CDW Corp. Adjusted Quarterly Earnings Paint Positive Picture

By Bethel Habte

CDW Corp., a Fortune 500 technology solutions provider, reported lower fourth quarter profit than in its year-earlier quarter. Analysts responded positively to the report, however, since the company’s adjusted numbers showed a profit increase in the same period. The market responded with a modest gain for the stock.

By GAAP standards, generally accepted accounting principles mandated by the SEC, fourth quarter profit fell to $51.8 million from $60 million in the year-earlier quarter, a 13.7 percent decrease.

By GAAP calculations, CDW fell below the consensus estimate, with an actual EPS of 30 cents per diluted share versus an average estimate of 38 cents. CDW reported an EPS of 35 cents per diluted in the year-earlier quarter.

By non-GAAP calculations, which exclude certain one-time expenses, the company earned $102.2 million in the fourth quarter, compared with $93.6 million in the year-earlier quarter, a 9.2 percent increase.

With non-GAAP adjusted numbers the company reported 59 cents per share, beating the consensus estimate of 54 cents.

Though the earnings numbers reveal a 22.9 percentage-point discrepancy between non-GAAP and GAAP profit calculations, Robert W. Baird & Co. analyst Jayson Noland said the positive, non-GAAP figures are the ones to pay attention to.

“Almost nobody looks at GAAP – it’s not representative of larger trends,” he said.

CDW’s statement on the adjustments advanced Noland’s sentiment.

“We believe these measures provide helpful information with respect to the company’s operating performance and cash flows including our ability to meet our future debt service, capital expenditures and working capital requirements,” the company’s press release stated.

According to CDW chief financial officer Ann Ziegler, non-GAAP numbers exclude debt refinancing expenses, one-time non-recurring income or expenses, amortization and acquisition expenses, among other factors. On Nov. 10, 2014, CDW purchased a 35 percent stake in Kelway Ltd., another IT service provider with global reach, for $86.8 million.

But, according to Noland, investors don’t always take these adjustments at face value.

“There are parts that investors do take issue with and add back into their calculations,” Noland said.

CDW Annual Profits
CDW Corp. saw higher profits in 2014. Graphic: Bethel Habte/MEDILL


CDW offers “Solutions” products including business intelligence, document management, and point of sale systems. The company also offers “Services” including IT equipment leasing, professional assistance and system integration support.

CDW Chairman and chief executive officer Thomas Richards said the company saw strong demand for client devices and from school systems needing to meet common core curriculum digital testing requirements in 2014.

“The solutions business gives us further opportunity to penetrate into the data center and become more trusted advisers with our customers,” Richards said.

The company made no forecast for earnings in 2015, but did state that it expects to outpace U.S. IT market growth by 200 to 300 basis points and add 150 to 200 customer-facing employees.

In the full year 2014, CDW earned $244.9 million, or $1.42 per diluted share, on revenues of $12.07 billion, compared with $132.8 million, or 84 cents per diluted share, on revenues of $10.77 billion, in 2013.

The stock closed at $36.40, up 35 cents.