CDW Q3 2026 Earnings: Sales Rise 17.7% as Gross Margin Narrows

CDW Corporation (Nasdaq: CDW) reported Q3 2026 net sales of $6.75 billion, up 17.7% year over year, while diluted EPS increased 11.6% to $2.46 from $2.21. Broad-based customer demand supported growth across every reporting segment, but a shift toward lower-margin product categories reduced gross margin. Non-GAAP diluted EPS rose 20.4% to $3.26.

Core Performance Data

Sales growth was not caused by differences in the calendar: both quarters had 64 selling days, and average daily sales also increased 17.7%. Constant-currency sales growth was 17.8%, nearly matching reported growth.

Profit growth lagged the top line as gross margin contracted. A lower diluted share count helped EPS increase faster than net income, while non-GAAP earnings growth exceeded the corresponding GAAP results.

CDW’s non-GAAP measures exclude items including acquisition-related intangible amortization, equity-based compensation, acquisition and integration costs, transformation initiatives, and workplace optimization, along with related tax effects where applicable.

Business and Segment Performance

Commercial remained CDW’s largest growth contributor, accounting for about two-thirds of the total year-over-year dollar increase in sales. Demand growth was concentrated in data storage and servers, notebooks and mobile devices, and software.

Financial Services recorded the fastest percentage growth within Commercial, while Corporate supplied the largest amount of segment revenue. Other, which combines CDW’s UK and Canadian operations, grew 26.0%. Government and Education expanded more slowly than the company overall but still posted positive growth.

Lower-Margin Mix Limited the Conversion of Sales Growth Into GAAP Profit

CDW added about $1.02 billion in quarterly sales, but gross profit increased by only about $130 million. Management attributed the resulting 1.4-percentage-point gross-margin decline to a shift into certain product categories and lower margins within those categories.

Selling and administrative expenses increased 10.3% to $895.8 million, reflecting higher performance-based incentives, workplace optimization costs, and acquisition costs. Expense growth remained below sales growth but matched gross profit growth, contributing to a decline in GAAP operating margin from 7.7% to 7.2%. In contrast, non-GAAP operating margin held steady at 9.2%.

Below the operating line, net interest expense increased 19.8% to $65.9 million because of higher average revolving-loan borrowings and lower interest income on cash. The effective tax rate also rose to 26.9% from 25.3%, mainly because of lower tax credits and higher nondeductible expenses. These factors helped limit net income growth to 6.5%.

Weighted-average diluted shares declined by about 4.6% to 125.7 million, allowing diluted EPS to rise faster than net income. The board also approved a quarterly cash dividend of $0.680 per share, payable December 10, 2026, to shareholders of record on November 25, 2026.

Management’s View

CEO Christine Leahy linked the quarter’s results to broad-based strength across customer markets and momentum in enterprise AI adoption. Management said CDW’s ability to serve the full technology stack and lifecycle supports its confidence in outpacing growth in the U.S. IT addressable market by 200 to 300 basis points on a constant-currency basis.

CFO Albert Miralles attributed gross profit growth to customer demand and execution while emphasizing continued spending discipline. Management intends to balance strategic investments supporting customers and long-term growth with expense management and capital allocation.

Risks Investors Need to Watch

• Product mix and gross margin: Continued growth in lower-margin product categories could keep sales growth ahead of gross profit and operating income growth.
• Operating costs: Performance incentives, workplace optimization, and acquisition-related costs increased quarterly expenses and could affect the conversion of revenue growth into GAAP profit.
• Interest and tax pressure: Higher borrowings, lower interest income, reduced tax credits, and nondeductible expenses limited net income growth this quarter.
• AI-related supply constraints: CDW identified potential capacity limitations and cost increases tied to demand for AI workloads, which could affect product availability and margins.
• Public-sector demand: Government and Education grew more slowly than CDW overall, leaving these businesses exposed to changes in government funding, procurement policies, or spending delays.

Summary

CDW’s Q3 2026 results showed broad-based demand and particularly rapid growth in Commercial and international operations. However, lower-margin product mix, higher financing costs, and a higher tax rate meant that GAAP profit growth did not keep pace with sales. Future performance will depend on whether CDW can sustain customer demand and AI-related momentum while stabilizing gross margin and controlling operating and financing costs.