CDW Corp (CDW) Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 was a clean beat: revenue $5.20B (+6.7% YoY) and non-GAAP EPS $2.15 both exceeded S&P Global consensus ($4.94B and $1.96), helped by ~2 pts of client device pull‑forward ahead of potential tariffs and broad strength in healthcare, education, cloud and services . Revenue and EPS beats vs consensus: +5.3% and +9.5% respectively*.
• Gross margin held firm at 21.6% (−20 bps YoY) despite client devices rising to 33% of net sales; netted‑down revenue (cloud/SaaS) reached a record 36.5% of gross profit, supporting margin resilience .
• Guidance maintained: CDW still targets US IT market growth low single digits with a 200–300 bps premium, stable margins vs 2024, and low single‑digit non‑GAAP EPS growth; currency view improved to “roughly neutral” vs prior “slight headwind” .
• Capital returns continued: $0.625 quarterly dividend declared; ~$200M repurchases in Q1 and 2025 target of returning 50–75% of adjusted FCF to shareholders .

What Went Well and What Went Wrong

What Went Well

• Cloud/SaaS and services outperformed: netted‑down revenue grew ~12% YoY and comprised 36.5% of gross profit; services top line rose 14% with double‑digit profit in managed/pro services, supporting margin stability .
• End‑market breadth: healthcare net sales +20%, education +11% (ADS), corporate +6%, SMB +8% (ADS); UK/Canada +10% (ADS) with UK leading .
• Management tone confident on strategy and positioning: “value proposition is stronger than ever” and continued goal to exceed US IT market growth by 200–300 bps on constant currency .

What Went Wrong

• Infrastructure softness: NetComm and storage were weaker on digestion and elongated sales cycles; tariff uncertainty slowed larger infrastructure investments even as it boosted client devices .
• Public sector friction: federal spending subdued amid new administration priorities; education pull‑forward likely makes Q2 sub‑seasonal .
• Gross margin mixed headwinds: client devices mix up to 33% of net sales compressed product margins slightly; management continues to “make space” for modest like‑for‑like compression .

Financial Results

Segment Net Sales

Key KPIs

Consensus vs Actual (Q1 2025)

Values with * retrieved from S&P Global.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “The team delivered an excellent start to 2025… highlights the combined power of our balanced portfolio… and customer centric strategy.”
• CFO: “Gross margins held firm even with strong client device performance… netted down revenues contributed a record 36.5% of our gross profit.”
• CEO on outlook: “We are maintaining our 2025 outlook… underpinned by what we are seeing and hearing in the market, our first quarter performance and a continued level of prudence.”
• CFO on capital returns: “We returned approximately $200 million in share repurchases and $83 million in the form of dividends… targeting 50% to 75% of adjusted free cash flow to shareholders in 2025.”
• Dividend release: “Quarterly cash dividend of $0.625 per common share” (payable June 10, 2025) .

Q&A Highlights

• Infrastructure categories (NetComm/storage) weaker as customers digest and pause larger deals; design discussions are ongoing, indicating future pipeline .
• Pricing/tariffs: Cost‑plus model with an orderly market; management expects ability to pass through tariff‑related costs while maintaining profitability .
• Healthcare strength: Reflects CDW’s years of investment in healthcare sales/technology expertise, cloud acceleration, and security demand .
• Seasonality: Education pull‑forward derisks Q2, which is expected to be sub‑seasonal; federal remains muted near‑term given new priorities .
• EPS guide and buybacks: Front‑loaded repurchases in Q1 benefit averages; still targeting 50–75% of adjusted FCF to shareholders .

Estimates Context

• Q1 2025 beat vs S&P Global consensus: revenue $5.20B vs $4.94B* (+5.3%), non‑GAAP diluted EPS $2.15 vs $1.96* (+9.5%); 10 EPS estimates and 8 revenue estimates supported consensus* .
  Values retrieved from S&P Global.

Where estimates may adjust:

• Upward revisions likely in client devices and healthcare given >20% client device growth and healthcare +20% (ADS), with margin durability reinforced by rising netted‑down mix .
• Q2 modeling implies sequential growth (gross profit mid‑ to high‑single‑digit; EPS mid‑teens) but near flat YoY on EPS, tempering over‑exuberant near‑term revisions .

Key Takeaways for Investors

• Beat-and-raise quality without changing FY targets: Revenue/EPS beats driven by client devices and cloud/services, with margin resilience from netted‑down revenue—supports near‑term sentiment while maintaining prudent FY posture .
• Mix shift manageable: Client devices mix at 33% compressed product margins modestly, but record netted‑down contribution (36.5% of GP) balances profitability—watch continued cloud/SaaS outgrowth .
• Public sector timing risk: Education pull‑forward and federal friction likely sub‑seasonal Q2; model Q2 EPS nearly flat YoY despite sequential uplift .
• Healthcare and UK/International are relative bright spots: Healthcare momentum supported by cloud/security services; UK strength offsets Canada headwinds .
• Capital returns intact: Dividend maintained; buybacks ahead of pace in Q1 within 50–75% adjusted FCF framework—supports EPS and downside protection .
• Medium‑term thesis: As infra hardware normalizes and AI/modernization cycles progress, CDW’s full‑stack services model and cloud expertise (Mission Cloud) should compound GP with rising recurring/netted‑down streams .
• Trading implication: Near‑term beats with cautious Q2 setup; expect focus on tariff trajectory, federal funding clarity, and sustainability of client device cycle into H2 .