consistent with broader market trends but are also influenced by CDW's decision to avoid uneconomic deals, maintaining profitability over volume.

Q: What is driving the increased market competition and pricing intensity? A: Christine Leahy, CEO, mentioned that the current environment is characterized by irrational pricing, which is more intense than usual. This is seen across the value chain, including value-added resellers and direct competitors, driven by elongated sales cycles and deferred spending.

Q: How is CDW addressing the lumpiness in large project deals? A: Christine Leahy, CEO, explained that CDW is enhancing digital capabilities to drive velocity in smaller deals while maintaining high-value engagements. They aim to balance large project exposure with a seamless digital experience for customers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.