Can CDW Corporation Restore Margin Momentum in the Second Half?
CDW Corporation CDW has entered the second half of 2026 with a focus on improving operating leverage and expense efficiency after delivering solid second-quarter results. The company reported second-quarter net sales of $6.6 billion, up 10% year over year, while gross profit increased 6% to $1.3 billion. Non-GAAP operating income rose 7% to $556 million, and non-GAAP earnings per share increased 12% to $2.91. However, gross margin declined 70 basis points (bps) year over year to 20.1%, reflecting a greater contribution from large hardware infrastructure opportunities related to modernization and AI readiness, particularly among enterprise customers, along with a lower relative contribution from services.
On the lastearnings call management highlighted that the gross-margin pressure was primarily a function of business mix rather than like-for-like pricing pressure. CDW maintained pricing discipline and continued to pass through price increases, while the growing mix of infrastructure products, larger-dollar orders and enterprise customers carried relatively lower margins. At the same time, netted-down revenue streams increased 16.1% and accounted for 35.9% of gross profit, up 300 bps year over year. Services grew only 1% as customers prioritized hardware and cloud investments and deployment timing affected demand, although CDW expects life-cycle and professional services activity to increase as customers move from procurement toward implementation and management.
The second half is expected to bring greater benefits from CDW’s Geared for Growth initiatives. Second-quarter non-GAAP SG&A represented 57.9% of gross profit, down 20 bps year over year and 410 bps sequentially. Management said the second-quarter improvement in operating leverage largely reflected expense discipline and broader efficiency measures, while the more significant benefits from Geared for Growth are expected to emerge in the back half. The company expects both operating leverage and its expense ratio to improve sequentially through the second half and into 2027.
For 2026, CDW expects gross profit to grow in the mid-single digits, although second-half gross margins are projected to remain below year-ago levels because of product and end-market mix. Third-quarter non-GAAP SG&A is expected to decline sequentially, helping reduce operating expenses as a percentage of gross profit both year over year and sequentially. Management also expects services demand to strengthen as current infrastructure projects progress into implementation, supporting its expectation for improving operating leverage during the second half.
Taking a Look at CDW’s Competitors
ServiceNow, Inc.’s NOW margins remain under pressure as rising AI adoption and greater reliance on hyperscaler infrastructure increase costs. In the second quarter of 2026, non-GAAP total gross margin declined to 78% from 81% a year earlier, while subscription gross margin fell 250 bps to 80.5%. Despite the pressure, non-GAAP operating margin remained stable at 29.5%, supported by revenue outperformance and disciplined spending. For 2026, ServiceNow continues to target an 81% non-GAAP subscription gross margin and 31.5% operating margin. Management expects AI-driven efficiencies, including roughly $500 million in internal savings, to help offset infrastructure and integration-related margin pressures.
Accenture plc’s ACN margins remained relatively stable in the third quarter of fiscal 2026, despite ongoing investments in AI, talent and acquisitions. Gross margin was 32.8%, slightly below 32.9% in the year-ago quarter, reflecting continued cost pressures from its labor-intensive delivery model and evolving AI-led services. However, operating income increased 6% year over year to $3.18 billion, while operating margin expanded 20 bps to 17% from 16.8%. SG&A expenses declined to 15.8% of revenues from 16%. Strong Managed Services growth and disciplined cost management supported profitability, although AI-driven delivery changes and higher acquisition spending could influence margins going forward.
Avnet, Inc.’s AVT margin profile is improving as higher volumes, favorable mix and operating leverage support profitability. Adjusted operating margin expanded to 3.8% in the fourth quarter of fiscal 2026, up 73 bps sequentially and 129 bps year over year. Electronic Components margin reached 4.1%, while Farnell’s margin rose to 9% from 4.3% a year earlier, supported by a higher mix of on-board components. Management expects Farnell to reach double-digit margins before the end of fiscal 2027 and consolidated SG&A as a percentage of gross profit to fall below 60%. However, gross margin remains sensitive to regional mix and pricing dynamics.
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This article originally published on Zacks Investment Research (zacks.com).
