Why Is CDW (CDW) Down 11.7% Since Last Earnings Report?

Core Viewpoint - CDW's recent earnings report shows a mixed performance, with a notable earnings beat but a decline in share price, raising questions about future performance leading up to the next earnings release [1]. Financial Performance - CDW reported Q4 2025 non-GAAP EPS of $2.57, exceeding the Zacks Consensus Estimate of $2.44, marking a 3.8% year-over-year increase [2]. - Net sales for Q4 reached $5.51 billion, reflecting a 6.3% year-over-year increase, driven by strong customer spending in software, notebooks, mobile devices, and services [3]. - For the full year 2025, net sales rose 6.8% year over year to $22.4 billion, with approximately $982 million returned to shareholders through dividends and share repurchases [4]. Segment Performance - The Corporate segment's net sales were $2.37 billion, down 0.6% year-over-year, indicating caution among large enterprise customers [6]. - The Small Business segment saw net sales of $457 million, an 18.4% increase year-over-year, suggesting improved investment activity among SMB customers [6]. - The Public segment's revenues totaled $2.02 billion, up 7% year-over-year, with the Education sector leading growth at 12.9% [7]. Margin Analysis - Gross profit increased 8.6% year-over-year to $1.25 billion, with gross margin expanding to 22.8% from 22.3% [8]. - Selling and administrative expenses rose 10.3% to $824 million, leading to a slower growth rate in operating income, which increased 0.6% year-over-year to $502 million [9]. Balance Sheet and Cash Flow - As of December 31, 2025, CDW had $618.7 million in cash and cash equivalents, up from $452.9 million as of September 30, 2025 [11]. - The company generated $1.2 billion in cash flow from operating activities for the year, with free cash flow at $1.1 billion [11]. Future Outlook - CDW reaffirmed its long-term growth ambition, targeting 200–300 basis points of growth above the U.S. IT addressable market in 2026, driven by demand across hardware, software, services, and AI-related guidance [5]. - Estimates for CDW have been trending upward since the earnings release, with a Zacks Rank of 3 (Hold), indicating expectations for an in-line return in the coming months [12][14]. Industry Comparison - CDW operates within the Zacks Computers - IT Services industry, where ServiceNow has recently reported a 20.7% year-over-year revenue increase, highlighting competitive dynamics in the sector [15].