Zebra Technologies Corp. (ZBRA)
Q2 2010 Earnings Call
August 5, 2010; 11:00 am ET
Anders Gustafsson - Chief Executive Officer
Mike Smiley - Chief Financial Officer
Mike Terzich - Senior Vice President, Global Sales and Marketing, SPG
Doug Fox - Vice President Investor Relations
Reik Reed - Robert W. Baird
Brian Drab - William Blair & Company
Maria - J.P. Morgan Securities
Chris Quilty - Raymond James Associates
Ajit Pai - Stifel Nicolaus
Karl Ackerman - KeyBanc Capital Markets
Greg Halter - Great Lakes Review
Andrew Abrams - Avian Securities
Previous Statements by ZBRA
» Zebra Technologies Corporation Q1 2010 Earnings Call Transcript
» Zebra Technologies Corp. Q4 2009 Earnings Call Transcript
» Zebra Technologies Q2 2009 Earnings Call Transcript
Good morning, and welcome to the Zebra Technologies’ 2010 second quarter earnings release conference call. Joining us from Zebra Technologies are Anders Gustafsson, CEO; Mike Smiley, CFO; and Mike Terzich, Senior Vice President, Global Sales and Marketing, SPG; 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.
Thank you, and 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, 2009, which is on file with the SEC.
Now, let me turn the call over to Anders Gustafsson for some brief opening remarks.
Thank you, Doug and good morning everyone. Here in the room with me are Mike Smiley, our CFO; and Mike Terzich, our SVP of Global Sales and Marketing with the Specialty Printer Group. Today, Zebra reported results that well exceeded expectations.
Sales of $235.7 million established the fourth consecutive quarter of sequential sales growth and we are up 4% from the first quarter and 26% from a year ago. Broad-based demand in all regions and all major industries helped drive this favorable performance.
Globally, further improvements in large-deal activity complemented an ongoing firm run rate business. At $0.39 in GAAP EPS, we sustained high gross margins and offering profits aided by benefits from our outsourcing initiative.
Over the past two years, we have developed and executed an integrated strategy to build stronger customer relationships, lower product costs, capitalize in growing opportunities in emerging regions and improve operational efficiency.
Our second quarter performance is due impart to this strategy. Our scale and execution are extending Zebra’s industry leadership and making us the most strategic partner to our customers. All of this has positioned Zebra for further profitable growth and greater shareholder value creation.
During the second quarter, we continued to make progress on our strategic initiatives to deliver shareholder value. We substantially completed this year’s investments in geographic expansion with the addition of Zebra sales people in emerging markets and the opening of new sales offices in Brazil, Turkey and China.
In addition, our second quarter results reflect 360 basis point improvements to gross margin from outsourcing, exceeding our 250 to 300 basis point target. At the same time, we began positioning Zebra higher in the value chain by enriching our goal to market channels by building stronger relationships with system integrators and independent software vendors.
Our product development activities have also enabled us to continue to create an increasingly compelling product line to meet more regional and vertical specific needs. In addition to our internal activity investments to drive organic growth, we continue to deploy our resources in other activities with the highest risk adjusted returns.
During the quarter, we invested $26 million, nearly all the quarter’s free cash flow to buy back nearly 1 million shares of Zebra stock. As we disclosed in this morning’s press release, we completed the repurchase of all 3 million shares under the previous authorization, and the Board has approved an additional buy back of 3 million shares. Since 2005, we have returned more than $520 million shares to shareholders by buying back a total of 15 million shares or 20% of shares outstanding. We believe that repurchasing Zebra shares continues to be an attractive investment at this time.
We’ll briefly cover some of the highlights for the quarter in Specialty Printing and Enterprise Solutions, in Specialty Printing or SPG, all geographic regions performed well across a wide range of industries and products, a further indication of Zebra market and brand strength.
Sales increased $5 million from the first quarter. These results were driven by particularly strong performance in North America. The pace of North American bookings were strong with sales into retail, food service and small package delivery of mobile, kiosk and desktop printers.
During the quarter, sales of wristbands exceeded $1 million for the first time, an indication of the growing traction of our healthcare solutions. Furthermore, we secured another new and exciting pilot for our innovative IQ color labels, which enables spot color on thermal printing.
We also launched a pilot that pairs Zebra mobile printers with smart phones, enabled by Zebra developed smart phone printer drivers. We are beginning to see an increase in smart phone applications in the [AIDC] market and we believe Zebra is well positioned to benefit from this important trend.