Zebra(ZBRA) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2, net sales decreased by 17.3%, with an organic decline of 16% [26] - Adjusted EBITDA margin was 21.2%, a decrease of 70 basis points year-over-year [51] - Non-GAAP diluted earnings per share fell by 29% to $3.29 [51] - The company expects Q3 sales to decline between 30% and 35% compared to the prior year [1] - Full-year sales outlook has been reduced to a decline of 20% to 23% [2] - Free cash flow is expected to be positive in the second half but negative for the year due to lower sales and earnings expectations [3] Business Line Data and Key Metrics Changes - The Asset Intelligence and Tracking segment was flat, with growth in RFID and supplies offset by a decline in printing [26] - The Enterprise Visibility & Mobility segment saw a decline of 23.6%, primarily due to a sharp drop in mobile computing [50] - Growth in data capture solutions partially offset the decline in mobile computing [50] Market Data and Key Metrics Changes - North America sales decreased by 11%, EMEA sales declined by 24%, Asia-Pacific sales decreased by 17%, and Latin America sales fell by 6% [37] - Demand was weakest in retail, e-commerce, and transportation logistics, with distributors focusing on reducing inventory levels [23] Company Strategy and Development Direction - The company is focused on advancing its Enterprise Asset Intelligence vision and positioning itself as a premier solutions provider [18] - Investments in machine vision and RFID solutions are expected to drive long-term growth [6][8] - The company is implementing cost reduction initiatives to align its cost structure with long-term business trajectories [15][48] Management's Comments on Operating Environment and Future Outlook - Management noted significant uncertainty in the demand environment and cautious customer spending behavior [22] - The company does not expect a recovery in 2023 and anticipates a reset of its cost structure [54] - Management believes that while sales are pressured near-term, the long-term value proposition remains strong [57] Other Important Information - The company incurred$ 5 million in premium supply chain costs compared to pre-pandemic levels, which are expected to be fully mitigated entering Q3 [55] - The company is focused on achieving 100% cash conversion over a cycle as part of its long-term incentive compensation plan [16] Q&A Session All Questions and Answers Question: Can you elaborate on the reset of the trajectory for e-commerce? - Management indicated that the reset is widespread, affecting various customers who are absorbing capacity built during the pandemic [60][63] Question: What is the outlook for the fourth quarter? - Management expects an uptick in Q4 revenue due to reduced destocking by distributors, but overall demand remains uncertain [66] Question: What are the biggest drivers of the recent demand decline? - The decline is driven by cautious spending behavior across all end markets, particularly in retail and e-commerce [71][72] Question: How is the machine vision segment performing? - The machine vision business is performing well, with growth opportunities in electric vehicles and pharmaceuticals despite short-term semiconductor challenges [112] Question: What is the expected full-year pricing benefit? - The company expects a full-year pricing benefit of around 2 points, slightly higher than previous guidance [104]