CDW Corp (CDW) Q2 2025 Earnings Summary

Executive Summary

• CDW delivered strong top-line growth in Q2 2025: net sales of $5.98B (+10.2% YoY) as client device refresh (Win10 EoL) and infrastructure solutions (NetComm, servers, storage) accelerated; gross profit rose 4.9% to $1.24B, while gross margin compressed 100 bps to 20.8% as mix shifted toward large enterprise hardware deals and lower netted-down revenue contribution .
• Non-GAAP EPS was $2.60 (+3.9% YoY), with GAAP diluted EPS at $2.05 (-1.2% YoY); non-GAAP operating income was $519.7M (+1.8% YoY) and margin 8.7% (-70 bps YoY) .
• Versus S&P Global consensus: revenue beat by ~8% ($5.98B vs $5.51B*), EPS beat by ~$0.11 ($2.60 vs $2.49*), while EBITDA missed modestly ($523.6M* vs $539.6M*). Values retrieved from S&P Global.
• Management maintained full-year outlook (CDW to outperform IT market by 200–300 bps; non-GAAP EPS to grow low single digits), added Q3 modeling (gross profit low single-digit YoY; SG&A/GP consistent with Q2; EPS flat to modestly up); dividend of $0.625 declared as capital return remains on pace .

What Went Well and What Went Wrong

What Went Well

• Commercial strength and solutions inflection: Corporate net sales +17.6% and Small Business +12.6% YoY; infrastructure solutions (NetComm, servers) and client devices showed broad-based growth as customers advanced mission-critical refresh projects .
• Healthcare standout; international execution: Healthcare +24.1% YoY; UK and Canada combined (“Other”) +11.6% YoY with client devices and public sector full-stack wins driving performance .
• Management confidence and strategy: “Our ability to deliver complex infrastructure solutions, coupled with comprehensive client device refresh solutions, drove strong topline growth with consistent cash flow” — CFO Albert J. Miralles . CEO emphasized diversified end-markets and full-stack services as differentiators .

What Went Wrong

• Margin compression: Gross margin fell to 20.8% (-100 bps YoY) due to mix shift (large enterprise hardware, lower netted-down revenue contribution) and lower rates in certain hardware categories (storage, servers, NetComm) .
• Public segment mixed: Education -10.9% YoY on funding transitions and prior Chromebook pull-forward; Federal caution persisted amid evolving priorities; offset by Government +2.7% and Healthcare +24.1% .
• Rising interest burden: Net interest expense rose to $56.8M (+8.6% YoY) on lower interest income and higher fixed rates on senior notes (partially offset by lower term loan rates) .

Financial Results

Values retrieved from S&P Global.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “This quarter's results highlight the combined power of our balanced portfolio of customer end-markets and broad product and solutions suite, supported by the investments we've made in our business combined with our customer centric strategy.”
• CFO: “We continue to optimize cash flow generation through effective management of our working capital, enabling flexibility across our capital priorities - as shown by our commitment to returning cash to shareholders.”
• CEO on outlook: “We are maintaining our 2025 outlook… underpinned by what we are seeing and hearing in the market underpinned by a continued level of prudence.”
• CFO on margin mix: Gross margin down YoY due to larger corporate hardware mix and lower netted-down contribution; non-netted-down margin flat to slightly up QoQ ex netted-down .

Q&A Highlights

• Commercial demand and large deals: Corporate strength driven by enterprise projects; management does not extrapolate outsized large-deal mix through year-end .
• Margin dynamics and netted-down contribution: Netted-down revenues (100% GM) diluted in Q2 vs tough comps; non-netted-down margin up ~10 bps QoQ, caution against over-extrapolation .
• Education and federal: Education seasonality derisked due to Q1 Chromebook pull-forward; federal remains muted given evolving priorities; state/local progressing on critical projects .
• Free cash flow conversion: Adj. FCF of ~$210M in Q2; YTD ~$460M (~73% of non-GAAP NI), expected to land within 80–90% for FY given timing .
• Q3 modeling: GP low single-digit YoY, flat to slightly above Q2; SG&A/GP higher than 2024 but consistent with Q2; EPS flat to modestly up YoY/QoQ .

Estimates Context

• Q2 2025 beat/miss summary: Revenue beat (~8%), EPS beat (~4%), EBITDA miss (~3%*). Values retrieved from S&P Global.
• Implications for estimates: Mix shift toward enterprise hardware and lower netted-down contribution suggests consensus may need to temper margin expectations and raise revenue trajectories near term, while incorporating management’s SG&A/GP ratio guidance and flat-to-modest EPS progression in Q3 .

Key Takeaways for Investors

• Strong revenue momentum with a clear client device and infrastructure refresh cycle, but margin headwinds from mix and lower netted-down contribution require disciplined expectations on gross margin trajectory .
• Healthcare and corporate channels are the near-term growth engines; Education likely softer until funding clarity improves; federal remains mixed — positioning portfolio defensively across end-markets .
• Services flywheel and AI Center of Excellence deepen customer engagements and should support margin quality over time; new services leadership adds execution leverage .
• Capital allocation remains shareholder-friendly (dividend $0.625; buybacks ahead of pace), with net leverage at 2.4x and ample liquidity ($1.69B cash + revolver) .
• Near-term trading: Stock likely to react to revenue/EPS beat vs consensus and management’s prudent Q3 guide; watch for mix-led margin commentary and any updates on public sector funding flows .
• Medium-term thesis: Diversified end-markets, embedded services, and AI-led solutions should sustain outperformance vs IT market by 200–300 bps, with non-GAAP EPS growing low single digits in FY25, pending macro/funding dynamics .