CDW Q3 Sales Rise 17.7% as Gross Margin Narrows

CDW Corporation (CDW) reported a 17.7% increase in third-quarter net sales, supported by growth across all disclosed customer channels, while non-GAAP earnings per diluted share rose 20.4%. The sales gains outpaced gross-profit growth, however, pushing the gross margin down 140 basis points as the company maintained its 2026 targets for mid-to-high single-digit gross-profit growth and low double-digit non-GAAP EPS growth on a constant-currency basis.

For the three months ended September 30, net sales reached $6.75 billion, up from $5.74 billion a year earlier. Sales increased 17.8% in constant currency, while average daily sales rose 17.7% with 64 selling days in both periods.

Gross profit increased 10.3% to $1.39 billion, but gross margin declined to 20.5% from 21.9%. GAAP operating income rose 10.4% to $489.5 million, with operating margin narrowing to 7.2% from 7.7%. Non-GAAP operating income increased 16.8% to $619.8 million, and the corresponding margin remained at 9.2% as non-GAAP selling and administrative expenses rose 5.6%.

Net income advanced 6.5% to $309.8 million. Diluted earnings per share increased 11.6% to $2.46, helped in part by a reduction in weighted-average diluted shares to 125.7 million from 131.8 million. Non-GAAP net income rose 14.8% to $410.2 million, while non-GAAP diluted EPS climbed to $3.26 from $2.71.

Interest expense increased 19.8% to $65.9 million, and CDW’s GAAP effective tax rate rose to 26.9% from 25.3%. The non-GAAP effective tax rate was 26.0%, compared with 25.1% a year earlier.

Commercial Sales Lead Broad-Based Growth

Commercial net sales increased 20.8% to $3.98 billion and accounted for the largest portion of CDW’s quarterly revenue. Within that channel, corporate sales rose 16.8% to $2.61 billion, healthcare sales increased 9.3% to $801.6 million, and financial-services sales jumped 73.2% to $571.5 million.

Government sales grew 9.9% to $912.8 million, while education sales increased 7.5% to $982.2 million. Sales classified as other rose 26.0% to $880.1 million.

Cash Flow Rises in Quarter, Declines Year to Date

CDW generated $398.8 million of operating cash flow during the quarter, up from $328.3 million a year earlier. Free cash flow increased to $372.0 million from $298.5 million, while adjusted free cash flow rose to $506.2 million from $209.1 million after adjustments that include inventory-related financing cash flows.

For the first nine months, operating cash flow fell to $618.5 million from $771.4 million, and free cash flow declined to $537.8 million from $692.2 million. Adjusted free cash flow nevertheless increased to $784.6 million from $668.0 million.

The cash conversion cycle lengthened to 20 days as of September 30, based on a rolling three-month average, compared with 11 days a year earlier. Days sales outstanding increased to 100 from 92, while days of supply in inventory rose to 18 from 12.

CDW ended the quarter with $1.54 billion in cash and cash equivalents and $7.12 billion of total debt, resulting in net debt of $5.59 billion. Cash plus available revolving credit totaled $3.41 billion. The company reported a net leverage ratio of 2.5 times, within its target range of approximately 2.0 to 3.0 times.

CDW returned $892 million to shareholders through dividends and share repurchases during the first nine months. It also increased its annualized dividend by approximately 8% to $2.72 per share in November 2026. The company targets returning an aggregate 50% to 75% of adjusted free cash flow through dividends and repurchases after funding mergers and acquisitions.

2026 Outlook

As of November 4, CDW expected 2026 gross profit to grow at a mid-to-high single-digit rate and non-GAAP diluted EPS to increase at a low double-digit rate, both year over year in constant currency. Its customer-spending target calls for growth roughly 300 to 400 basis points above growth in CDW’s current addressable U.S. IT market.

For the fourth quarter, management expects gross profit to decline by a low-to-mid single-digit percentage sequentially, broadly consistent with historical patterns, resulting in mid-single-digit year-over-year growth. Currency is expected to be relatively neutral to full-year growth.

Annual interest expense is projected at $255 million to $260 million, while the non-GAAP effective tax rate is expected to range from 25.5% to 26.5%. CDW expects adjusted free cash flow to equal 80% to 90% of full-year non-GAAP net income, capital expenditures of $105 million to $115 million, and a cash conversion cycle in the high teens to low 20s.

The outlook remains subject to uncertainty around customer technology demand, spending trends, currency movements, interest rates, refinancing activity and acquisition or integration costs. CDW said variability in those items prevents it from reconciling certain forward-looking non-GAAP targets to comparable GAAP measures without unreasonable effort.