Zebra Technologies Corporation (ZBRA) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a generally positive outlook with anticipated sales growth, strong RFID performance, and AI-driven advancements. The management's confidence in achieving 11% organic growth, despite macro challenges, and the strategic focus on AI and RFID are strong positives. The Q&A reveals some uncertainty in memory pricing, but the company's proactive strategies and stable channel inventory levels mitigate concerns. The planned share repurchases and tariff impact mitigation further support a positive sentiment. Overall, the combination of growth initiatives and strategic planning suggests a positive stock price movement in the short term.
Key Financial Performance
Q4 Sales Nearly $1.5 billion, a 10.6% increase or 2.5% on an organic basis from the prior year. Reasons for change: Strong execution, positive demand trends, and growth in Asia Pac and Latin America regions.
Adjusted EBITDA Margin (Q4) 22.1%, no year-over-year change mentioned. Reasons for performance: Operating expense leverage through productivity initiatives and mitigation of tariffs.
Non-GAAP Diluted EPS (Q4) $4.33, an 8% increase year-over-year. Reasons for change: Earnings growth driven by productivity initiatives and tariff mitigation.
Full Year Sales Growth Greater than 6%, in line with long-term expectations. Reasons for change: Strong execution and accretive acquisitions.
Free Cash Flow (Full Year) More than $800 million, with a conversion rate of 102%. Reasons for performance: Strong operational execution and accretive acquisitions.
Stock Repurchases (Q4) More than $300 million. Reasons for action: Strong financial position and capital allocation strategy.
Stock Repurchases (Full Year) Nearly $600 million. Reasons for action: Strong financial position and capital allocation strategy.
Asia Pacific Sales Growth (Q4) 13%, led by Japan and India. Reasons for change: Strong regional performance.
Latin America Sales Growth (Q4) 8%, with double-digit growth in Mexico. Reasons for change: Strong regional performance.
EMEA Sales Growth (Q4) 4%, with solid growth in Northern Europe and Germany. Reasons for change: Regional recovery and growth.
North America Sales Decline (Q4) 1% decline. Reasons for change: Cycling large order activity from the prior year, partly offset by solid run rate demand.
Adjusted Gross Margin (Q4) 48.2%, a decline of 50 basis points year-over-year. Reasons for change: Lower services and software margins.
Restructuring Charges (Q4) $76 million. Reasons for action: Exit of Robotics business and productivity initiatives.
Debt Leverage Ratio (Year-End) 2. Reasons for performance: Strong financial flexibility and capital management.
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Operating Highlights
AI solutions for the front line: Introduced AI solutions for the front line, including the Frontline AI suite with AI enablers, AI Blueprints, and Zebra Companion. These solutions aim to streamline workflows and enhance operational efficiency.
RFID-enabled mobile computers: Launched next-generation mobile computers with embedded RFID reading capabilities to improve inventory accuracy and reduce shrink.
Machine vision platform: Invested in machine vision solutions, with applications such as parcel sorting for productivity gains.
Elo Touch acquisition: Enhanced the modern store experience with Elo's self-serve kiosks and digital media solutions, targeting industries like retail, hospitality, and healthcare.
Regional sales growth: Achieved strong sales growth in Asia Pacific (13%), Latin America (8%), and EMEA (4%). North America saw a slight decline of 1%.
End market performance: Growth observed in Healthcare, Manufacturing, and Retail & E-Commerce markets, while Transportation & Logistics faced challenges.
Free cash flow: Generated over $800 million in free cash flow for the year, with a conversion rate of 102%.
Tariff mitigation: Successfully mitigated existing tariffs earlier than expected through supply chain moves and price execution.
Productivity initiatives: Improved operating expense leverage by 60 basis points through productivity initiatives.
Exit from Robotics business: Exited the Robotics business to focus on higher-growth areas like RFID, machine vision, and AI-powered solutions.
Share repurchase program: Repurchased nearly $600 million in stock for the year and expanded authorization by $1 billion.
AI and RFID investments: Accelerated investments in AI and RFID to support emerging use cases and drive growth.
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Risk or Challenges
Exit of Robotics Business: The company exited its Robotics business to prioritize other growth areas, which may pose risks related to the loss of potential opportunities in the robotics sector and challenges in reallocating resources effectively.
Decline in North America Sales: Sales in North America declined by 1% due to cycling large order activity from the prior year, indicating potential challenges in maintaining consistent demand in this region.
Memory Component Price Increases: The company is facing industry-wide price increases for memory components starting in Q2, which could impact profitability if not fully mitigated.
Adjusted Gross Margin Decline: Adjusted gross margin declined by 50 basis points to 48.2%, primarily due to lower services and software margins, which could affect overall profitability.
Restructuring Charges: The company recognized $76 million in restructuring charges related to the exit of the Robotics business and productivity initiatives, which could strain financial resources in the short term.
Supply Chain Resilience Objectives: Efforts to optimize working capital while balancing supply chain resilience objectives may face challenges, especially in managing inventory and vendor relationships.
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Guidance & Outlook
Sales Growth: For the full year 2026, sales growth is expected to be between 9% and 13%, driven by a strong pipeline of opportunities, machine vision returning to growth, continued momentum in RFID, and a 7-point favorable impact from acquisitions and FX.
Adjusted EBITDA Margin: The full year adjusted EBITDA margin is projected to be approximately 22%.
Non-GAAP Diluted Earnings Per Share: Expected to range between $17.70 and $18.30 for the full year 2026.
Free Cash Flow: Free cash flow for 2026 is expected to be at least $900 million, reflecting a free cash flow conversion of approximately 100%.
First Quarter 2026 Guidance: Sales growth is projected to range from 11% to 15%, including approximately 10 points of contribution from business acquisitions and favorable FX. Adjusted EBITDA margin is expected to be between 21% and 22%, and non-GAAP diluted earnings per share are expected to range from $4.05 to $4.35.
Memory Component Price Increases: The company anticipates industry-wide price increases for memory components beginning in Q2 2026 but expects to fully mitigate this approximately 2-point headwind through various initiatives.
RFID and Machine Vision: The company is accelerating investments in RFID and machine vision, with RFID adoption showing strong momentum and machine vision expected to return to growth in 2026.
AI-Powered Solutions: Zebra is advancing its AI-powered solutions, including the Frontline AI suite, with scale deployments expected in 2026.
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Shareholder Return Plan
Share Repurchase in Q4: More than $300 million of repurchases in Q4.
Share Repurchase for Full Year: Nearly $600 million of repurchases for the full year.
Board Authorization for Share Repurchase: Board of Directors expanded authorization by $1 billion, providing a total of $1.1 billion after the $100 million repurchase through early February.
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Key Q&A
Q:What is the anticipated impact on gross margin due to memory chip demand and price expectations, and what mitigation strategies are being implemented?
A:The company anticipates a 2-point gross margin headwind starting in Q2 due to memory chip demand and price expectations. Mitigation strategies include global price increases effective in March, working with suppliers on spot buys and demand trends, exploring alternative memory sources, transitioning to higher density memory, and leveraging other offsets such as exiting the Robotics business, lower tariff rates, and FX favorability. The company expects to fully mitigate the impact within the year.
Q:What is the company's approach to share repurchases in 2026?
A:The company repurchased $300 million in Q4 2025 and $100 million year-to-date in 2026. They plan to allocate around 50% of their full-year free cash flow of $900 million to share repurchases, primarily in the first half of the year, while maintaining flexibility for the second half.
Q:What factors contribute to the Q1 revenue guidance being above Q4, and how does FX impact this?
A:The Q1 revenue guidance is above Q4 due to a strong finish to 2025, momentum in manufacturing, machine vision, and RFID, and the absence of a typical year-end surge in Q4. FX plays a small role in the sequential change.
Q:What visibility does the company have on memory pricing and its impact for the back half of the year?
A:The company has visibility on memory pricing through mid-year and has incorporated assumptions for the back half into their guidance. They expect the 2-point gross margin impact to annualize over the second, third, and fourth quarters, consistent with their 2026 guidance.
Q:What is the company's outlook on organic growth for 2026, and what factors influence the range?
A:The company projects 11% organic growth at the midpoint, with 4 points from underlying demand, 5.5 points from Elo, and 1.5 points from FX. The range reflects macro uncertainty, memory component challenges, and deal timing, but the company is confident in the full-year outlook.
Q:How has customer perception of pricing for electronics evolved, and what role does added value play?
A:Customers have become more accepting of price increases due to factors like tariffs and memory costs. The company emphasizes added value through technology enhancements, such as RFID integration, AI capabilities, and improved processing speeds, which justify the price increases.
Q:Are customers pulling forward projects to avoid price increases or due to memory uncertainty?
A:The company does not expect significant pull-forward activity in Q1 due to the recent price increase announcement. They are working with partners to ensure supply for major projects and do not anticipate early buying solely to save on pricing.
Q:What is the company's strategy for addressing memory supply challenges?
A:The company is shaping demand by working with customers on specific SKUs, transitioning to higher density memory expected to increase supply mid-year, and leveraging strong supplier relationships to secure necessary components.
Q:What is driving the return to growth in the machine vision segment?
A:Growth in machine vision is driven by recovery in manufacturing and transportation & logistics (T&L), new wins in automotive manufacturing, and investments in ease of use, unified software platforms, and go-to-market strategies. The company expects solid growth in 2026.
Q:What is the company's outlook for large project business in 2026?
A:The company expects a similar level of large project activity in 2026 as in 2025, driven by refresh cycles, new applications, and technology transitions. Discussions with customers are progressing earlier, providing better visibility for multiyear deployments.
Q:What growth is expected in the RFID business, and what industries are driving this growth?
A:The company expects high double-digit growth in RFID in 2026, driven by adoption across retail, transportation & logistics, manufacturing, government, and new areas like fresh food and quick-serve restaurants. The growth is broad-based across the supply chain.
Q:What is the company's view on channel inventory levels for 2026?
A:Channel inventory levels are stable and similar to the end of 2025. The company does not expect material changes in inventory levels throughout 2026.
Q:How are customers responding to tariffs, and what macro factors are considered in the 2026 outlook?
A:Customers have largely adjusted to tariffs, and they are not a significant concern in current discussions. The 2026 outlook incorporates macro uncertainty and memory challenges but does not factor in new tariff-related issues.
Q:What is the company's strategy for software margin improvement?
A:The company is unifying its software platform to lower support costs and improve margins. They expect margin improvements in the back half of 2026 and beyond as these efforts conclude and revenue scales.
Q:What is the demand environment in the Americas, and how does it contribute to the 2026 guidance?
A:The Americas experienced a tough comparison in Q4 2025 due to large order activity in prior periods. The pipeline remains healthy, and the region is expected to contribute positively to 2026 guidance, alongside growth in EMEA, Asia Pacific, and Latin America.
Q:What role does AI play in driving customer spending and device upgrades?
A:AI is driving customer spending by enabling new applications and efficiencies. Customers are upgrading to devices with higher memory and processing power to support AI models, leading to higher ASPs and opportunities for AI software revenue.
Q:Review of Unclear Management Responses
A:Management avoided providing a clear answer on the annualized impact of memory pricing for the back half of the year, stating only that pricing visibility extends through mid-year and making assumptions for the latter half. Additionally, they did not provide specific details on the scenarios required to achieve the high or low end of the organic growth guidance range, citing macro uncertainty and deal timing as factors.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Blueprints
AI enablers
AI model
AI solution
Asset Visibility
Automation segment
Connected Frontline
FX margin
RFID machine
Retail
Robotics
Touch
Visibility Automation
agent
blueprint
component
computer
customer experience
exit
expense leverage
frontline AI
location
margin non
momentum RFID
non share
opportunity machine
order
parcel
partner application
point service
repurchase
requirement
solution line
suite
touch point
vision AI
voice
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