Managed services News
CDW Stock Sinks After ‘Economic Uncertainty’ Warning
Joseph F. Kovar
‘This demand contraction resulted in first-quarter performance below our expectations. Volume declines were most acute with our largest commercial customers and across transactional products. Solutions were more resilient, but performance also came in below our expectations,’ says Christine A. Leahy, CDW’s chair, president and CEO, in a statement.
IT solution provider CDW Tuesday warned investors that the company’s first fiscal quarter 2023 would fall below expectations.
The Lincolnshire, Illinois-based solution provider, No. 4 on CRN’s 2022 SP 500 list, also said it expects “intensifying economic uncertainty” to negatively impact the U.S. IT market.
CDW is slated to report its first fiscal quarter 2023 financial results on May 3.
CDW now expects first quarter net sales of about $5.1 billion. This compares to analyst consensus revenue estimates of $5.28 billion, according to Seeking Alpha. This is also significantly lower than the $5.95 billion in revenue the company reported for its fiscal first quarter 2022.
CDW share price Tuesday closed at $190.29 per share. However, after the news of the expected revenue shortfall was released late Tuesday, the company’s share prices Wednesday slid 14 percent to open at $163.69 per share, eventually rising just under $2 per share to close the day at $165.12.
CDW did not respond to a CRN request for further information by press time.
However, Christine A. Leahy, CDW’s chair, president and CEO, said in a prepared statement that the quarter was marked by intensifying economic uncertainty that led customers to spend more cautiously and prioritize mission critical initiatives.
“This demand contraction resulted in first-quarter performance below our expectations,” Leahy said. “Volume declines were most acute with our largest commercial customers and across transactional products. Solutions were more resilient, but performance also came in below our expectations. While these results were disappointing, the team executed well in a rapidly changing environment.”
Macroeconomic conditions are expected to result in a decline in the U.S. IT market, Leahy said.
“Given first-quarter market performance and near-term conditions, we currently expect the U.S. IT market to decline at a high single-digit rate in 2023, recognizing that a number of wildcards may impact this view as the year progresses,” she said. “Despite these market conditions, we continue to target net sales outperformance of approximately 200 to 300 basis points in constant currency.”
CDW’s chief financial officer Albert Miralles said in a prepared statement that CDW is seeing a shift in sales towards caution.
“A greater mix of high-value solutions and services contributed to strong first quarter gross margin but the magnitude of the shift to more cautious buying was significant, and this resulted in first-quarter non-GAAP operating income margin at the low end of our full-year range,“ Miralles said. “In recognition of the heightened level of customer caution and reduced IT spend, efforts will continue to align our fixed cost base with the level of anticipated demand. We now look for full-year 2023 non-GAAP earnings per share on a diluted basis to be modestly below full-year 2022.”
CDW’s drop in stock price had a wider impact on certain parts of the IT industry. For instance, networking company Extreme Networks Wednesday saw a 12.39-percent fall in share prices to $16.12 per share caused by the CDW news, according to Seeking Alpha.