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Here's Zebra Technologies' Q1 Report In Black and White

By Anders Bylund – Apr 29, 2020 at 7:07AM

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The barcode technology expert delivered a mixed quarter and modest next-period estimates because of disruptions triggered by the COVID-19 crisis.

Data management specialist Zebra Technologies (ZBRA 3.85%) reported first-quarter earnings early Tuesday morning. The company had plenty of orders on tap but the coronavirus outbreak led to slowdowns in Zebra's manufacturing pipeline. The maker of barcode scanners and printers, radio frequency identification (RFID) systems, and related data management tools was unable to fill some of the incoming orders, resulting in a mixed quarter.

Zebra Technologies' first-quarter results by the numbers


Q1 2020

Q1 2019


Analyst Consensus


$1.05 billion

$1.07 billion


$1.07 billion

GAAP net income

$89 million

$115 million



Adjusted earnings per diluted share





Data source: Zebra Technologies. GAAP = generally accepted accounting principles.

The first quarter was off to a good start with everything going according to plan in January and February. The COVID-19 pandemic changed all of that. Zebra encountered several difficult obstacles in March, and all of them can be traced directly to two sources: the novel coronavirus, and American trade tariffs on certain products made in China.

The company has been working on mitigation efforts for Chinese-American trade tariffs for several quarters, and that effort took a major step in March. Two new manufacturing facilities opened their doors in Vietnam and Malaysia, ready to train their staff and then start making barcode printers and portable computers destined for the American market. And then, the coronavirus expanded from a Chinese infrastructure issue to a global pandemic.

"We wanted to start ramping our new manufacturing facilities in Vietnam and Malaysia the Monday after the Chinese New Year," said Zebra CEO Anders Gustafsson in a phone interview with the Fool. "That obviously did not happen quite the way we had expected."

A zebra, with some of its stripes replaced by a barcode, stands in the middle of an open savanna.

Image source: Getty Images.

The Vietnamese facility was off to a limping start but the Malaysian site was under martial law, halting every effort to get the train rolling for a couple of weeks. The total shutdown in Malaysia became the strongest headwind against Zebra's first-quarter operations.

China-based manufacturing activities were nearly back to full speed by the end of the quarter, but printers made there cannot be shipped to Zebra's largest market -- North America -- without triggering tariffs along the way. The virus also limited Zebra's shipping options, forcing the company to charter planes from China to Europe and North America in order to fulfill some essential orders.

These rush-delivery freights and other coronavirus-related operating hiccups added to Zebra's cost of goods sold in the first quarter, reducing its gross margins on top of a slightly disappointing revenue stream. The company still exceeded Wall Street's bottom-line expectations thanks to tight cost controls further down the income statement.

Where will Zebra trot next?

Due to the unpredictable nature of global markets under the coronavirus crisis, Zebra withdrew its full-year guidance -- but the company did offer some targets for the second quarter. Net sales are expected to fall approximately 14% below the year-ago period's result, landing near $950 million. Adjusted earnings should stop in the neighborhood of $2.30 per diluted share, down from $3.02 per share. These targets include a $5 million gross profit reduction due to trade tariffs and another $9 million of expedited freight costs stemming from virus-based issues.

In the long run, the COVID-19 crisis may end up boosting Zebra's business growth. Both consumers and various industries are getting used to a higher degree of automation, adding novel concepts like "contactless" and "social distancing" to the global lexicon. Zebra's products and services play an important role in enabling these new behaviors. If nothing else, many companies that were considering some sort of business automation before the crisis have been thrown head-first into the pool, accelerating their efforts.

And don't forget that Zebra Technologies expects to stay firmly profitable even in the darkest days of this crisis. The company is poised to come out stronger when the COVID-19 crisis fades out. The stock is trading at a reasonable 18 times trailing earnings today, giving Zebra's investors some insulation against random volatility. All told, Zebra looks like a curiously safe growth stock right now.

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

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