Zebra Technologies Corporation Q2 FY2025 earnings call

Bill Burns mentioned the team executed well in Q2, results exceeded outlook with solid demand and lower-than-expected U.S. import tariffs. Nathan Winters noted total company sales grew by more than 6%, services and software recurring revenue business slightly grew, strong sales growth across regions, adjusted gross margin declined due to higher tariffs, adjusted operating expenses as a percent of sales improved, resulting in adjusted EBITDA margin increase. Balance sheet in excellent shape. Tariff impact updated with mitigation actions. Outlook raised including sales growth, EBITDA margin, earnings per share and free cash flow. Acquisition of Elo will expand portfolio, Elo is leading in point-of-sale, kiosks, etc., and will be accretive to earnings. Zebra's solutions help customers digitize and automate workflows, with innovation and R&D investment.

In the second quarter, Zebra realized sales of $1.3 billion, a greater than 6% increase compared to the prior year. Adjusted EBITDA margin was 20.6%, a 10 basis point improvement. Non-GAAP diluted earnings per share were $3.61, 14% higher than the prior year. Strong growth in North America, Latin America and Asia Pacific regions. Relative outperformance in mobile computing, scanning, and RFID. Transportation & Logistics, along with Retail & E-commerce were highest growth vertical end markets, health care cycling a strong compare and manufacturing continuing to lag.

Raised full year sales growth guidance range to between 5% and 7% including ~50 basis points of combined favorability from FX and Photoneo acquisition. Full year gross profit impact from tariffs now $30 million net of mitigations, $40 million favorable to prior guidance. Raised full year adjusted EBITDA margin to between 21% and 22% and non-GAAP diluted earnings per share to range of $15.25 to $15.75. Raised free cash flow guide for the year to at least $800 million. Third quarter adjusted EBITDA margin expected to be approximately 21%, non-GAAP diluted earnings per share expected to be in range of $3.60 to $3.80.

Global supply chain subject to U.S. import tariffs, uncertain trade policy, macro and geopolitical uncertainties, softness in Europe market.

Q: Joe Giordano asked about acquisition and customer budgets.

A: Bill Burns said demand resilient, customers maintained capital spending, increased full year outlook based on strong Q2 and backlog.

Q: Damian Karas asked about Elo's cyclicality and market share.

A: William J. Burns said Elo's demand cycle different, more balanced, fragmented market, opportunity to gain share.

Q: Tommy Moll asked about large deal conversion.

A: William J. Burns said year overall playing out better, factored some year-end spending considering U.S. legislation and uncertainty.

Q: Andrew Buscaglia asked about tariffs and competition.

A: Nathan Winters said monitoring trade environment, William J. Burns said confident in competitive position with strong portfolio.

Q: Jim Ricchiuti asked about Europe softness.

A: William J. Burns said mixed performance in EMEA, softness in auto manufacturing and some retail sectors.

Q: Brad Hewitt asked about capital allocation and Elo's growth.

A: William J. Burns said focus on integrating Elo, Nathan Winters said Elo's growth profile similar to Zebra, revenue synergies expected.

Q: Piyush Avasthy asked about vertical trends and refresh cycle.

A: William J. Burns said retail, T&L strong, machine vision important, customers on different refresh schedules.

Q: Keith Housum asked about Elo's revenue makeup and competition.

A: William J. Burns said Elo has hardware and software, breadth and depth of portfolio is strength.

Q: Rob Mason asked about margins and Elo's supply chain.

A: Nathan Andrew Winters said FX impact, William J. Burns said Elo's supply chain similar to Zebra.

Q: Meta Marshall asked about pricing and Elo's customers.

A: Nathan Andrew Winters said pricing flow-through, William J. Burns said Elo's customer mix diverse.

Q: Ken Newman asked about Elo's supply chain tariff exposure.

A: Nathan Andrew Winters said Elo has owned facility in China and uses contract manufacturers.

Q: Brian Drab asked about gross margin and end markets.

A: Nathan Andrew Winters said Q3 gross margin relatively flat, William J. Burns said positive on health care and government markets