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CDW Q2 Earnings and Revenues Beat Estimates, Increase Y/Y

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CDW Corporation’s (CDW - Free Report) second-quarter 2019 non-GAAP earnings per share rose 15.7% year over year to $1.6 and also beat the Zacks Consensus Estimate of $1.5.

Revenues in the reported quarter totaled $4.63 billion, marking a year-over-year rise of 10.6% and also topping the Zacks Consensus Estimate of $4.49 billion. Moreover, revenues were up 11.2% in constant currency (cc).

The company’s balanced portfolio of customer end-markets and its strongly broad product and solutions pipeline are key drivers.

Quarter in Detail

Net sales of CDW’s Corporate segment amounting to $1.88 billion registered nearly 8.7% growth on a year-over-year basis, driven by ongoing demand for client devices.

Small Business segment’s net sales of $377.4 million increased 14.5% year over year.

Coming to Public segment, net sales of $1.84 billion climbed 12.5% from the year-earlier quarter. Moreover, revenues from Government, Healthcare customers and Education customers were up 17.2%, 13.6% and 8.7%, respectively.

Net sales in Other (Canadian and UK operations) ascended 8.4% to $528.5 million. Growth in Canada was aided by organic and the Scalar buyout. Increase in software and services boosted UK operations but slowdown in local currency growth was a dampener, which resulted in a flat quarter for the UK.

Moreover, CDW witnessed a solid uptick across hardware, software and services. While hardware grew 11%, double-digit growth in client devices and NetComm favored Hardware revenues. However, mid-single digit declines in both enterprise storage and servers dented datacenter hardware performance.  Software and Services were up 5% and 26%, respectively.

Margins

CDW’s gross profit of $774 million increased 11.2% on a year-over-year basis. Also, gross margin expanded 10 basis points (bps) to 16.7%. Higher “mix of netted down revenues that are booked net of costs of goods sold, such as warranties and Software-as-a-Service” was a positive. However, the spurt in net sales growth outpacing the rise in partner funding was a woe.

Non-GAAP operating income increased 10.7% to $358.4 million. While non-GAAP operating margin was flat at 7.7%.

CDW Corporation Price, Consensus and EPS Surprise

CDW Corporation Price, Consensus and EPS Surprise

CDW Corporation price-consensus-eps-surprise-chart | CDW Corporation Quote

Balance Sheet and Cash Flow

CDW exited the reported quarter with cash and cash equivalents of $194.5 million compared with $285 million at the end of the sequential quarter.

The company has a long-term debt of $3.25 billion compared with $3.26 billion in the sequential quarter.

It generated $414.5 million of cash flow from operational activities in the first six months of 2019. While free cash flow was $407 million.

In second-quarter 2019, the company returned $198 million of cash to shareholders including $43 million of dividends and $155 million of share repurchases.

Guidance

CDW anticipates 2019 revenues to grow 400-475 bps (earlier 300-375 bps) more than the U.S. IT market's growth estimate of 3%. The acquisition of Scalar is envisioned to contribute 100 bps additionally.

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

Zacks Rank and Stocks to Consider

CDW currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Computer and Technology sector are LogMeIn , Alteryx and Rosetta Stone , each flaunting 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 LogMeIn, Alteryx and Rosetta Stone is currently estimated at 5%, 13.7% and 12.5%, respectively.

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