AI Takeaway
SW reported a sharp earnings decline in Q1 2026, with net income falling 83.1% year-over-year to $65M on flat revenue of $7.71B, driven by a significant rise in cost of revenue that compressed gross margin by ~420 basis points.
Revenue
$7.71B
++0.73% YoY
EPS (Basic)
$0.12
-83.78% YoY
Gross Margin
16.4%
-4.16% YoY
Operating Income
$253M
-54.25% YoY
Filed · Source: SEC EDGAR 10-Q filing
Revenue grew only 0.7% YoY to $7.71B (from $7.66B), indicating limited top-line momentum while cost of revenue surged 6.0% to $6.44B, suggesting significant input cost inflation or mix shift toward lower-margin business.
Source: Source: 10-Q Income Statement
Gross margin fell from 20.6% to 16.4%, a decline of approximately 420 basis points YoY, reflecting the mismatch between flat revenue growth and rising costs of revenue — a key driver of the overall earnings deterioration.
Source: Source: 10-Q Income Statement / Key Ratios
Operating income dropped from $553M to $253M, a 54.2% decline, as the gross profit shortfall of ~$309M was only partially offset by a modest $12M reduction in SG&A expenses to $961M.
Source: Source: 10-Q Income Statement
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Upgrade to unlockCost of revenue grew 6.0% while revenue grew only 0.7%, creating a dangerous margin squeeze. If this trend persists, gross profit could erode further, threatening the company's ability to cover fixed operating costs and service its debt.
Source: Source: 10-Q Income Statement
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Upgrade to unlockReported EPS of $0.33 versus the $0.40 analyst consensus — a -18.5% miss for Q1 FY2026.
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Revenue | $7.71B | $7.66B | +0.73% |
Cost of Revenue | $6.44B | $6.08B | +6.00% |
Gross Profit | $1.27B | $1.58B | -19.59% |
Operating Income | $253M | $553M | -54.25% |
Net Income | $65M | $384M | -83.07% |
EPS (Basic) | $0.12 | $0.74 | -83.78% |
EPS (Diluted) | $0.12 | $0.73 | -83.56% |
SG&A Expense | $961M | $973M | -1.23% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Total Assets | $45.17B | $44.65B | +1.17% |
Current Assets | $10.55B | $10.63B | -0.73% |
Total Liabilities | $27.09B | $26.76B | +1.22% |
Current Liabilities | $7.31B | $7.45B | -1.76% |
Stockholders' Equity | $18.06B | $17.86B | +1.09% |
Cash & Equivalents | $674M | $797M | -15.43% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Operating Cash Flow | $204M | $235M | -13.19% |
Investing Cash Flow | $-627M | $-476M | -31.72% |
Financing Cash Flow | $209M | $151M | +38.41% |
Dividends Paid | $237M | $225M | +5.33% |
D&A | $728M | $603M | +20.73% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Gross Margin | 16.4% | 20.6% | -4.16% |
Operating Margin | 3.3% | 7.2% | -3.94% |
Net Margin | 0.8% | — | — |
ROE | 0.4% | — | — |
ROA | 0.1% | — | — |
Current Ratio | $1.443 | — | — |
Debt to Equity | $1.5 | — | — |
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SW reported Q1 2026 revenue of $7.71B, up just 0.7% YoY, but net income collapsed 83.1% to $65M as cost of revenue surged 6.0%. Diluted EPS fell sharply from $0.73 to $0.12, making it a very disappointing quarter for earnings.
The primary driver was a significant rise in cost of revenue (+6.0% to $6.44B) against nearly flat revenue growth (+0.7%), which compressed gross margin by approximately 420 basis points to 16.4%. This gross profit shortfall of ~$309M flowed through to a 54.2% decline in operating income and an 83.1% drop in net income.
The most pressing risks include cost inflation outpacing revenue growth, a debt-to-equity ratio of 1.5x that becomes more burdensome as earnings fall, and dividends of $237M exceeding operating cash flow of $204M — a potentially unsustainable payout situation if profitability does not recover.
SW paid $237M in dividends in Q1 2026 while generating only $204M in operating cash flow, meaning the dividend exceeded cash generated from operations by $33M. Unless earnings recover materially, this dividend coverage gap raises questions about long-term sustainability.
SW maintains a current ratio of 1.44x suggesting adequate short-term liquidity, but cash fell 15.4% YoY to $674M and net margin is razor-thin at 0.84%. With a debt-to-equity ratio of 1.5x and earnings under severe pressure, the company's financial health has meaningfully weakened compared to a year ago.