CDW Earnings Call Highlights Record EPS Amid Caution

CDW Corporation ((CDW)) has held its Q4 earnings call. Read on for the main highlights of the call.

CDW Corporation’s latest earnings call painted a picture of robust execution and disciplined financial management, even as management struck a cautious tone on the macro backdrop. Record full‑year EPS, strong cash generation, and accelerating growth in higher‑margin software, cloud, and services showcased a durable model, but rising SG&A, federal spending disruptions, and memory‑driven volatility kept expectations tempered for 2026.

Steady Q4 Revenue and Earnings Expansion

CDW closed Q4 with net sales of about $5.5 billion, roughly 5% higher than a year ago, underscoring resilient demand across its customer base. Non‑GAAP EPS climbed to $2.57, up nearly 4% year over year, as gross profit grew faster than sales while operating income was essentially flat, reflecting rising expense pressures.

Record Full‑Year Results and EPS Milestone

For 2025, the company delivered more than $22 billion in net sales, an increase of around 7% versus the prior year, while gross profit approached $5 billion, up roughly 6%. Non‑GAAP operating income nearly reached $2 billion and non‑GAAP EPS hit a record $10.02, advancing about 5% and highlighting the scalability of CDW’s solutions‑led strategy.

Robust Cash Generation and Shareholder Returns

Adjusted free cash flow for 2025 came in at roughly $1.09 billion, converting about 82% of non‑GAAP net income into cash and demonstrating strong underlying quality of earnings. Management returned nearly $1 billion, or close to 90% of that cash, to shareholders through $153 million of Q4 buybacks and $82 million of dividends.

High‑Margin Software, Cloud, and Services Drive Growth

Higher‑margin offerings were a standout, with software, cloud, and professional and managed services all posting double‑digit growth. Cloud alone delivered roughly half of the quarter’s gross profit increase, while software revenue rose 12% and its gross profit expanded even faster, enhancing CDW’s earnings mix.

Outperformance Across Small Business and Public Sectors

End‑market performance was uneven but skewed positive, led by an 18% top‑line jump in small business and around 13% growth in education. Government revenue rose about 4% as strength in state and local, including major K‑12 wins like the New York City Chromebook rollout, more than offset weakness in federal spending.

Improving Gross Margins and Favorable Mix

Fourth‑quarter gross margin improved to 22.8%, up 50 basis points versus last year and 90 basis points sequentially, reflecting mix shift and better pricing. Management pointed to a higher share of netted revenue as well as improved product margins as key drivers, signaling that the pivot toward solutions is increasingly visible in profitability.

Solid Balance Sheet and Ample Liquidity

Net debt ended the period at roughly $5.0 billion, about $165 million lower than in the prior quarter, leaving net leverage at approximately 2.4 times within the 2–3 times target range. Liquidity remains strong with roughly $2.5 billion of cash and revolver capacity and a three‑month average cash conversion cycle of just 16 days.

Capital Allocation Discipline and Dividend Growth

The company marked its 12th straight year of dividend growth, lifting the annual payout to $2.52 per share, a modest 1% increase that preserves flexibility. CDW reiterated its intent to return 50–75% of adjusted free cash flow to investors over time through dividends and opportunistic buybacks while maintaining capacity for M&A.

AI and Advanced Solutions Gain Traction

Management highlighted growing artificial intelligence momentum across its customer base, supported by end‑to‑end offerings in strategy, data modernization, and GenAI integration. Case studies included a large enterprise accelerated compute deployment with an estimated 90‑day payback and a small‑business AI virtual agent, underscoring tangible ROI‑driven demand.

Operational Wins and Targeted Acquisitions

CDW continued to broaden its lifecycle and service capabilities, including the acquisition of select assets of Lexicon Tech Solutions to strengthen its education offering. International operations in the U.K. and Canada delivered high single‑digit growth, reaching a combined $2.7 billion of 2025 sales and adding geographic diversification.

Rising SG&A and Expense Volatility Weigh on Margins

Non‑GAAP SG&A climbed 14.6% year over year in Q4 to about $752 million, driven largely by higher commissions and performance‑based compensation. Management noted that expense timing created a tough comparison versus 2024 and contributed to compressed operating margins, making 2025 a new baseline for future SG&A leverage.

Operating Margin Pressure Despite Strong Mix

While gross margins improved, Q4 non‑GAAP operating income margin slipped around 50 basis points year on year to roughly 9.1%. The decline was attributed mainly to elevated SG&A and variable pay, underscoring that mix improvements alone were not enough to offset higher operating costs in the period.

Federal Headwinds Drag on Government Segment

The federal business was a notable soft spot as an extended government shutdown weighed on demand and delayed projects. Management expects a slow rebuild of federal spending in Q1, indicating that government growth will continue to rely more on state and local strength in the near term.

Memory Pricing Volatility and Demand Pull‑Forward

CDW flagged memory‑related price increases and supply constraints that triggered an estimated $50 million of net sales pull‑forward into Q4, with a similar pattern anticipated in Q1. Executives warned that ongoing memory volatility could introduce choppiness and reduce visibility, particularly for the second half of the year.

Mixed Hardware Trends and Storage Weakness

Hardware demand was uneven: servers and notebooks enjoyed double‑digit growth, but storage solutions declined, reflecting shifting enterprise priorities. Corporate channel revenue was roughly flat, down around 1%, as softer hardware spending and a more moderate Windows 11 refresh cycle limited upside.

Expected Near‑Term Sequential Soft Patch

Management guided to mid‑single‑digit sequential gross profit declines in Q1, even as year‑over‑year gross profit is expected to grow at a mid‑single‑digit rate. The first quarter is set to feature the lowest operating margin of the year on lighter federal demand, though EPS is still projected to rise mid‑single digits versus last year.

Workforce Stability and Limited Short‑Term Cost Leverage

The company ended Q4 with about 14,800 coworkers, including roughly 10,500 in customer‑facing roles, both slightly lower than last year and last quarter. Management framed 2025 as a baseline year for SG&A, suggesting headcount and cost structures are largely in place and that incremental margin leverage may be modest near term.

Uncertain Visibility into the Back Half of 2026

Executives repeatedly emphasized limited visibility for the second half of 2026, citing geopolitical risks, tariffs, memory pricing swings, and public sector spending uncertainty. While the underlying demand environment remains constructive, these factors could temper the pace of gross profit recovery and introduce more volatility into results.

Cautious but Constructive Outlook for 2026

CDW expects the U.S. IT market to grow in the low single digits in 2026 and is targeting 200–300 basis points of outperformance versus the market. Management guided to low‑single‑digit gross profit growth with slightly stronger performance in the second half, a modest step‑up in gross margin from the 21.7% achieved in 2025, and mid‑single‑digit non‑GAAP EPS growth.

CDW’s earnings call showcased a business that is steadily shifting toward higher‑margin solutions, throwing off cash, and rewarding shareholders, even as near‑term volatility clouds the outlook. Investors will be watching how the company balances expense discipline with growth investments, navigates federal and memory headwinds, and capitalizes on rising AI adoption to sustain its track record of market outperformance.