Zebra Technologies CEO Discusses Q1 2011 Results - Earnings Call Transcript

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Zebra Technologies Corporation (ZBRA)

Q1 2011 Earnings Call

May 4, 2011 10:00 am ET

Executives

Doug Fox – VP, IR

Anders Gustafsson – CEO

Mike Smiley – CFO

Mike Terzich – SVP, Global Sales and Marketing

Analysts

Brian Drab – William Blair & Company

Paul Coster – JPMorgan

Greg Halter – Great Lakes Review

Ajit Pai – Stifel Nicolaus

Chris Quilty – Raymond James & Associates

Andrew Abrams – Avian Securities

Anthony Kure – KeyBanc

Keith Housum – NorthCoast Research

Presentation

Operator

Good morning, and welcome to the Zebra Technologies 2011 first quarter earnings release conference call. Joining us from Zebra Technologies are Anders Gustafsson, CEO; Mike Smiley, CFO; Mike Terzich, Senior Vice President, Global Sales and Marketing; and Doug Fox, Vice President, Investor Relations.

All lines will be in a listen-only mode until after today’s presentation. Instructions will be given at that time in order to ask a question. At the request of Zebra Technologies, this conference call is being recorded. Should anyone have any objections, please disconnect at this time.

At this time, I would like to introduce, Mr. Doug Fox of Zebra Technologies. Sir, you may begin.

Doug Fox

Thank you. Good morning everyone. Thank you for joining us today. Certain statements made on this call will relate to future events or circumstances and therefore will be forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995.

Words such as expect, believe and anticipate are a few examples of words identifying a forward-looking statement. Forward-looking information is subject to various risks and uncertainties which could significantly affect expected results. Risk factors were noted in the news release issued this morning and are also described in Zebra’s 10-K for the year ended December 31^st, 2010, which is on file with the SEC. Now, let me turn the call over to Anders Gustafsson for some brief opening remarks.

Anders Gustafsson

Thank you, Doug, and good morning everyone. Today, Zebra reported outstanding financial results for the first quarter of 2011. We delivered 12% sales growth to a record $237 million, 26% growth in earnings from continuing operations to $0.54 per share also a record, and GAAP EPS to $1.10 including the gain on the sale of Navis.

We achieved significant year-over-year increases in gross margin, drove further improvements in operating leverage, and accelerated our buyback program with the repurchase of 1.1 million shares. Excellent execution in many areas of the business enabled us to achieve these record results and has positioned Zebra for further success in creating greater value for our shareholders.

Sales increased in all geographic regions as a result of a continued solid established brand position, as well as investments in additional sales resources in emerging markets in the past year. As supply chain organizations lowered product acquisition costs, building on our successful transition to outsourcing. Our increasingly productive engineering organization is accelerating the pace of new product introductions in a streamlined, more efficient product development model.

Our scale and numerous competitive advantages continue to benefit Zebra, as we enhance our ability to serve our customers’ demand for greater visibility, operational efficiency, and customer satisfaction. I would now like to provide an overview of the highlights for the quarter.

All geographies contributed to our sales growth for the quarter, with a rich product mix that included healthy sales of high performance and mid-range printers and aftermarket parts. Strong international sales were bolstered by the investments we made in geographic expansion. Sales grew 25% for the first quarter in those countries and regions where we added Zebra sales personnel over the past year, including more than 60% growth in China.

Asia-Pacific continues to be a substantial source of strength for Zebra. For the quarter, sales in the region increased 41%. In addition to China, we had excellent sales growth in India, another country where we have made recent investments. We also had growth in South Korea where we see a strong recovery in manufacturing. Zebra’s channel partners shipped mobile, high-performance and mid-range printers to support applications in warehouse management, fixed asset management, and sales force automation.

In EMEA, strong channel demand led to 12% growth in the region, with notable sales into postal and retail applications with desktop kiosk and card printers. Nearly all sub regions contributed to growth in the territory, which has a solid pipeline of business going into the second quarter. Latin America experienced somewhat slower growth for the quarter, but our expectation for the region remains very positive. For the quarter, we had strong growth in supplies as manufacturing in Mexico continued to recover, the breadth of depth of our product line provided us a clear competitive advantage as evidenced by a reseller who was able to meet a major retail customer’s printing needs with a bundle solutions of desktop and card printers.

Finally, in North America, we were pleased with our revenue growth and with a range of customer applications served, with revenue up a healthy 8% from a year ago and up 5% from the fourth quarter. The broad range of our product portfolio including tabletop mobile and desktop supported applications in retail, healthcare, manufacturing and government. Business activity continues to remain robust as we increased our engagement with customers at a higher more strategic level.

Activity in passive RFID remains strong. During the quarter, we secured a new relationship with a major U.S. apparel manufacturer for Zebra RFID printers encoders who recognized the value of our proprietary on-page and dynamic encoding capabilities. In addition to retail where we are involved in various promising pilot programs, RFID continues to attract attention in industrial manufacturing, aerospace and other verticals. Customers in these industries place high value in the technology where regular maintenance and controlled chain of custody are important.

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