CDW Q1 Earnings Call: Client Device Demand and Services Growth Shape Results Amid Tariff Uncertainty
IT solutions provider CDW (NASDAQGS:CDW) announced better-than-expected revenue in Q1 CY2025, with sales up 6.7% year on year to $5.2 billion. Its non-GAAP profit of $2.15 per share was 9.5% above analysts' consensus estimates.
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Revenue: $5.2 billion vs analyst estimates of $4.94 billion (6.7% year-on-year growth, 5.3% beat)
Adjusted EPS: $2.15 vs analyst estimates of $1.96 (9.5% beat)
Operating Margin: 7%, in line with the same quarter last year
Market Capitalization: $23.54 billion
CDW's first quarter results were shaped by a notable surge in client device sales and continued strength across its services and software segments. CEO Christine Leahy emphasized that customers remained focused on mission-critical projects, with particular attention to operating efficiency and expense management. The company saw broad-based growth across all customer end-markets, including commercial, healthcare, education, and international operations. Healthcare emerged as a standout, benefiting from CDW's investments in industry expertise and transformation centers. While hardware—especially client devices—drove much of the quarter's top-line growth, Leahy highlighted a balanced performance across hardware, software, and services, underpinned by the company's full-stack solutions approach.
Looking ahead, CDW management maintains a cautious outlook for the remainder of 2025, citing ongoing economic uncertainty and the potential impact of tariff-related price increases. Leahy stated, 'We are maintaining our 2025 outlook, which calls for US IT market growth to be in the low-single-digits on a customer spend basis with a CDW growth premium of 200 to 300 basis points.' While the company anticipates continued healthy commercial demand, it expects some moderation as customers may have pulled forward purchases to get ahead of tariffs. CFO Albert Miralles noted that government and education channels could face friction as they adjust to new policy priorities and efficiency initiatives. CDW's guidance incorporates these factors, along with a measured approach to hiring and expense management, as the company balances growth opportunities with a prudent view of the macro environment.
CDW's management attributed first quarter momentum to client device refresh cycles, ongoing investments in cloud and security, and a flexible approach to pricing amid tariff uncertainty.
Client device refresh demand: Management pointed to a significant uptick in client device sales, attributed to the need for hardware refreshes, the upcoming Windows 10 expiration, and efforts by customers to purchase ahead of possible tariff-driven price increases. This trend was especially strong in the education and commercial segments, with education customers pulling forward spending to mitigate anticipated cost increases.
Services and software growth: CDW reported high-single-digit or better growth across hardware, software, and services. Services revenue, which includes managed and professional offerings, rose by 14%, reflecting customer demand for help with cost optimization and mission-critical IT projects. Management highlighted that investments in areas like cloud adoption and cybersecurity were paying off across verticals.
Healthcare market outperformance: The healthcare channel delivered 20% sales growth, benefiting from CDW's targeted investments in industry expertise and go-to-market strategies. Management cited accelerated cloud adoption, increased security needs, and improved engagement with transformation centers as key drivers.
Tariff and pricing dynamics: The prospect of new tariffs led to some customers expediting purchases, contributing approximately two percentage points to quarterly sales growth. Management reported an orderly pricing environment, with confidence in the company's ability to pass on cost increases to customers due to its "cost plus" pricing model, though they acknowledged that higher prices could lead to customers buying fewer units.
Balanced hiring and expense discipline: While maintaining investments in strategic hires for technology and sales roles, the company is exercising prudence in overall hiring and expenses. CFO Albert Miralles noted that operating leverage in Q1 was partly due to the pull forward in demand, and future quarters are expected to see more modest leverage as growth normalizes.
CDW's outlook for 2025 is shaped by customer spending patterns, channel-specific headwinds, and the potential impact of tariffs on purchasing behavior.
Tariff-related demand shifts: Management expects that the pull forward of device purchases in response to tariff uncertainty will temper growth in subsequent quarters, particularly in education and commercial channels. CFO Albert Miralles noted that this dynamic is incorporated into the seasonal outlook, and the company does not expect a repeat of Q1's elevated demand in these segments for the rest of the year.
Channel-specific challenges: The company anticipates friction in the government and education segments due to evolving policy priorities and budget uncertainties. Management's outlook assumes that these headwinds will persist for several quarters, potentially muting overall growth even as other channels remain healthy.
Expense and margin management: CDW plans to maintain stable gross margins and exercise disciplined expense management. While operating leverage was strong in Q1, management expects it to moderate as sales growth slows. They also plan to continue investing in strategic hires and technology, while closely monitoring wage inflation and macroeconomic risks.
In upcoming quarters, the StockStory team will be closely monitoring (1) the extent to which commercial and education demand normalizes following Q1's pull forward, (2) the impact of tariffs on purchasing behavior and margin stability, and (3) the pace of recovery in government and international segments facing policy and economic headwinds. Execution on strategic investments in services and cloud will also be key to sustaining growth.
CDW currently trades at a forward P/E ratio of 18.3×. Should you double down or take your chips? Find out in our full research report (it's free).
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