It has been about a month since the last earnings report for Zebra Technologies (ZBRA). Shares have added about 15.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zebra due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Zebra Technologies Q2 Earnings Beat, Revenues Miss Mark
Zebra Technologies reported second-quarter 2023 adjusted earnings (excluding 46 cents from non-recurring items) of $3.24 per share, beating the Zacks Consensus Estimate of earnings of $2.91 per share. The bottom line fell 23.2% year over year.
Total revenues of $1,214 million missed the Zacks Consensus Estimate of $1,311.1 million. The top line plunged 17.3% year over year due to softening demand and reduced consumer spending, the impact of which was more prominent in the retail and logistics end markets. The company has announced incremental $65 million of annualized expense reductions to combat the end-market softness. This, coupled with the prior cost-reduction plan, is expected to generate cost savings of approximately $85 million annually for ZBRA.
Consolidated organic net sales declined 16% year over year. Acquisitions contributed 0.6% to the top line, while foreign-currency translation had an adverse impact of 1.9% on sales.
Revenues from the Asset Intelligence & Tracking segment were $459 million, down 1.7% year over year. Organic net sales increased 0.2% in the AIT segment. Foreign-currency translation hurt segmental revenues by 1.9%.
The Enterprise Visibility & Mobility segment’s revenues were $755 million, down 24.6% year over year. Organic net sales declined 23.6%. Acquisitions contributed 0.9% to segmental revenues, while foreign-currency translations hurt revenues by 1.9%.
In the second quarter, Zebra Technologies’ cost of sales totaled $633 million, down 20.3% year over year. Total operating expenses declined 52.7% year over year to $387 million. ZBRA reported a net income of $144 million in the second quarter against a net loss of $98 million in the year-ago period.
Balance Sheet and Cash Flow
Exiting the second quarter, Zebra Technologies had cash and cash equivalents of $68 million compared with $105 million at the end of December 2022. Long-term debt was $2,042 million compared with $1,809 million at the end of December 2022.
In the first six months of 2023, Zebra Technologies used net cash of $110 million in operating activities against $154 million in cash generated at the end of the year-ago period. In the same period, the company incurred capital expenditure of $34 million. Free cash outflow was negative $144 million. The company repurchased shares worth $52 million in the first half of 2023.
For the third quarter of 2023, Zebra Technologies expects a 30-35% drop in net sales from the year-ago reported quarter. This includes a one percentage point negative impact from foreign currency headwind. Adjusted EBITDA margin is expected to be 10-12%. Adjusted earnings are estimated to be between 60 cents and $1. Adjusted effective tax rate is predicted to be approximately 18%.
For 2023, Zebra Technologies expects net sales to decline 20-23% from the year-ago period. This includes more than 1 percentage point negative impact from adverse foreign currency movement and a 50-basis point contribution from acquisitions. Adjusted EBITDA margin is estimated to be approximately 18%.
While ZBRA expects free cash flow to be positive in the second half, it expects the same to be negative for the full year due to lower profitability, elevated inventory and higher cash taxes (including an anticipated $180 million in previously-announced settlement payments).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -80.37% due to these changes.
Currently, Zebra has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren’t focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Zebra has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.