Information management expert Zebra Technologies (ZBRA 3.61%) just delivered a robust fourth-quarter earnings report. The company smashed its own guidance and Wall Street's estimates thanks to stellar order flows in the Americas.
And even if you don't own shares of this barcode and RFID systems expert, you may want to stick around and see what management said about the gnarled global supply chain. Spoiler alert: It's good news.
Zebra by the numbers
Let's start with the basic business facts.
- Fourth-quarter net sales increased by 2.5% year over year, landing at $1.50 billion. The midpoint of management's guidance had suggested that revenues would drop 1% lower.
- Zebra's profit margin, in terms of earnings before interest, taxes, depreciation, and amortization (EBITDA), stopped at 22.5%. That's up from 21.7% in the year-ago period. This metric was in line with the official target.
- Adjusted earnings were expected to land near $4.65 per diluted share. Instead, earnings grew 4.6% to $4.75 per share.
- The company generated $243 million of free cash flows, exceeding the guidance target by $13 million.
Analyst estimates usually stay close to the reporting company's guidance targets, and this report was no exception. Hence, Zebra trotted past Wall Street's expectations across the board.
Snappier shipping
On the earnings call, Zebra's management shared a rosy analysis of the global supply chain.
The company has battled several infrastructure issues in recent years, led by a shortage of important semiconductor components and a lack of room on ocean-going shipping vessels. Workarounds for these trouble spots have included redesigning Zebra's products to use more readily available chips, relocating manufacturing facilities, and paying a hefty premium to ship finished products by air instead.
The supply chain issues are fading away now. Zebra's mitigation efforts are making a difference, while many of the infrastructure concerns are going away for everybody.
As a result, Zebra's premium shipping costs continue to fall from the peak of early 2022. Zebra expects roughly $50 million of premium shipping expenses next year, compared to pre-COVID operations. That's less than the single-quarter bills of $56 million or more in the worst part of the supply chain crisis:
Data source: Zebra Technology.
What Zebra's commentary means for investors
According to CFO Nathan Winters, the shipping situation is "meaningfully better" than it was a year ago, but freight costs are still more than double their pre-pandemic levels. There is work left to do here, but Zebra's recent operating troubles are finally fading out.
Zebra's crystal-clear illustration of a healthier global shipping system is also great news for other companies that have struggled with the same challenges.
For example, Apple's (AAPL 1.48%) shipping and manufacturing issues kept Cupertino from keeping up with demand for the iPhone 14 series. The company has finally ended the lengthy iPhone back orders, as the phone is "shipping to demand" nowadays. Zebra's shipping system analysis supports Apple's claim that the infrastructure is fully functional again.
Retail giant Costco (COST +1.77%) reacted to worldwide shipping shortages by leasing seven shipping vessels and thousands of containers for a couple of years. However, the company has ended the leases on most of that equipment, since Costco's standard distribution methods can carry that weight again. Based on that trend and Zebra's concurring data, we could see the last of Costco's bulked-up shipping equipment returned to their lessors when the retailer reports earnings in two weeks.
NASDAQ: ZBRA
Key Data Points
You should be able to find many more examples of boosted shipping efficiency in other industries as this earnings season winds down. But I don't think you'll find many offering better explanations of how the infrastructure trends are improving.
So Zebra delivered broadly useful economic advice while also producing better business results than expected. As a result, longtime CEO Anders Gustafsson is handing over the reins to current chief product and solutions officer Bill Burns on a high note.
