Is Zebra Poised To Capitalize On Growth Trends In Cloud & IoT?

(RTTNews) - This barcode printer maker reported strong fourth quarter sales "topping off a defining and historic year for the company, and culminating with the closing of the acquisition of the Enterprise business of Motorola Solutions."

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The Stock In Focus

Zebra Technologies Corp. (ZBRA) designs, manufactures and sells a broad range of products, including: enterprise mobile computers; advanced data capture devices such as laser, 2D and Radio Frequency Identification or RFID scanners and readers; WLAN products; specialty printers for barcode labeling and personal identification; real-time location systems; related supplies such as self-adhesive labels; and utilities, frameworks and application software.

Each of the company's segments - Enterprise and Legacy Zebra - sells services and software that complement its hardware products. Enterprise, comprised of the company's mobile computing, data capture, and WLAN products. Legacy Zebra, comprised of barcode and card printing, location and motion sensing and supplies products.

Zebra relies on a combination of trade secrets, patents, trademarks, copyrights and contractual rights to establish and protect its innovations. Founded in 1969, Zebra currently holds over 4200 asset management technology patents and with over 1700 engineering experts on staff continues to expand its portfolio of solutions and services.

In 2014, 44.1% of the sales were in North America, 34.9% in Europe, Middle East & Africa, 12.9% in Asia Pacific and 8.1% in Latin America.

Catalysts

* Focused Solely On Enterprise Asset Intelligence

The company focuses on seven key technologies of Enterprise Asset Intelligence: (1) mobile computing, (2) barcode and card printing, (3) data capture, (4) RFID, (5) location and motion sensing; (6) cloud-based device management, and (7) WLAN.

* High Entry And Switching Barriers

Zebra has deep and long-standing relationships with end customers for its products & services, and focuses on rugged or semi-rugged environments, with specialized product performance requirements. These characteristics provide high switching barriers for its products.

* Delivers Full End-To-End Solutions

The company is able to deliver full end-to-end solutions across targeted industries, with a broad portfolio of products and wide network of business and reseller partners. The company's recent Enterprise acquisition expanded Zebra's product line with complementary products and enabled it to deliver end-to-end solutions supporting the Internet of Things or IoT in targeted industries.

* Strong Brands With Multiple Growth Opportunities

The company seems be well positioned to benefit from attractive global and secular trends in, including, mobility computing, data sensing, tracking and capturing devices, secure wireless networks, cloud-based applications and edge sensor analytics.

* Highly Diversified Business Mix

The company is highly diversified across business segments, end markets, geographies, customers and suppliers. Additionally, it has strong recurring business in services and supplies driven by an extensive installed worldwide base of products. It also provides competitive scanning products based distinct technologies - flying spot lasers, area (2D) imagers, and linear (1D) imagers. Zebra continues to launch new products and invests in emerging technology trends to meet the customers' growing needs.

* Global Presence

It provides products and services in about 100 countries, with 122 facilities and about 6,800 employees worldwide.

Customers

Zebra's customers are diversified across a wide variety of industries, including retail, manufacturing, transportation and logistics, and healthcare industries.

Over the past three years, the company had three customers that each accounted for 10% or more of its sales. All three of these customers are distributors and not end users. No end customers account for 10% or more of net sales during these years.

Product Innovation Continued At Brisk Pace To Position Zebra For Further Growth

During 2014, the company released 12 new printer products to serve a variety of applications, including mobility, healthcare and RFID encoding. Also, it will continue to adapt to its customers' evolving needs by introducing new and updated products. In total, Zebra released about 60 new products across the entire organization.

Acquisition of Enterprise Business

In October 2014, Zebra acquired the Enterprise business from Motorola Solutions Inc. excluding its iDEN, or Integrated Digital Enhanced Network Business, for $3.45 billion in cash. The transaction was funded with $200 million of cash on hand and $3.25 billion in new debt.

Enterprise is an industry leader in mobile computing and advanced data capture technologies and services, which complement Zebra's printing and RFID products. Its products include rugged and enterprise-grade mobile computers; laser imaging and radio frequency identification based data capture products; wireless LAN or WLAN solutions and software; and applications that are associated with these products and services.

Post acquisition, the company claims that the business has gained positive momentum as the new Zebra is strategically better and stronger. The Enterprise business contributed $482 million to sales, on a non-GAAP basis, for the two months post closing.

Latest Q4 Performance

Zebra incurred a loss of $51.68 million or $1.02 per share for the fourth quarter of 2014 compared to a profit of $41.65 million or $0.82 per share in the prior year period. The recent quarter results included $66.09 million of acquisition and integration costs.

Non-GAAP net income was $58.19 million or $1.15 per share, compared to $48.83 million or $0.96 per share in the fourth quarter of 2013.

Quarterly net sales were $790.61 million, 177.9% higher than the previous year's $284.54 million.

Sales for the company on a non-GAAP basis totaled $796.8 million. On a pre-transaction basis, Zebra sales increased 11% to a record $315 million with strong performance across printer, supplies and service. The Enterprise business contributed $482 million to sales, on a non-GAAP basis, for the two months post closing. Enterprise sales exclude a reduction of $6.2 million for purchase accounting related to service contracts.

Analysts polled by Thomson Reuters expected the company to report earnings of $1.19 per share and revenues of $783.51 million for the fourth-quarter. Analysts' estimates typically exclude special items.

Gross margin of 42.6%, versus 49.6% in 2013, reflects the mix of products sold during the quarter, including Enterprise products, which generally have lower gross margins than Zebra products.

Q1 Guidance

The company expects first-quarter net sales within a range of $870 million - $890 million. This forecast incorporates an expectation of year-over-year growth of 6.0% - 8.0% in constant currency, on a proforma basis.

Non-GAAP earnings are expected to range between $0.95 and $1.20 per share. Analysts expect the company to report earnings of $1.22 per share and revenues of $882.19 million for the first-quarter.

Entered FY15 With Strong Positive Momentum

The company believes that it is "well positioned to benefit from important technology trends including the Internet of Things or IoT, cloud computing and mobility, as organizations invest in visibility solutions to gain real-time insights into their assets, transactions and people to achieve improved work flow and deliver better customer service."

Capitalize On Attractive Longer-Term Secular Growth Trends Zebra intends to fuel long-term growth by capitalizing on transformational secular trends, particularly in mobility, the cloud and IoT. It plans to drive new business models and revenue streams for customers through delivering solutions that seamlessly integrate smart devices with cloud-based software applications.

Th company's steadfast focus on Enterprise Asset Intelligence, strong diversified business mix and significant global reach keeps it well positioned for longer-term growth.