CDW Corp. keeps a close eye on sales
by Kris Vera
Medill News Service
May 26, 2004
John A. Edwardson, chief executive officer of CDW Corp., told shareholders at the annual meeting that he canâ€™t fall asleep until he knows the day’s sales.
â€œThe one thing that keeps me up at night is waiting for the daily revenue numbers that come out around midnight,” Edwardson said. â€œBut lately, I have been able to sleep well afterwards.”
By such close monitoring of both total sales and and measurements of workersâ€™ output, CDW keeps business growing and productivity high. And the stock stays up, too.
Its precise and demanding measurements assume new importance these days as it integrates the operations and employees of its first acquisition, Micro Warehouse Inc., a Connecticut company with operations in Canada as well as the United States.
During the shareholders meeting, Edwardson reported an average daily revenue of $20.7 million for the month of April. He pointed out that the company’s total revenue in 1993 was $271 million.
â€œLast month, it took thirteen days to generate the same amount of revenue that it took us an entire year to do in the year we went public, 11 years ago,” Edwardson said.
CDW, based in Vernon Hills, sells computer products and technology services, mainly to small and medium-sized companies.
Renowned for its employee-friendly policies and perks, such as free meals, day care and workout facilities, CDW asks as much as it gives. It asks for output.
Its 2003 annual report said CDWâ€™s distribution center increased unit volume shipments by 15 percent without adding workers.
CDW immerses its sales people in a four to five month training course at â€œCDW University,” where they become familiar with nearly 80,000 computer products sold by the company. The company encourages all its “coworkers” to continue taking technology training classes on a regular basis.
â€œTake a look at the next time you get on an airplane,” Edwardson said. â€œLook in that cockpit and realize that a new salesperson for CDW has spent more time in a training class than the pilot did, whoâ€™s flying that airplane.”
Chief Financial Officer Barbara A. Klein declared at the annual meeting that every day each employee tries to find a more efficient way to do his or her jobs.
â€œAs we said in the beginning, we will never forget that we can do better,” Klein said.
To determine that, the measurements are many. On average, CDW employees complete each day up to 1,800 configurations of computers, routers and other equipment daily. Last year, the company increased the number of invoices processed by 10 percent to 5,431 from 4,995 in 2002.
The $22.7 million acquisition in September of the North American operations of Micro Warehouse, increasing CDW’s sales force by 604 to 1,924, has dragged down the company’s proud numbers.
After transaction and integration expenses, CDW posted a 5.4 decrease in net income to $175 million, or $2.03 per share, from $185 million, or $2.10 per share, in 2002. CDW also reported a 6 percent decrease in 2003 net sales per worker to $1.4 million from $1.5 million in 2002.
The operating margin for the last quarter of 2003, after the Micro Warehouse acquisition, dropped to 5.4 percent, though it jumped back to 6.7 percent in the first quarter of 2004, equalling the margin posted by CDW in the first quarter of 2003.
Matt Sheerin, an analyst for San Francisco-based Thomas Weisel Partners LLC, said CDW may feel the Micro Warehouse acquisition cutting into its bottom line as it absorbs the increased expenses for the new workers, like health benefits and commissions.
â€œThereâ€™s a risk in the execution of management of this expanding sales force,” Sheerin said.
But Bruce Simpson, an analyst for Chicago-based William Blair & Co. LLC, which does investment banking for CDW, said it has posted consistent operating margins in the quarters since the September acquisition.
â€œThis means they have successfully integrated their sales force from the acquisition without seeing a drop in their profitability,” Simpson said.
After the acquisition, CDW spokesman Gary Ross said the company flew all Micro Warehouse employees to the Vernon Hills and Mettawa offices for two days of orientation, learning more about CDW culture and meeting other employees.
â€œWe have a real belief that happy coworkers equal and make happy customers,” Edwardson told the shareholders.
The stock market has nodded its approval. CDW shares, currently around $68, aren’t far off the 52-week high of $74.45; the low was $38.95. Its price-earnings ratio is a lofty 31, compared to the S&P 500 Index average of 23, based on 2003 earnings.
The challenge of productively integrating a large additional staff hasn’t daunted CDW. CFO Klein said additional acquisitions are a possibility, but that CDW will be very disciplined about it.
â€œThe acquisition should either be able to expand or add to our customer segments or new ones, expand our product offerings or extend our reach geographically,” Klein said. â€œIf the potential acquisition does not meet any of these criteria, we wonâ€™t even ponder it.”