CDW Growth Surge Helped By Education, Government Business

Strong sales in the education and government sectors helped solution provider giant CDW boost revenue and profits for its second quarter.

That more than offset a 1.1-percent year-over-year drop in sales among its corporate customers, the company said Wednesday morning during a conference call with financial analysts to discuss results for the quarter, which ended June 30.

"Truly a tale of two cities," said CEO Tom Richards during the call. But the results reflected the "power of our balanced portfolio channels as well as the breadth of our product offerings," he added. Richards also credited the addition of new vendor partners, which he attributed to his company's scale.

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Richards said new contracts with state and local government customers, especially for work focusing on public safety, helped sales. And business in the education sector – in K-12 and higher education – rose as expected, he added. Richards especially pointed to spending under the federal E-Rate program, which helps subsidize telecommunications and internet access investments by schools and libraries.

Overall, second-quarter revenue rose a healthy 10.6 percent to $3.66 billion, up from $3.31 billion in the second quarter of 2015. Meanwhile, net income rose to $117.5 million, or 70 cents per share, up 8.6 percent from $108.2 million, or 63 cents per share, a year ago.

On an adjusted basis, the company reported earnings of $155.6 million, or 93 cents per share, up from $139 million, or 81 cents per share, in the year-ago quarter. That beat analysts' expectations of 81 cents per share, according to Zacks. .

The results for the Lincolnshire, Ill.-based company – No. 5 on the CRN 2016 Solution Provider 500 – marked a surge from more modest 3.5-percent revenue growth in the first quarter.

But as he also noted with the first-quarter results, Richards cited macroeconomic concerns with CDW's latest numbers, as well as what lies ahead for the rest of the year.

"We can only execute against what goes on in the macroeconomic environment," he said Wednesday. The economy is growing slower than many had hoped leading CDW to proceed "with a touch of caution," Richards said.

Last week, the federal government said it grew at an annual rate of 1.2 percent in the second quarter, about half of what is considered to be ideal.

Nonetheless, CDW projects full-year growth from its U.S. business at about 2 percent above that of the overall IT market.

Despite the slight drop in sales to its corporate customers, revenue from small-business clients surged 4.7 percent during the second quarter, from $277.3 million in the same quarter in 2015 to $290.2 million. Richards said economic uncertainty led some medium and large businesses to be more hesitant to push ahead with technology projects, but smaller firms were more apt to proceed. That, he said, accounted for the increase in business from small businesses.

On the public-sector side, revenue from government customers surged nearly 17 percent percent, from $390.8 million to $456.6 million. Meanwhile, revenue from the education sector jumped 16.6 percent, from $548.9 million to $640 million.

Net sales in Canada and the United Kingdom surged $212 million year-over-year to $338 million. In the U.K., which accounted for most of those sales – $208 million – CDW cited last year's acquisition of Kelway as a boost for growing its business on the other side of the Atlantic.

Richards said it's "too early to tell" how June's Brexit vote that will pull the UK out of the European Union will impact CDW's business. But in response to a question, he said the original rationale around the Kelway acquisition was to serve U.S.-based multinational companies. "In many ways, the Brexit decision doesn't impact that," Richards said.

But within the U.K. itself, "clearly the lack of clarity is causing all kinds of theories and scenarios," he said. The impact of that won't be known until the conclusion of exit negotiations between U.K.and EU officials, Richards added.