CDW recently reported its fourth-quarter and full-year 2024 financial results, providing insights into its performance, market trends, and strategic initiatives. Below are the key takeaways from their latest earnings call.
Financial Performance
CDW delivered solid financial results despite market uncertainties. The company’s Q4 2024 net sales reached $5.2 billion, a 5% increase on an average daily sales basis compared to the previous year. While gross profit remained flat as reported, it increased 2% on an adjusted basis.
However, non-GAAP operating income declined 4% year-over-year to nearly $500 million, and non-GAAP net income per share was $2.48, also down 4%. Full-year net sales declined by 3%, with gross profit down 1% compared to 2023.
Despite these declines, CDW generated over $1 billion in adjusted free cash flow and returned $832 million to shareholders through dividends and share repurchases. The board of directors approved a $750 million increase in share repurchase authorization, reinforcing CDW’s commitment to shareholder value.
Market Dynamics
CDW identified several customer and market trends influencing business performance:
- Customers prioritized operating efficiency, cost elasticity, and as-a-service solutions.
- Hardware demand increased, especially in projects offering clear short-term returns.
- Commercial markets showed stability, with both corporate and small business revenue growing 4%.
- Healthcare sector surged by 30%, while education declined by 2%, and government spending faced pauses due to uncertainty.
- CDW projects the U.S. IT market to grow in the low single digits in 2025, with the company expecting to outpace industry growth by 200 to 300 basis points.
- The UK and Canadian markets are expected to face economic and political headwinds.
Product and Service Performance
- Hardware sales grew by 4%, with client devices, networking, and storage driving demand.
- Software net sales increased 5%, driven by SaaS and IaaS adoption.
- Cloud services were a key growth driver, with cloud profit increasing by mid-teens.
- Services revenue rose by 10%, with CDW Managed Services exceeding 20% growth.
- Security remained a crucial contributor to software and cloud success.
Strategic Initiatives and Capital Allocation
CDW continues to enhance its service offerings and industry expertise, particularly in healthcare and cloud solutions:
- Acquisition of Mission Cloud Services strengthens CDW’s AWS capabilities.
- CDW is expanding its multi-branded, full-stack solutions to meet evolving customer needs.
- Investment focus remains on high-growth areas such as cloud, SaaS, and security.
- The company maintains a disciplined capital allocation strategy, prioritizing dividend growth, capital structure management, and strategic acquisitions.
2025 Outlook and Industry Trends
- Low single-digit gross profit growth expected in 2025, with stable margins.
- Non-GAAP earnings per diluted share projected to grow in the low single digits.
- Seasonal trends indicate weaker first-half gross profit, with improvements in the latter half.
- The shift towards “netted down” revenues will continue, particularly in cloud and SaaS.
- Customers remain cautious about large projects, prioritizing short-term ROI.
- CDW is navigating evolving partner programs and incentives, particularly with Microsoft.
Sector-Specific Insights
- Commercial Markets: Stabilized in Q4, with corporate and small business sales growing 4%. While caution remains, customers demonstrated increased willingness to spend remaining budgets.
- Public Sector:
- Healthcare grew by 30%, while education declined 2% due to the end of federal stimulus programs.
- Government spending was constrained due to budget uncertainties.
- CDW expects public sector caution to persist into 2025.
- International Markets: The UK and Canada face volatility due to economic and political challenges.
The Bottom Line
CDW remains focused on expanding its capabilities in high-growth areas like cloud, software, and security, while maintaining financial discipline. The company anticipates low single-digit market growth in 2025, with CDW positioned to outperform. As customers prioritize efficiency and ROI, CDW’s broad portfolio and advisory expertise will be key differentiators.
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