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Zebra Technologies Earnings: Trotting Past Guidance Targets With 11% Sales Growth

Anders Bylund, The Motley Fool

Data collection and management specialist Zebra Technologies (NASDAQ: ZBRA) reported fourth-quarter results this Thursday morning. Businesses around the world were hungry for Zebra's barcode scanning and printing technologies, driving both the top and bottom lines above management's own expectations.

Zebra's fourth-quarter results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Net sales

$1.14 billion

$1.03 billion

11%

Net income

$115 million

$4 million

2,800%

GAAP earnings per share (diluted)

$2.11

$0.07

2,900%

Data source: Zebra Technologies.

What happened with Zebra Technologies this quarter?

  • Zebra's guidance for the fourth quarter called for non-GAAP earnings of roughly $2.90 per share on sales near $1.12 billion. Posting adjusted earnings of $3.10 per diluted share, the company exceeded the high end of these guidance ranges.
  • The year-over-year profit comparison was amplified by a big income tax bill in the year-ago period. Zebra's pre-tax income increased by a less dramatic 90%, landing at $148 million. Adjusted earnings, which back out the effects of 2017's tax reform and other non-recurring line items, rose 34%, to $3.10 per diluted share.
  • Zebra's growth was broad-based in the fourth quarter, encompassing all of the company's products and services in nearly every geographical market. Revenue increases were spotty in Europe, but even that lagging market saw strong sales within mobile computing, printing supplies, and data-capture devices.
  • The balance sheet, which held more than $3 billion of long-term debt four years ago due to the game-changing buyout of Motorola's enterprise operations, has now slimmed down to a $1.4 billion long-term debt load. That works out to a debt leverage ratio of 1.8 times EBITDA profits, which is on the lower end of what management considers a healthy and effective leverage level. Zebra may continue to pay down debt or refinance high-interest papers as needed, but debt management is no longer at the top of this company's list of priorities.
Zebra Technologies' corporate logo, white on black, including a cartoonish zebra head.

Image source: Zebra Technologies.

What management had to say

In a one-on-one phone call with The Motley Fool, CEO Anders Gustafsson explained how Zebra is using research and development to lean into higher-growth opportunities. According to Gustafsson:

We are putting a lot of emphasis on the development of our portfolio of newer solutions. We had a number of successful launches of this in 2018 and our vision around enterprise asset intelligence is resonating with customers. We are launching more and more new solutions to accelerate the execution of that vision.

What Zebra calls "adjacencies" falls into this category, led by technologies such as mobile data capture and RFID tags. The company consistently spends more than 10% of its top-line revenues on research and development (R&D) operations, including a 10.6% budget share in this quarter.

Looking ahead

Zebra's management expects first-quarter sales to rise approximately 8% over the prior-year period, stopping near $1.05 billion. This forecast includes a roughly 2% contribution from recent acquisitions and a 1% currency exchange headwind. Adjusted earnings should rise by roughly 11%, landing near $2.85 per diluted share.

For the full fiscal year of 2019, Zebra's sales should increase by something like 6% to land in the neighborhood of $4.45 billion. EBITDA margins are expected to widen by a couple of percentage points, thanks to more cost-effective operations.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Zebra Technologies. The Motley Fool has a disclosure policy.