IT solutions provider CDW (NASDAQGS:CDW) met Wall Streets revenue expectations in Q3 CY2025, with sales up 4% year on year to $5.74 billion. Its non-GAAP profit of $2.71 per share was 3.4% above analysts’ consensus estimates.

Is now the time to buy CDW? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

CDW’s third quarter results met Wall Street’s revenue expectations but drew a significant negative market reaction, with shares selling off after the report. Management attributed the quarter’s performance to solid execution across its diversified end markets, particularly highlighting strong growth in small business and international operations. CEO Christine Leahy noted that customer spending was concentrated on essential needs such as security and device upgrades, while discretionary projects continued to be scrutinized. The company’s services segment saw robust demand, but overall margin compression reflected higher performance-based expenses and a continued shift in revenue mix.

Looking ahead, CDW’s outlook is shaped by persistent uncertainty in government, education, and health care funding, as well as broader macroeconomic volatility. Management maintained a cautious stance, citing ongoing risks from the federal government shutdown, shifting customer priorities, and the unpredictable nature of IT budgets. CFO Albert Miralles emphasized, “Our remaining 2025 outlook assumes continued frictional impacts in the Government and Education segments, potential funding shortfalls for health care customers and a level of general economic uncertainty and caution.” The company expects to focus on services expansion and operational efficiency as it navigates these headwinds.

Key Insights from Management’s Remarks

Management cited strong execution in services and small business, alongside continued volatility in government and education spending, as major themes for the quarter.

• Small business resilience: The small business segment delivered double-digit growth, with customers increasingly adopting cloud and AI-enabled devices to stay competitive. Management observed that these clients are leaning more heavily into technology, though they cautioned against using this trend as a direct indicator for other segments.

• Services expansion: CDW’s professional and managed services grew at a double-digit pace, now comprising 9% of total company sales compared to 5% several years ago. This reflects growing demand for support in areas such as AI deployment, security, and cloud, with management signaling continued investment in this area.

• Government and education headwinds: Federal government sales were impacted by the shutdown, while education net sales declined due to the wind-down of pandemic-era funding. However, state and local government spending was a relative bright spot, partially offsetting federal softness.

• International strength: Both the UK and Canadian operations posted above-average growth and margin expansion, benefiting from diverse customer bases and effective local execution despite unsettled markets.

• Product mix and margin dynamics: Hardware sales saw muted growth outside of client devices and networking, while software and cloud remained strong drivers of profitability. Gross margin benefited from a higher mix of services and netted-down revenues, but operating margin declined compared to last year due to higher performance-based compensation and expenses.

Drivers of Future Performance

Management expects continued services growth and operational efficiency efforts to offset ongoing uncertainty in IT spending, particularly in public sector and health care segments.

• Services-led growth focus: The company is prioritizing expansion in professional and managed services, with management highlighting this segment as a source of both top-line growth and margin stability. Success here depends on continued demand for AI, security, and cloud support.

• Macro and funding headwinds: CDW’s guidance factors in ongoing friction from government shutdowns and potential funding shortfalls in education and health care, which could delay or reduce technology purchases. Management also cited ongoing risks from inflation, global unrest, and tariff changes, all of which may further cloud customer IT spending patterns.

• Margin improvement initiatives: Efforts to improve operating leverage remain a focus, with the company planning to align expense growth with gross profit and seek efficiency gains in SG&A. However, achieving meaningful margin expansion is contingent on more predictable end-market growth and the normalization of variable compensation expenses.

Catalysts in Upcoming Quarters

In the upcoming quarters, our analysts will closely monitor (1) the trajectory of federal and education IT spending as government funding and shutdown dynamics evolve, (2) the sustainability of growth in services and managed solutions, and (3) progress on margin stabilization efforts, particularly in relation to variable compensation and SG&A efficiency. Developments in AI and cloud adoption across customer segments may also play a critical role in shaping results.

CDW currently trades at $141.75, down from $154.81 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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