Q4 2024 Earnings Summary
- CDW's small business and corporate segments showed signs of stabilization in Q4 after two years of weakness, indicating a potential positive shift in end market demand. This reflects less unevenness and more stability in business activities.
- Healthcare was a standout performer, delivering exceptional performance driven by strategic investments in this space, showcasing the success of CDW's focus on high-growth, high-relevance areas like healthcare, cloud, and security.
- CDW's strategic investments in cloud services and acquisitions like Mission Cloud Services enhance their differentiation and provide a competitive moat. Being named AWS Marketplace Partner of the Year underscores their expertise in helping customers navigate the complexities of hybrid cloud environments, positioning them well for future growth.
- For the first time in over a decade, 2024 was the first year that CDW's earnings growth did not outpace revenue growth, and they are guiding for EPS growth largely in line with gross profit and revenue growth in 2025. This indicates reduced operating leverage and could be a concern for profitability.
- There is evidence of gross margin compression, particularly in the product side of the business. "We saw a bit of compression, particularly in the product side of the house... the most notable area where we saw a little bit of compression was clients". This margin pressure could continue going forward.
- CDW is experiencing increased competition and pricing pressure in a tough down cycle of hardware. "We've been in a tough down cycle of hardware. And with that competition, quite fierce. That's continued.". This ongoing fierce competition may impact margins and growth prospects.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +3.3% (from $5,018.5M to $5,186M) | Total Revenue increased modestly by 3.3% as improvements in geographic segments (with U.S. revenue rising from $4,417.3M to $4,564.1M and Rest of World from $601.2M to $621.9M) helped drive recovery. This rebound follows previous quarters where economic uncertainty held back spending, indicating a more positive customer and market sentiment in Q4 2024. |
Operating Income | –6.1% (from $435M to $408.6M) | Operating Income declined by about 6.1% despite higher revenues, primarily because of mounting cost pressures that eroded margins. In contrast to earlier periods where a stable cost base and favorable revenue mix helped drive a margin improvement, Q4 2024 saw a significant rise in expenses—especially SG&A—that offset revenue gains. |
Net Income | –10.8% (from $296.1M to $264.2M) | Net Income dropped by roughly 10.8% due to the combined impact of lower operating income and increased expenses. Compared with previous periods where margin improvements, lower interest expense, and controlled SG&A helped boost net income, the elevated cost levels in Q4 2024 significantly pressured profitability. |
SG&A Expense | +135% (from $718.8M to $1,421.7M) | SG&A Expense surged dramatically by 135% in Q4 2024, a stark departure from earlier quarters where SG&A was managed more tightly (with reductions noted in Q3 2024). This increase is likely driven by higher performance-based and equity-based compensation costs, additional cost management actions, or one-off restructuring and investment charges in response to evolving market conditions. |
EPS – Basic | –9.5% (from $2.20 to $1.99) | Basic EPS declined by about 9.5% in line with the net income drop. The stable share count did little to offset the reduction in profitability, contrasting with previous periods where a decline in weighted-average common shares helped boost EPS. |
Geographic Revenue – United States | +3.3% (from $4,417.3M to $4,564.1M) | U.S. revenue grew by 3.3%, indicating an improvement in the domestic market where customer demand partially rebounded despite ongoing economic uncertainty. This modest upswing contrasts with previous challenges in a cautious market environment. |
Geographic Revenue – Rest of World | +3.3% (from $601.2M to $621.9M) | Rest of World revenue increased slightly, signaling a gradual recovery in international markets compared to earlier periods of decline driven by economic uncertainty. The improvement, although modest, shows that non-U.S. operations are beginning to gain traction. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Gross Profit | Q4 2024 | Anticipated to decline in the low to mid-single digits yoy | No current guidance | no new guidance |
Gross Margin | Q4 2024 | Slightly above first three quarters of 2024 but below Q4 2023 levels | No current guidance | no new guidance |
Operating Expenses | Q4 2024 | Similar to Q4 2023 on a dollar basis | No current guidance | no new guidance |
Non-GAAP EPS | Q4 2024 | Expected to decline in the high single-digit range yoy | No current guidance | no new guidance |
Gross Profit | FY 2024 | Expected to decline in the low single digits yoy | No current guidance | no new guidance |
Gross Margin | FY 2024 | Expected to be similar to full-year 2023 levels | No current guidance | no new guidance |
Non-GAAP EPS | FY 2024 | Expected to decline in the mid-single digits yoy | No current guidance | no new guidance |
Operating Expenses | Q1 2025 | No prior guidance | Expected to be similar to Q1 and Q4 2024 on a dollar basis | no prior guidance |
Non-GAAP EPS | Q1 2025 | No prior guidance | Expected to grow in the low single-digit range yoy | no prior guidance |
Gross Profit | Q1 2025 | No prior guidance | Mid single-digit sequential decline, leading to low single-digit yoy growth | no prior guidance |
Gross Margin | FY 2025 | No prior guidance | Expected to remain relatively stable and within the range of 2024 levels | no prior guidance |
Gross Profit | FY 2025 | No prior guidance | Expected to grow in the low single-digit range yoy | no prior guidance |
Non-GAAP EPS | FY 2025 | No prior guidance | Expected to grow in the low single-digit range yoy | no prior guidance |
IT Market Growth | FY 2025 | No prior guidance | Low single digits; CDW targets 200–300 bps outperformance | no prior guidance |
Currency Impact | FY 2025 | No prior guidance | Expected to be a slight headwind | no prior guidance |
Cash Conversion Cycle | FY 2025 | No prior guidance | High teens to low 20s | no prior guidance |
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Earnings Growth vs. Revenue Growth
Q: Why isn't earnings growth outpacing revenue growth?
A: Management explained that the company's earnings growth did not outpace revenue growth in 2024 due to investments in capabilities during a low-growth environment, which led to deleveraging. They emphasized balancing growth investments with operational efficiency, noting that operating leverage is expected to return as growth resumes. -
Gross Profit Growth Outlook
Q: What's causing muted gross profit dollar growth?
A: Management noted that the low single-digit gross profit dollar growth is due to slight shifts in mix, with a little compression in net sales as they continue to lean into netted down revenue, which bolsters gross profit. The variance between customer spend, gross profit, and EPS growth rates is not significant. -
Healthcare Vertical Performance
Q: What drove strong Healthcare growth this quarter?
A: Healthcare was a standout, growing close to 30% year-over-year, driven by balanced success across offerings and investments in capabilities. The company has seen consistent performance in Healthcare over several quarters, reflecting their strategy and value to customers. -
Mission Cloud Acquisition Impact
Q: How does the Mission Cloud acquisition affect financials?
A: Management is excited about Mission Cloud, a profitable, fast-growing business with AWS expertise. While it won't significantly impact the bottom line in 2025 due to foregone interest, it's expected to have a significant strategic impact and contribute to growth rates going forward. -
SMB Segment Growth
Q: Can SMB now grow year-over-year?
A: Management observed signs of stabilization in the SMB segment, which grew about 3% year-over-year after two years of weakness. While customers remain cautious, they are cautiously optimistic but wouldn't call it a rebound yet. -
Competition and Pricing Pressure
Q: Is increased competition and pricing pressure ongoing?
A: The company continues to face fierce competition, especially in hardware during the down cycle. However, management noted that competition is not having a meaningful impact on margins. -
M&A Appetite
Q: Is your appetite for M&A higher today?
A: Management always has a strong appetite for M&A and is opportunistic. They are focusing on adding capabilities and fortifying existing ones, with focal areas remaining consistent. They are patient and look for great assets.