Zebra Technologies Corporation (ZBRA) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Q2 Performance: Zebra Technologies reported sales and earnings above the outlook, with sales of $1.2 billion, an adjusted EBITDA margin of 20.5%, and non-GAAP diluted earnings per share of $3.18.
• Growth in Healthcare and Mobile Computing: The company saw double-digit growth in healthcare and a return to growth in mobile computing across all vertical end markets, led by healthcare and retail.
• Sequential Improvement in Profitability: Improved gross margin and the benefits of restructuring actions led to sequential improvement in profitability.
• Raising Full Year Outlook: Based on Q2 performance and early signs of momentum in demand, Zebra is raising its full year outlook for sales and profitability.
• Expansion in EMEA and Latin America: Sales increased in EMEA by 10% and in Latin America by 7%, driven by mobile computing and strong growth in Brazil.

Pessimistic Highlights

• Flat Sales Compared to Previous Year: Sales were approximately flat compared to the prior year.
• Decline in Major Product Categories: Growth in mobile computing was offset by declines across other major product categories.
• Cautious Spending Behavior: Customers continue to exhibit cautious spending behavior on large deployments, which have not yet returned to historical levels.
• Challenges in Manufacturing and T&L: Manufacturing remains challenging, particularly in EMEA, and transportation and logistics saw fewer large orders in North America.

Company Outlook

• Q3 Sales Growth Expectation: For Q3, Zebra expects sales growth between 25% and 28% compared to the prior year, assuming continued stability of demand trends.
• Adjusted EBITDA Margin and EPS: Q3 adjusted EBITDA margin is expected to be between 20% and 21%, with non-GAAP diluted earnings per share in the range of $3 to $3.30.
• Full Year Guidance Raised: Full year sales growth is now expected between 4% and 7%, with an adjusted EBITDA margin in the range of 20% to 21% and non-GAAP diluted earnings per share between $12.30 and $12.90.

Q & A Highlights

• Q: What is needed to bring larger project activity back? (Damian Karas, UBS)

  A: Customers continue to cite uncertainty, affecting their purchasing behavior. Large deployments are being spread over longer periods. Zebra would like to see more momentum in large orders before factoring in a stronger recovery. (Bill Burns)

• Q: Impact of pick back up in shipping rates on costs? (Damian Karas, UBS)

  A: There has been a modest increase in rates, which is included in the full year guide. The team is working on several actions to mitigate this impact. (Nathan Winters)

• Q: Drivers behind EVM margin strength? (Jamie Cook, Truist Securities)

  A: Strength in run rate and mid-tier business, continued strength in service and software margins, and cycling of premium supply chain costs contributed to the highest gross margin quarter in three years. (Nathan Winters)

• Q: Expectations for OpEx spend in the second half of the year? (Jamie Cook, Truist Securities)

  A: Historically, OpEx spend is lower in the second half due to timing of trade shows, sales meetings, and lower benefit costs. This is expected to contribute to sequential improvement in profitability. (Nathan Winters)

• Q: Update on distributors asking for more product? (Joe Giordano, TD Cowen)

  A: Global channel inventory is at a normalized level, with ongoing collaboration with partners to ensure appropriate inventory levels without getting ahead of demand. (Nathan Winters)

• Q: Trends within RFID, Matrox, and Fetch? (Joe Giordano, TD Cowen)

  A: RFID faced challenging comparisons but is expected to return to growth. Machine vision and Matrox faced market challenges, but diversification efforts are ongoing. Software and robotics are seen as future growth drivers. (Bill Burns)

• Q: Thoughts on potential upgrades of devices in 2025? (Andrew Buscaglia, BNP)

  A: Customers have been absorbing capacity built during the pandemic. Zebra sees a solid pipeline of opportunities for mobile computing upgrades and competitive wins. (Bill Burns)

• Q: Capital allocation towards year-end? (Andrew Buscaglia, BNP)

  A: Priorities include organic growth, M&A, and now with improved cash flow and capital structure, additional flexibility for share repurchases. M&A remains a lever but with a higher bar due to macro uncertainty and higher interest rates. (Nathan Winters, Bill Burns)