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CDW Q1 Earnings and Revenues Surpass Estimates, Improve Y/Y

Zacks Equity Research

CDW Corporation’s CDW first-quarter 2019 non-GAAP earnings per share rose 18.2% year over year to $1.24 and also beat the Zacks Consensus Estimate of $1.10.

Revenues in the reported quarter totaled $3.96 billion, marking a year-over-year rise of 9.7% and also topping the Zacks Consensus Estimate of $3.77 billion. Moreover, revenues were up 12.4% at constant currency (cc).

The company’s balanced portfolio of customer end-markets and the breadth of its product and solutions pipeline are key drivers. Results also include two months of Scalar, which performed in line with the company’s expectations.

Quarter in Detail

CDW’s net sales of $1.74 billion registered nearly 12.6% growth on a year-over-year basis. This upside was driven by double-digit growth in both transactions and solutions. During the quarter under review, client devices increased more than 20%.

Small Business segment’s net sales of $356 million increased 10.3% year over year. Sales growth was primarily driven by a double-digit rise in transactions and high-single digit growth in solutions. Also, client device augmented approximately 20% in the reported quarter. Plus 50% surge in software-as-a service is a tailwind this quarter under review.

Coming to Public segment, net sales of $1.3 billion climbed 9.9% from the year-earlier quarter. Moreover, revenues from Government, Healthcare customers and Education customers were up 18.6%, 8.4% and 2.4%, respectively. Despite the government shutdown, the government channel delivered a strong performance.

Net sales in Other ascended 12.6% to $536 million. Other segment comprises the outcomes of the company’s Canadian and UK operations.

Moreover, CDW witnessed a solid uptick across hardware, software and services. Hardware grew 10% while software and Services were up 18% and 16%, each.

CDW Corporation Price, Consensus and EPS Surprise

CDW Corporation Price, Consensus and EPS Surprise | CDW Corporation Quote

Margins

CDW’s gross profit of $672 million increased 11.3% on a year-over-year basis. Gross margin expanded 30 basis points (bps) to 17%, driven by a product margin improvement.

Non-GAAP operating income increased 10.7% to $287 million. Non-operating margin expanded 10 bps to 7.3%

Balance Sheet and Cash Flow

CDW exited the reported quarter with cash and cash equivalents of $285 million compared with $205.8 million at the end of the earlier reported quarter.

The company has a long-term debt of $3.26 billion, up from $3.18 billion in the sequential quarter.

It generated $252.4 million of cash flow from operational activities in the quarter under review. Free cash flow was $303 million during the same time frame.

In first-quarter 2019, the company returned $220 million of cash to shareholders including $43 million of dividends and $177 million of share repurchases.

Guidance

CDW anticipates 2019 revenues to grow 300-375 bps (earlier 200-300 bps) more than U.S. IT market's expected growth estimate of 3%. The acquisition of Scalar is envisioned to contribute 100 bps additionally.

For 2019, non-GAAP operating income margin is still projected in the mid 7% range. Non-GAAP earnings per share growth rate at constant currency is predicted in the range of 11-12%, more than the previous expectation of 10%. Currency headwind of 50 bps (earlier 60 bps) is likely to be an overhang on the company’s revenues as well as EPS.

Zacks Rank and Stocks to Consider

Cirrus Logic currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Computer and Technology sector are Cadence Design Systems CDNS, ACI Worldwide, Inc. ACIW and Avid Technology, Inc. AVID, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Cadence, ACI Worldwide and Avid is projected at 12%, 12% and 10%, respectively.

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