Zebra Technologies Corporation (ZBRA)

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Zebra Technologies Corp. (ZBRA)

Q2 2011 Earnings Call

August 4, 2011 11:00 AM ET


Douglas Fox – VP, IR

Anders Gustafsson – CEO

Michael Smiley – CFO


Paul Coster – JPMorgan

Michael Terzich – SVP, Global Sales and Marketing

Karl Ackerman – KeyBanc Capital markets

Keith Housum – Northcoast Research

Tim Mulrooney – William Blair

Jason Rodgers – Great Lakes Review

Anthony Kure – KeyBanc Capital Market



Good morning, and welcome to the Zebra Technologies 2011 Second 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.

Douglas Fox

Thank you. Good morning. 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, 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 another quarter of solid operating results. Specifically, we delivered 58% growth in earnings from continuing operations to a record $0.60 per share and $0.12 growth in sales to $245 million, also a record. The second quarter marks Zebra’s eighth consecutive quarter of sequential sales growth. We achieved improved operating leverage with continued high gross margins and effective control over operating expense growth.

Further, we maintained our aggressive buyback programs with a repurchase of 1 million shares of Zebra stock. The increasing success of our investments, strategic investments was complemented by a continuing favorable environment for solutions driving greater efficiencies in global supply chain. Zebra’s growing presence in emerging regions or step-up cadence or new product introductions together with expanded relationships with new channel partners enable Zebra to reach more customers more broadly and deeply in targeted vertical industries around the world.

This progress is built on Zebra’s scale and leading global brand. It has positioned the company for further shareholder value creation by fortifying Zebra’s competitive advantages and enhancing our ability to serve more of our customers’ needs for greater visibility with actionable outcomes, improved operational efficiency and enhanced customer loyalty.

I would now like to provide an overview of the highlights for the quarter. Now with 60% of sales outside North America, all international regions experienced strong growth. Participation was broad with 17 countries registering year-over-year sales increases of 20% or more. Our geographic expansion efforts paid off several countries across new sales thresholds aided by the additional Zebra sales representatives placed in emerging regions over the past year and the tight strategic alignment between sales and marketing.

Sales in those regions with this increased representation were up an aggregate 25% for the second quarter. In Asia-Pacific, we are clearly seeing the upside of our investments with 50% of growth in the second quarter. Our success in China included a positive impact of our expansions to also serve customers in Western China. We also had strong growth in South Korea, India, Australia and Southeast Asia.

Every subregion posted the year-over-year sales growth as Zebra’s broad range of printers met customer needs in manufacturing, retail and government. With 25% growth, Latin America experienced a short rebound as sales reached an all-time record. Improved sales to manufacturing customers in Mexico complemented ongoing positive momentum in Brazil.

We also had marked improvement in sales in the rest of the regions including Puerto Rico, Colombia and Argentina with important figures for mobile and desktop printers. We have also seen growing interest in Zebra card printers from financial institutions for on demand printing and issuance of credit cards. This solution is a promising opportunity for Zebra in Latin America as well as other emerging regions.

In EMEA, the strong run rate business led to solid growth in nearly all subregions. Demand from manufacturing customers supported healthy sales in Germany. In Eastern Europe, our fastest growing subregion in EMEA, we also benefited from the robust manufacturing sector as well as increased shipments to customers and retail. We continue to look to Eastern Europe as a source of growth as our expansion initiatives include the focus on building a greater presence in Russia, where we are opening a new office with further head count investments to follow.

In North America, strength in Zebra’s traditional base in manufacturing and warehousing led to a regional mix of high performance and midrange printers, and a run rate business through distribution remained robust as well. These stable reference helped to offset the sluggish second quarter in the retail sector against the year-ago when we shipped several large retail orders.

We remain encouraged about the outlook in North America. The pipeline looks good and we continue to see healthy demand from manufacturers, the benefit of our large installed base. In addition, interest in direct store delivery and other mobility solutions is strong driven by a focus on improving wealth management in light of raising fuel prices. Longer-term, Zebra has programs under way to tap additional sources of business by penetrating established verticals more deeply with more applications.

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