CDW Corp (CDW) Q4 2025 earnings review
Small Business Surges, but Expense Growth Erodes Margins
CDW finished FY25 with a 6.3% revenue beat in Q4, driven by a massive 18.4% acceleration in Small Business and a 12.9% recovery in Education. Gross margins expanded to 22.8% due to a favorable mix of netted-down software revenue. However, the core Corporate segment stalled (-0.6%), and operating expenses surged 10.3%, outpacing gross profit growth and compressing operating margins. While top-line momentum is stabilizing, the negative operating leverage raises efficiency concerns entering 2026.
🐂 Bull Case
The Small Business segment is accelerating rapidly, jumping from double-digit growth in Q3 to +18.4% in Q4. This high-velocity transactional business suggests improved confidence among smaller enterprises.
Gross margin expanded 50 basis points YoY to 22.8%. This structural improvement is driven by a higher mix of 'netted down' revenue (Cloud/SaaS), which carries 100% gross margins.
🐻 Bear Case
Corporate, CDW's largest commercial engine, turned negative (-0.6%) after growing in prior quarters. This deceleration in large enterprise spending suggests ongoing caution with major IT infrastructure projects.
Selling and administrative expenses grew 10.3%, significantly outpacing the 8.6% growth in Gross Profit. Consequently, Non-GAAP Operating Margin compressed from 9.6% to 9.1%.
⚖️ Verdict: ⚪
Neutral. The top-line resilience in Small Business and Public sectors is encouraging, but the stall in Corporate spend and the deterioration in operating efficiency prevent a higher grade. The company is growing sales but becoming less profitable per dollar of sales.
Key Themes
Small Business Acceleration
Small Business has emerged as the clear growth engine. After posting ~13% growth in Q2 and Q3, the segment accelerated to +18.4% in Q4. This divergence from the Corporate segment suggests smaller entities are refreshing tech stacks faster than large enterprises.
Education Sector Reversal
Reversing. Education sales jumped 12.9% in Q4, a stark turnaround from the -8.5% decline seen in Q3. This volatility indicates that earlier funding cliffs or device saturation issues may have normalized or that budget flushes occurred at year-end.
Expense Control Issues
Decelerating. Non-GAAP Operating Income grew only 0.6% despite a 6.3% revenue increase. SG&A expenses surged 10.3%, driven by 'higher performance-based compensation and coworker-related costs.' This broke the trend of disciplined expense management seen earlier in the year.
Mix Shift to Software/SaaS
Stable. Gross margin reached 22.8%, up 50bps YoY. Management explicitly attributed this to a 'higher contribution of netted down revenue,' referring to cloud and software solutions where CDW recognizes the net fee as revenue (100% margin). This structural shift supports margins even as hardware volumes fluctuate.
International Momentum
Accelerating. The 'Other' segment (UK and Canada) grew 8.4%, continuing a trend of mid-to-high single-digit performance (Q3: +9.1%). This diversification helps offset the lumpiness in US Federal and Corporate spend.
Other KPIs
Decelerating. Down from 9.6% in 24Q4 and 9.2% in 25Q3. The company is losing operating leverage as expense growth accelerates faster than gross profit.
Stable. Defined as Operating Cash Flow ($1.2B) less CapEx ($117M). Down slightly from $1.15B in FY24, but remains robust, supporting $982M in shareholder returns (buybacks + dividends) for the year.
Stable. Consistent with 25Q2 levels (16 days) and slightly better than 24Q4 (18 days), indicating disciplined working capital management despite the inventory ramp-up needed for Q4 sales.
Guidance
Stable. CDW reiterated its standard framework: targeting to exceed US IT addressable market growth by 200-300 basis points. No specific revenue or EPS dollar ranges were provided in the release text.
Key Questions
Corporate Segment Deceleration
Corporate segment sales went from +17.6% in Q2 to negative -0.6% in Q4. Is this a pause in large enterprise infrastructure spending, or are we losing share to direct-to-vendor purchasing?
Expense Management in 2026
SG&A grew 10.3% in Q4 while Operating Income was flat (+0.6%). With Gross Profit growing well, why is the expense base expanding so aggressively, and when can investors expect a return to positive operating leverage?
Education Volatility
Education swung from a -8.5% decline in Q3 to a +12.9% gain in Q4. Was this driven by a specific one-time funding event or budget flush that won't repeat in Q1 2026?
Sustainability of Small Business Growth
Small Business growth accelerated to 18.4%. What specific product categories are driving this (AI PCs, software upgrades), and is this pace sustainable into H1 2026?