CDW Corporation (CDW) Bundle
Understanding CDW Corporation (CDW) Revenue Streams
Understanding CDW Corporation’s Revenue Streams
CDW Corporation generates revenue through various streams, primarily from the sale of hardware, software, and services. The company's financial performance is closely monitored through its net sales across different segments and geographies.
Breakdown of Primary Revenue Sources
For the three months ended September 30, 2024, CDW reported the following revenue breakdown:
| Revenue Source | Revenue (in millions) | Percentage of Total Net Sales |
|---|---|---|
| Hardware | $3,958.6 | 71.8% |
| Software | $1,048.3 | 19.0% |
| Services | $481.9 | 8.7% |
| Other | $27.8 | 0.5% |
| Total Net Sales | $5,516.6 | 100.0% |
Year-over-Year Revenue Growth Rate
CDW's year-over-year revenue growth rate showed a decline:
- For the three months ended September 30, 2024, net sales decreased by 2.0% compared to the same period in 2023.
- For the nine months ended September 30, 2024, net sales decreased by 3.3% compared to the same period in 2023.
Contribution of Different Business Segments to Overall Revenue
The contribution of various segments to overall revenue for the nine months ended September 30, 2024 is as follows:
| Segment | Net Sales (in millions) | Percentage of Total Net Sales |
|---|---|---|
| Corporate | $6,492.3 | 41.1% |
| Small Business | $1,143.5 | 7.2% |
| Public | $6,303.7 | 39.8% |
| Other | $1,873.2 | 11.9% |
| Total Net Sales | $15,812.7 | 100.0% |
Analysis of Significant Changes in Revenue Streams
Significant changes in revenue streams for the nine months ended September 30, 2024 include:
- Corporate segment net sales decreased by $182.9 million, or 2.7%.
- Public segment net sales decreased by $226.3 million, or 3.5%, primarily due to declines in hardware sales.
- Small Business segment net sales decreased by $43 million, or 3.6%.
Overall, the revenue decline reflects the challenges posed by economic uncertainty and fluctuating technology demand.
A Deep Dive into CDW Corporation (CDW) Profitability
A Deep Dive into CDW Corporation's Profitability
Gross Profit, Operating Profit, and Net Profit Margins
For the three months ended September 30, 2024, the company reported:
- Gross Profit: $1,200.7 million
- Gross Profit Margin: 21.8%
- Operating Income: $481.6 million
- Operating Income Margin: 8.7%
- Net Income: $316.4 million
- Net Income Margin: 5.7%
For the nine months ended September 30, 2024:
- Gross Profit: $3,447.1 million
- Gross Profit Margin: 21.8%
- Operating Income: $1,242.7 million
- Operating Income Margin: 7.9%
- Net Income: $813.6 million
- Net Income Margin: 5.1%
Trends in Profitability Over Time
The following table summarizes the profitability metrics over the last two years:
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Gross Profit | $1,200.7 million | $1,227.7 million | -2.2% |
| Operating Income | $481.6 million | $478.4 million | 0.7% |
| Net Income | $316.4 million | $315.5 million | 0.3% |
Comparison of Profitability Ratios with Industry Averages
The industry averages for gross profit margin, operating profit margin, and net profit margin are approximately:
- Industry Average Gross Profit Margin: 22.0%
- Industry Average Operating Profit Margin: 9.0%
- Industry Average Net Profit Margin: 6.0%
Comparatively, the company's gross profit margin of 21.8% is slightly below the industry average, while the operating margin of 8.7% and net margin of 5.7% are also below the respective averages.
Analysis of Operational Efficiency
For the three months ended September 30, 2024:
- Selling and Administrative Expenses: $719.1 million, a decrease of 4.0% from $749.3 million in Q3 2023.
This decrease in expenses contributed positively to the operating income. The company's efforts in cost management have been reflected in the operating income margin increase from 8.5% in Q3 2023 to 8.7% in Q3 2024.
Comprehensive Profitability Summary
The following table presents a comprehensive summary of key profitability metrics for the three and nine months ended September 30, 2024 and 2023:
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Net Sales | $5,516.6 million | $5,628.3 million | $15,812.7 million | $16,357.5 million |
| Gross Profit | $1,200.7 million | $1,227.7 million | $3,447.1 million | $3,498.6 million |
| Operating Income | $481.6 million | $478.4 million | $1,242.7 million | $1,245.9 million |
| Net Income | $316.4 million | $315.5 million | $813.6 million | $808.2 million |
| Gross Profit Margin | 21.8% | 21.8% | 21.8% | 21.4% |
| Operating Income Margin | 8.7% | 8.5% | 7.9% | 7.6% |
| Net Income Margin | 5.7% | 5.6% | 5.1% | 4.9% |
Debt vs. Equity: How CDW Corporation (CDW) Finances Its Growth
Debt vs. Equity: How CDW Corporation Finances Its Growth
As of September 30, 2024, the company reported total unsecured indebtedness of $6.0 billion. This debt is composed of various securities, including senior notes and term loans, which are structured to finance its operational and expansion needs.
The company's net debt stands at $4,872.3 million, reflecting a decrease from $5,260.8 million in the previous year. This reduction indicates an ongoing strategy to manage and reduce debt levels effectively.
CDW's debt-to-equity ratio is approximately 2.39, which is higher than the industry average of around 1.5. This suggests a greater reliance on debt financing compared to equity, characteristic of firms in capital-intensive sectors.
Overview of Debt Levels
The company’s long-term debt includes:
- Senior unsecured term loan facility: $634.5 million
- Senior notes due 2024: $183.5 million
- Senior notes due 2025: $211.1 million
- Senior notes due 2026: $1,000.0 million
- Senior notes due 2030: $600.0 million
- Senior notes due 2034: $600.0 million
| Debt Type | Maturity Date | Interest Rate | Amount (in millions) |
|---|---|---|---|
| Senior unsecured term loan facility | December 2026 | Variable | $634.5 |
| Senior notes due 2024 | December 2024 | 5.500% | $183.5 |
| Senior notes due 2025 | May 2025 | 4.125% | $211.1 |
| Senior notes due 2026 | December 2026 | 2.670% | $1,000.0 |
| Senior notes due 2030 | March 2030 | 5.100% | $600.0 |
| Senior notes due 2034 | August 2034 | 5.550% | $600.0 |
Recent Debt Issuances and Refinancing Activity
In the third quarter of 2024, the company issued $600 million in aggregate principal amount of 5.100% Senior Notes due 2030 and $600 million in aggregate principal amount of 5.550% Senior Notes due 2034. Concurrently, it executed a cash tender offer for $391 million and $389 million of the outstanding senior notes due 2024 and 2025, respectively.
As of September 30, 2024, the company is in compliance with all covenants under its credit agreements and indentures.
Balancing Debt Financing and Equity Funding
The strategy of balancing between debt and equity funding is evident in its financial management. The company has maintained a consistent dividend payout, with a recent quarterly cash dividend declared at $0.625 per share. This reflects a commitment to providing returns to shareholders while managing debt levels.
With total stockholders' equity at $2,349.3 million as of September 30, 2024, the company continues to leverage its equity base to support its growth while strategically managing its debt obligations.
Assessing CDW Corporation (CDW) Liquidity
Assessing CDW Corporation's Liquidity
Current and Quick Ratios
The current ratio of CDW Corporation as of September 30, 2024, is 1.15, calculated using current assets of $2.96 billion and current liabilities of $2.57 billion. The quick ratio, which excludes inventory, stands at 0.92, with quick assets of $1.96 billion and current liabilities remaining at $2.57 billion.
Analysis of Working Capital Trends
As of September 30, 2024, the working capital is $390 million, reflecting a decrease from $450 million at the end of 2023. This trend indicates tighter liquidity, primarily influenced by rising current liabilities associated with increased operational costs and inventory financing agreements.
Cash Flow Statements Overview
The cash flow from operating activities for the nine months ended September 30, 2024, is $932.0 million, compared to $1,062.2 million for the same period in 2023. The cash flow from investing activities resulted in a net outflow of $305.5 million, which includes capital expenditures of $94.0 million and purchases of short-term investments totaling $211.1 million. Financing activities led to a net outflow of $270.7 million, driven by share repurchases of $354.0 million and dividend payments of $249.0 million.
| Cash Flow Activities | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Net cash provided by operating activities | $932.0 | $1,062.2 |
| Net cash used in investing activities | ($305.5) | ($195.9) |
| Net cash used in financing activities | ($270.7) | ($739.7) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, CDW Corporation has a total unsecured indebtedness of $6.0 billion and maintains compliance with the covenants under its credit agreements. The company has $1.3 billion available for borrowings under its revolving loan facility, ensuring sufficient liquidity to meet operational commitments. However, the increase in accounts receivable, which amounted to $320.9 million in cash flow adjustments, raises concerns regarding collection efficiency and cash flow management going forward.
Is CDW Corporation (CDW) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will examine key valuation ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 22.3. This is based on a trailing twelve-month earnings per share (EPS) of $6.00 and a stock price of approximately $134.00.
Price-to-Book (P/B) Ratio
The P/B ratio is calculated at 5.1, with the book value per share at $26.80 based on total equity of $2.35 billion.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is reported at 11.5. The enterprise value is approximately $7.8 billion, while EBITDA for the last twelve months is around $678 million.
Stock Price Trends
Over the past 12 months, the stock has experienced the following price movements:
- 12 months ago: $150.00
- Lowest price in the last 12 months: $120.00
- Current price: $134.00
Dividend Yield and Payout Ratios
The company currently offers a dividend yield of 1.39%, with an annual dividend payment of $1.86 per share. The payout ratio is approximately 31%, indicating a sustainable dividend policy relative to earnings.
Analyst Consensus
Analysts have a consensus rating of Hold on the stock, with price targets ranging from $125.00 to $145.00. This suggests a mixed outlook, with some analysts seeing potential for growth while others express caution given the current valuation metrics.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 22.3 |
| P/B Ratio | 5.1 |
| EV/EBITDA Ratio | 11.5 |
| Current Stock Price | $134.00 |
| 12-Month High | $150.00 |
| 12-Month Low | $120.00 |
| Dividend Yield | 1.39% |
| Annual Dividend | $1.86 |
| Payout Ratio | 31% |
| Analyst Consensus | Hold |
Key Risks Facing CDW Corporation (CDW)
Key Risks Facing CDW Corporation
Overview of Internal and External Risks
The financial health of the company is influenced by various internal and external risks. Notably, the ongoing economic uncertainty has led to cautious spending behavior among customers, impacting overall sales. For the three months ended September 30, 2024, net sales decreased by $112 million, or 2.0%, primarily due to reduced sales in the Public and Corporate segments.
Furthermore, the company faces significant competition in the technology sector, which can affect market share and pricing strategies. Regulatory changes can also impose additional compliance costs, further straining financial resources.
Operational, Financial, or Strategic Risks
In the recent earnings report, operational risks were highlighted, including a decrease in gross profit, which fell by $27 million, or 2.2%, compared to the same period in the previous year. The gross profit margin remained stable at 21.8%, but the decline in sales across various hardware categories is concerning.
Financially, the interest expense for the quarter decreased by $3 million, or 5.2%, reflecting a shift in interest income due to higher cash balances. However, the effective tax rate increased to 26.0% from 24.8% year-over-year, indicating potential pressures from tax liabilities.
Mitigation Strategies
To address these risks, the company has implemented various mitigation strategies. The decrease in selling and administrative expenses by $30 million, or 4.0%, suggests a focus on cost control measures. Additionally, the company maintains a revolving loan facility with $1.3 billion available as of September 30, 2024, to support liquidity needs.
| Risk Factor | Description | Impact on Financials | Mitigation Strategy |
|---|---|---|---|
| Economic Uncertainty | Customer caution in technology spending | Net sales decreased by $112 million (2.0%) | Cost control measures, maintaining liquidity |
| Competitive Pressure | Intense competition in the technology sector | Pricing pressures may impact margins | Focus on innovation and customer service |
| Regulatory Changes | Compliance costs may rise | Potential increase in operational costs | Regular compliance reviews and adjustments |
| Operational Risks | Decline in gross profit and sales | Gross profit decreased by $27 million (2.2%) | Streamlining operations and reducing expenses |
| Financial Risks | Increased interest and tax liabilities | Interest expense decreased by $3 million | Debt management and tax planning strategies |
As of September 30, 2024, the company reported total unsecured indebtedness of $6.0 billion and was in compliance with all covenants under its credit agreements. The proactive measures taken indicate a commitment to navigating the challenging financial landscape effectively.
Future Growth Prospects for CDW Corporation (CDW)
Future Growth Prospects for CDW Corporation
Analysis of Key Growth Drivers
The company's growth is expected to be driven by several factors, including product innovations, market expansions, and strategic acquisitions. For instance, the recent introduction of new cloud solutions is projected to enhance service offerings, thereby attracting a broader customer base.
Future Revenue Growth Projections and Earnings Estimates
For the year ending December 31, 2024, analysts estimate that the company will generate approximately $15.8 billion in net sales, reflecting a decrease of 3.3% compared to $16.4 billion in 2023. However, operating income is projected to remain stable at around $1.24 billion, indicating resilience in profitability despite revenue fluctuations.
Strategic Initiatives or Partnerships
Strategic partnerships are also a significant avenue for growth. The company has engaged in collaborations with leading technology providers to enhance its product range and service capabilities. These partnerships are expected to drive innovation and improve market competitiveness.
Competitive Advantages
The company possesses several competitive advantages that position it favorably for future growth. Its strong brand recognition, extensive distribution network, and a diverse portfolio of products and services allow it to cater to various customer segments effectively. As of September 30, 2024, the company reported a gross profit margin of 21.8%, consistent with the previous year, demonstrating operational efficiency.
| Metric | 2024 Estimate | 2023 Actual | Change (%) |
|---|---|---|---|
| Net Sales | $15.8 billion | $16.4 billion | -3.3% |
| Operating Income | $1.24 billion | $1.25 billion | -0.3% |
| Gross Profit Margin | 21.8% | 21.8% | 0% |
Market Expansion Opportunities
Market expansion into international territories, particularly in Canada and the UK, is also a focus area for growth. The company reported a 6.4% increase in net sales from these regions as of September 30, 2024. This trend is expected to continue as the company leverages its existing infrastructure to penetrate new markets.
Innovation in Product Offerings
Ongoing investment in product innovation, particularly in areas such as software as a service (SaaS), is anticipated to yield significant returns. The shift towards digital solutions is expected to attract new customers and increase sales from existing clients.
Financial Stability and Cash Flow
As of September 30, 2024, the company reported free cash flow of $838 million, down from $947 million in 2023, reflecting the impact of capital expenditures and operational adjustments. The ability to maintain positive cash flow is crucial for funding future growth initiatives and sustaining dividend payments.
Conclusion on Growth Outlook
Overall, the company's strategic focus on innovation, market expansion, and operational efficiency positions it well for future growth, despite the current challenges in the technology landscape.
CDW Corporation (CDW) DCF Excel Template
5-Year Financial Model
40+ Charts & Metrics
DCF & Multiple Valuation
Free Email Support
Article updated on 8 Nov 2024
Resources:
- CDW Corporation (CDW) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of CDW Corporation (CDW)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View CDW Corporation (CDW)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.