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    ZEBRA TECHNOLOGIES (ZBRA)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$300.01Last close (Apr 29, 2024)
    Post-Earnings Price$320.00Open (Apr 30, 2024)
    Price Change
    $19.99(+6.66%)
    • Zebra is seeing demand stabilize and modest improvement in large order activity, particularly in mobile computing and retail, indicating the beginning of a recovery.
    • The company is targeting an adjusted EBITDA margin above 20% as a baseline and expects margin expansion driven by increased volume and restructuring actions, with potential for greater margins as they scale higher-margin products in emerging markets like machine vision and software.
    • Zebra has a large installed base that will need to be refreshed, and mobile computing is beginning to recover, especially in retail, with an expectation that other segments and regions will follow, leading to future growth opportunities.
    • The mid-tier and run-rate business segments have not yet seen a recovery, with continued softness and limited visibility, indicating a slower overall recovery. ,
    • The recovery in China is expected to be prolonged, and the region continues to face challenges, impacting growth prospects in the Asia-Pacific region.
    • Customers are cautious, initiating only initial phases of projects rather than full deployments, leading to delayed recovery and hesitant spending in sectors beyond retail. ,
    1. Second Half Guidance
      Q: What's driving your second half sales outlook?
      A: Nathan Winters explained that the second half outlook is based on current order velocity and they are not assuming any mega deployments due to a lack of firm customer commitments. They expect Q3 to look similar to Q2, which resembles Q1 in run rate and trajectory. Growth in the second half is primarily driven by lapping prior destocking activity rather than a significant uptick in large deals.

    2. Recovery in Key Markets
      Q: Are you seeing recovery in manufacturing and T&L?
      A: William Burns stated they are not yet seeing recovery in manufacturing and transportation and logistics (T&L). T&L customers are still absorbing capacity built during the pandemic and optimizing operations. Manufacturing is impacted by broader market uncertainty, but they view it as a longer-term opportunity.

    3. Margins and Cost Actions
      Q: Why is adjusted EBITDA margin guidance lower for Q2?
      A: Nathan Winters explained that the Q2 adjusted EBITDA margin is guided slightly above 19%, down from 19.9% in Q1, entirely due to seasonality in their retail software business. They expect margins to uptick through the year as cost actions take effect and seasonal spending decreases.

    4. Pipeline and Visibility
      Q: How does your pipeline visibility compare to six months ago?
      A: William Burns noted that while they've seen modest improvement in large order activity, particularly in mobile computing and retail, visibility remains uncertain due to early-stage deals and cautious customer spending. Nathan Winters added that deals are in earlier stages of the funnel than preferred at this point in the year.

    5. Capital Allocation Plans
      Q: Any plans for buybacks or M&A given improving cash flow?
      A: Nathan Winters indicated they plan to prioritize debt paydown with their $600 million of free cash flow, but will reassess buybacks as the year progresses, particularly in the second half. William Burns stated that their M&A philosophy remains the same, focusing on adjacent and synergistic assets, but there's a higher bar given the current macro environment and debt leverage.

    6. Asia-Pacific Performance
      Q: What's impacting your performance in China?
      A: William Burns explained that Asia-Pacific underperformed due to declines in China, which is expected to have a longer recovery. They are encouraged by bright spots in retail and larger orders in Australia and New Zealand, and see opportunities outside China in Southeast Asia and India.

    7. RFID Business Trends
      Q: How is your RFID business performing?
      A: William Burns highlighted that RFID is a growing opportunity across multiple verticals beyond retail apparel, including track and trace, parcel tracking in T&L, and manufacturing. They've seen strong growth across their RFID portfolio over the past few years and hold the broadest set of RFID solutions in the market.

    8. Channel Inventory Levels
      Q: Are channel inventories normalized?
      A: Nathan Winters stated that global channel inventories are normalized to support current demand and are within expected ranges. There are no meaningful impacts expected from changes in distribution inventory levels in the quarter or full-year guidance.

    9. Healthcare Market Progress
      Q: How is your healthcare market progressing?
      A: William Burns mentioned that healthcare is impacted by tighter budgets and margins, but they continue to drive productivity solutions that enhance efficiency. They see home healthcare as an opportunity and are optimistic about customer engagement, though they want to see more orders materialize.

    10. Mobile Computing Refresh Cycle
      Q: When do you expect the refresh cycle in mobile computing?
      A: William Burns noted that the mobile computing refresh cycle is beginning, first in retail and e-commerce. Customers have started to absorb capacity and are initiating projects, but deployments are more measured. They expect a measured overall recovery, with refresh cycles varying by customer.

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