CDW Delivers Modest Growth As Macroeconomic Storm Clouds Linger

Solution sales among CDW's corporate customers remained flat in the first quarter because of macroeconomic worries, but the company said it is leveraging new vendor relationships to shake off the doldrums.

The Lincolnshire, Ill.-based company, No. 6 on the CRN 2015 Solution Provider 500, saw organic daily sales in the quarter ended March 31 grow 3.5 percent, to $3.12 billion, after factoring out changes in foreign currency exchange rates. That edged out Seeking Alpha estimates of $3.1 billion.

Non-GAAP net income climbed 15.5 percent, to $112.7 million, or 67 cents per share, beating Seeking Alpha estimates of 65 cents per share.

[Related: CDW Opens New Frontiers With Services Sales, Foreign Expansion]

"I think there's still a dose of caution out there in the marketplace," CDW Chairman and CEO Tom Richards said on the company's earnings call Wednesday. "That caution is driven by the reality of the fragile economy we're dealing with."

Wall Street responded favorably to the numbers, as CDW's stock price climbed 6.3 percent Wednesday, to $40.77 per share. The quarterly results were announced before the market opened.

Richards said CDW wasn't very exposed to the panic driven by the financial markets in January and February, but was still impacted by weak macroeconomic indicators such as first-quarter GDP growth coming in at 0.5 percent, rather than the projected 1.3 percent.

Richards said he suspects this slowdown contributed to CDW's corporate customers -- particularly those at medium-size and large companies -- conducting more transactional business rather than pursuing complete solutions. The dynamic was reversed in CDW's government space -- which is more resistant to economic pressures -- with solutions business growing rapidly but transactional business remaining flat.

Richards said CDW has been able to avoid the subpar results plaguing many of its competitors and vendor partners by bringing on new players across the technology spectrum and benefiting from the excitement around emerging products such as flash storage.

"The breadth of the OEMs we carry have the ability to mitigate the swings we might have in the marketplace," Richards said.

CDW typically brings on 60 to 70 new OEM partners each year to go after emerging opportunities in the marketplace, Richards said. And this trend has only accelerated with the rise of cloud computing, where Richards said CDW has 50 to 70 vendor partners and is seeing tremendous interest from small businesses around public cloud offerings that require little capital investment.

CDW's public sector revenue grew 3.5 percent, to $1.07 billion, on a daily basis, with sales to the company’s federal, state and local government customers growing by 13.7 percent, thanks to alignment in the U.S. government space and ongoing success with public safety offerings.

Health-care segment sales, however, grew by just 1.3 percent, as businesses look for ways to reduce costs because of lower reimbursement figures. And education sales fell by 2.8 percent, with K-12 sales sinking 1 percent and higher education sales experiencing high single-digit declines because of state budget logjams, according to CDW.

The K-12 market saw strength in the networking, communication and storage segments, Richards said, but struggled with client device and accessory sales.

Sales for CDW's corporate business climbed 3.4 percent in the quarter, to $1.69 billion, on a daily basis, with success balanced pretty evenly across medium and large customers and small-business customers.

And revenue from CDW’s Canadian and U.K. operations climbed from just $128 million last year to $355 million this year. CDW purchased a 35 percent stake in U.K.-based Kelway in November 2015, and acquired the remaining 65 percent in August; the company was rebranded last month as CDW UK.

Canadian sales were up mid-single digits on a constant currency basis despite challenges in the oil industry in the western half of the country.