Zebra Technologies last week announced second-quarter results that were in line with analysts’ expectations . Second-quarter sales grew 3% year over year to $253 million, within management’s guidance range of $246 million-$258 million, as strong printer supplies sales (up 20% year over year to $60 million) offset weaker hardware sales, which declined 3% to $179 million.
Zebra has tried to combat the choppy global market by developing printers customized for specific end markets and entering new verticals, but printer shipment growth has been muted in the first half of 2013. However, Zebra also announced that it was developing new motion works sports software that could lead to new market opportunities.
Zebra’s motion software is being tested by sports leagues that want to track athletes’ on-field movements to within centimeters, recording speed, distance traveled, and acceleration. While Zebra’s entry into the field of sports data collection is an interesting development, we believe it will be some time before the new motion software and technology will meaningfully contribute to the company’s sales.
On an operational basis, Zebra’s gross margins declined by 90 basis points to 47.8% due to a challenging pricing environment and product mix, and operating costs fell by 170 basis points to 14.3% due to moderately higher sales and restructuring costs. We expect Zebra’s operating performance will remain relatively flat for the remainder of the year while the company continues to develop products for new markets and the printer prices remain challenging. Looking to the future, Zebra expects third-quarter sales of $253 million-$263 million.
Analysts believe Zebra’s strong distributor relationships and sticky recurring printing supplies revenue makes Zebra a compelling company in the long run. Still, Zebra’s shares are fairly valued at current trading levels (roughly 20 times fiscal 2013 EPS estimate) and we’d like to see a larger margin of safety before recommending Zebra to investors.
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