CDW Corp (CDW) (Q1 2024) Earnings Call Transcript Highlights: Navigating Challenges with ...

GuruFocus Research

2 May 2024 at 3:08 am·4-min read

Gross Profit: $1.1 billion, down 2% year-over-year.
Non-GAAP Operating Income: $404 million, decreased by 7%.
Non-GAAP Net Income Per Share: $1.92, a decrease of 6%.
Net Sales: $4.9 billion, a decline of 4.5% from the previous year.
Gross Margin: Increased by approximately 50 basis points year-over-year to 21.8%.
Adjusted Free Cash Flow: $364 million, representing 104% of non-GAAP net income.
Net Debt: Reduced to $4.8 billion, down by about $230 million from the previous quarter.
Dividends and Share Repurchases: Returned approximately $83 million through dividends and $52 million in share repurchases.

Warning! GuruFocus has detected 5 Warning Sign with CDW.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

CDW Corp (NASDAQ:CDW) maintained a strong engagement level with customers, helping them implement mission-critical projects and develop multiyear plans.
Despite a challenging market, CDW Corp (NASDAQ:CDW) achieved a record first quarter gross margin and excellent cash flow, highlighting the durability of its profitability and strategic integrity.
CDW Corp (NASDAQ:CDW) is actively investing in capabilities to deliver full stack solutions and services, ensuring they meet customer needs for cost optimization, data protection, and workforce productivity.
The company's unique customer end markets often act in a countercyclical way, providing stability amidst varying macroeconomic conditions.
CDW Corp (NASDAQ:CDW) is well-positioned to support customers in AI adoption, offering consulting services and leveraging deep vertical expertise to tailor solutions.

Negative Points

CDW Corp (NASDAQ:CDW)'s first quarter results fell below expectations with a 2% decrease in gross profit and a 7% decline in non-GAAP operating income.
Heightened macro uncertainty and complex tech landscape changes have led to cautious customer behavior, impacting capital investment decisions and elongating sales cycles.
The federal budget stalemate resulted in a pause in CDW Corp (NASDAQ:CDW)'s federal channel, affecting sales and gross profit negatively.
Several hardware categories, including servers and NetComm, are undergoing transitions and absorbing capacity, which has led to declines.
Education segment sales declined by 10%, with higher education institutions focusing on cost optimization and hardware categories experiencing declines.

Q & A Highlights

Q: What are the main factors that impacted CDW's results in complex solutions for Q1? A: Christine A. Leahy, CEO, explained that the primary factor was economic and financial uncertainty, particularly related to interest rates and inflation, which affected the corporate and small business teams. This created an overhang, leading to uneven market conditions similar to 2023. Additionally, AI considerations added complexity to customer deliberations, impacting decision-making in the solutions space.

Q: How is CDW positioned to capitalize on AI spending, and what are the areas of opportunity? A: Christine A. Leahy, CEO, stated that CDW is in the early stages of AI adoption with most customers assessing and experimenting. CDW is well-positioned with a full stack and broad portfolio to help customers at every entry point. The company focuses on workforce productivity, high-value use cases, broad-scale vertical solutions, and full-stack infrastructure. They are also expanding engineering and services capabilities and partnering with AI startups.

Q: Can you discuss the expectations for gross profit dollar growth in Q2 and the factors underpinning this growth? A: Albert Joseph Miralles, CFO, mentioned that the pipeline and customer spend outlook, particularly in solutions, support the expectation for low single-digit gross profit growth in Q2. Historical seasonality suggests mid-teens level growth, but the outlook is slightly more conservative due to a slower start in Q1.

Q: What trends are you observing in government sectors, particularly federal, and how do you expect seasonality to affect these markets? A: Christine A. Leahy, CEO, noted that the federal budget delay pushed out spending by 6-8 weeks, creating a pause. However, activity has resumed strongly post-budget approval. The expectation is for federal spending to be more back-end loaded, aligning with typical seasonal patterns.

Q: How is client device demand evolving, particularly concerning AI-enabled PCs? A: Christine A. Leahy, CEO, indicated that it is still early for AI PCs, with current sales primarily driven by the need to refresh aging machines and migrate to Windows 11. The focus is on low-friction purchases with stable demand, and while there is interest in AI PCs, significant sales are not yet occurring.

Q: What are the expectations for gross margin progression through 2024, and how might changes in solutions and client device sales impact this? A: Albert Joseph Miralles, CFO, reiterated that the gross margin for 2024 is expected to be similar to 2023, despite potential quarterly variability driven by product mix. The mix shift towards client devices in Q1 supported volume growth, helping maintain gross profit despite lower solutions sales.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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Positive Points

Negative Points

Q & A Highlights

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