What happened
CDW (CDW -0.48%) stock stumbled this week, falling 12% through Thursday trading, according to data provided by S&P Global Market Intelligence. The S&P 500 declined 0.2% over that time.
The drop put the IT specialist's shares in negative territory for the 2023 year, down 8% so far compared to an 8% increase in the broader market. It was sparked by a warning by the management team of deteriorating selling conditions in key markets like the U.S.
So what
CDW announced preliminary first-quarter results on Tuesday, April 18. The update preempted CDW's scheduled report that's set for May 3, and it covers the selling period that ended in late March.
Sales trends worsened in this period as many large enterprise clients pulled back on IT contract spending, management said. "The quarter was marked by a period of intensifying economic uncertainty," CEO Christine Leahy said in a press release. CDW's sales landed at $5.1 billion, missing management's expectations in both the corporate and solutions niches. "While these results were disappointing," Leahy said, "the team executed well in a rapidly changing environment."
Now what
Investors have good reason to expect persistent challenges at least through the next few quarters. CDW's latest outlook calls for the key U.S. market to see a decline in IT spending in the high single-digit range, in fact. This drop will pressure earnings over the short term, too, as CDW will need time to lower its expenses in response to falling demand. Executives are projecting slightly weaker adjusted earnings this year as compared to 2022.
This more cautious outlook doesn't threaten CDW's wider growth ambitions, and it's no reason for shareholders to abandon the stock. But Wall Street isn't thrilled about the prospect of weaker earnings in 2023 and is worried that further downgrades might be on the way. This elevated risk profile pushed the stock lower over the last few days.
