CDW (NASDAQ: CDW) third-quarter sales jump 17.7% but gross margin slips

What happened

CDW Corporation (NASDAQ: CDW) said third-quarter net sales rose 17.7% to $6.75 billion, while gross margin fell to 20.5% from 21.9%.

Sales were $1.02 billion above the $5.74 billion of a year earlier. Both quarters had 64 selling days, so extra days did not drive the gain. Diluted earnings per share rose 11.6% to $2.46, and non-GAAP diluted earnings per share rose 20.4% to $3.26.

The board also declared a quarterly cash dividend of $0.680 per common share.

Key numbers

Metric	Latest	Change	Source
Third-quarter net sales	$6.75 billion	from $5.74 billion, +17.7%	SEC 8-K, Exhibit 99.1
Gross profit margin	20.5%	from 21.9%, -1.4 percentage points	Calculated from SEC 8-K
Operating income	$489.5 million	from $443.3 million, +10.4%	SEC 8-K, Exhibit 99.1
Non-GAAP net income per diluted share	$3.26	from $2.71, +20.4%	SEC 8-K, Exhibit 99.1
Nine-month operating cash flow	$618.5 million	from $771.4 million, -19.8%	Calculated from SEC 8-K
Quarterly dividend per common share	$0.680		SEC 8-K

Read more: CDW (CDW) company research

Where the growth came from

Commercial was the largest segment, with net sales up 20.8% to $3.98 billion. Within it, Financial Services customers rose 73.2% to $571.5 million from $330.0 million, Corporate rose 16.8% and Healthcare 9.3%.

Government net sales rose 9.9% to $912.8 million and Education rose 7.5% to $982.2 million. CDW's UK and Canadian operations, reported together as Other, grew 26.0% to $880.1 million.

The filing says customer demand drove growth mainly in data storage and servers, notebooks and mobile devices, and software. Chief Executive Christine A. Leahy pointed to broad strength across customer end-markets and momentum in enterprise AI adoption.

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Why it matters

OptimistFi has argued that CDW's value rests on customers continuing to prefer a multi-brand procurement and advisory partner. Growth in every reported segment fits that view. Leahy said CDW's role as a trusted advisor is more important than ever.

Profit grew more slowly than sales. Gross profit rose 10.3% to $1.39 billion from $1.26 billion. The filing blames the lower gross margin mainly on mix into certain product categories and lower margin in them. Selling and administrative expenses also rose 10.3%, to $895.8 million, on higher performance-based incentives, workplace optimization costs and acquisition costs.

Operating income rose 10.4% to $489.5 million, and its margin slipped to 7.2% from 7.7%. Non-GAAP operating income rose 16.8% to $619.8 million, with its margin flat at 9.2%. The non-GAAP figures leave out some charges. Workplace optimization cost $31.0 million against $2.7 million a year earlier. Acquisition and integration expenses were $13.8 million against $1.1 million.

Cash flow and debt

Net income rose 6.5% to $309.8 million, slower than earnings per share. Weighted-average diluted shares were 125.7 million against 131.8 million a year earlier. Chief Financial Officer Albert J. Miralles credited operating leverage and capital management for the growth in non-GAAP earnings per share.

Cash generation weakened over the first nine months. Operating cash flow fell to $618.5 million from $771.4 million, and free cash flow fell to $537.8 million from $692.2 million. CDW spent $450.3 million on acquisitions of businesses, net of cash acquired, against $5.0 million a year earlier. Adjusted free cash flow, which adds certain inventory-financing flows, rose to $784.6 million from $668.0 million.

Borrowing also rose. Total debt was $7.12 billion on Sept. 30 against $5.63 billion on Dec. 31, 2025. Net debt was $5.59 billion against $5.01 billion. The cash conversion cycle lengthened to 20 days from 11 days a year earlier. Net interest expense rose 19.8% to $65.9 million in the quarter. The filing ties that to higher average revolver borrowings and lower interest income.

What's next

CDW scheduled a conference call for 8:30 a.m. ET on Nov. 4 to discuss the quarter. Holders of record at the close of business on Nov. 25 will receive the dividend on Dec. 10.

Leahy said CDW is confident it can outpace US IT addressable market growth by 200 to 300 basis points on a constant currency basis. A gross margin that stays below the year-earlier level, alongside weaker cash flow, would weaken the case. Gross profit growth that keeps pace with sales would strengthen it.

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