Zebra Technologies’ stock falls after mixed Q4 performance, company signals soft start to 2016

by Shahroze Husain | 02/26/2016

Zebra Technologies reported its Q4 2015 earnings on February 25th 2016 beating analysts’ EPS estimates by $0.04 while missing on revenue by $7.52 million. The company’s revenues grew 20.5% from Q4 2014. Revenues of $952.74 million for the quarter included $635.8 million from the Enterprise business unit, which was significantly higher than the revenue contribution in Q4 2014 (24% increase) as the acquisition closed on October 27 of that year. Zebra’s legacy business (including barcode printers, card printers, consumables, location services) accounted for $320.5 million, up from $314.6 million in Q4 2014. The company’s gross margin now stands at 45.1% for the quarter, down from 46.6% in the fourth quarter of 2014; this is reflective of a couple of factors including the change in revenue mix associated with Enterprise products, which have lower gross margin percentages than legacy Zebra products, and the impact of foreign currency movements. Although Zebra Technologies has managed to exceed analyst expectations in EPS estimates, company shares have fallen almost 15% since the Q4 earnings release.
The following are key insights from the company’s 2015 fourth quarter performance

  • Both data capture and printing business displayed strong performances this quarter for Zebra technologies. Zebra’s scanning business saw greater growth driven by its accelerated transition from 1D to 2D imaging in data capture, while its printing business saw strong performances across the board with growth in mobile printing as well as greater interest in its Link-OS software platform.
  • The company continued to gain traction in the market with e-commerce, mobility, OS migration, 1D to 2D imaging migration, and continuing refresh cycles in printing leading the way for further growth. In regards to verticals, the company saw strong sales from the retail, transportation and logistics, and healthcare markets.
  • With the OS migration of businesses from legacy Windows systems to Android, Zebra Technologies experienced a 150% growth in Android-powered devices from the same time period last year with larger enterprises continuing to be early adopters of the Android OS system. However, overall revenue contribution of Android devices continues to be relatively small.
  • North American sales experienced a 7% growth in Q4 2015 but did experienced softening in December resulting in a lower backlog for 2016, a result of cautious capital spending from businesses. However, Zebra expects better growth beginning in the second quarter through to the end of 2016 in the region.
  • Zebra’s Latin American sales declined 12% as compared to Q4 2014. The company’s printing business has continued to experience growth in the region but currency devaluations have adversely affected demand due to macroeconomic factors. Going forward Zebra expects sales to be slow until the region stabilizes.
  • EMEA sales continued to be flat this quarter with 1% growth from a year ago on a constant currency basis. Strong sales from Zebra’s scanning and printing business offset lower mobile computing sales. The soft performance in the region was a result of macro factors and weak demand from Russia, Turkey, France and the Middle East. However, Germany and the UK generated strong sales during the quarter and will continue to do so in 2016.
  • Like Q3 2015, Asia-Pacific continued to lead the way for growth with 9% year-over-year growth. Led by a strong performance in China, Zebra experienced strong sales in mobile computers driven by investments from businesses in retail, transportation logistics and e-commerce. Its printing business posted strong sales with mobile printers generating the most growth. In 2016, Zebra expects to continue to see greater growth in the region driven by sales in China and India, focusing on retail and T&L.
  • Having generated approximately $130 million in cost synergies in 2015, Zebra plans to continue its ongoing integration and synergy operations with the aim of generating further $50 million in cost synergies during 2016.

Looking forward, Zebra Technologies is expecting a tough Q1 2016 to be flat to down 3% YoY and EPS of $1.19-$1.34. Investors have not taken too kindly to this relatively weak near-term outlook; this is the primary reason for the steep fall in the stock price. Coupled with its 1%-4% full-year sales growth guidance as compared to a consensus of 3.5%, the company has its task cut out. Zebra shared that it has a number of new product releases lined up for the year ahead with two newly launched solutions for 2016 including its new mobile computer, the TC8000, as well as a new cartridge-based tabletop printer, the ZD420. We will continue to follow the company’s progress and keep our readers updated.
(with Richa Gupta, Senior Analyst)

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