Zebra Technologies Focus on Motorola

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Zebra’s first-quarter adjusted EPS ($0.91) were slightly above the consensus estimate ($0.90) and at the high end of management’s updated guidance range ($0.88- $0.91). Management preannounced better-than-anticipated first-quarter results on May 15. The company’s initial guidance was for adjusted EPS of $0.77-$0.87. The company reported 15% organic revenue growth (excluding acquisitions and foreign currency) in the quarter, driven by broad-based strength across most geographies and product lines. Revenue increased 29% in North America (17% organic), 18% in EMEA, 15% in the Asia- Pacific region, and 11% in Latin America.

Management noted strong regular-way business and improvements in large enterprise deals in the North American region (46% of firstquarter sales), partly because of a refreshed product cycle. Hart Systems, acquired in December 2013, contributed $12 million in revenue in the quarter (substantially all in North America) and strengthens the company’s retail offering. In the EMEA region (32% of first-quarter sales), the company reported positive growth in nearly all 13 sub-regions and highlighted strength in the retail, postal, rail, and healthcare verticals in the first quarter. Management offered second quarter 2014 guidance, with the revenue and adjusted EPS ranges bracketing the consensus estimates.

The company expects second-quarter revenue to be $280 million-$290 million (up 13% at the midpoint; we estimate up 11% organic), compared with the consensus estimate (before the release) of $283 million. We estimate second-quarter revenue includes $4 million from the Hart Systems acquisition. Adjusted EPS are expected to be $0.74-$0.84 (up 25% at the midpoint), compared with the consensus estimate (before the release) of $0.81. On April 15, Zebra announced an agreement to acquire the enterprise business from Motorola Solutions (MSI $66.40) for $3.45 billion. Motorola Solutions reported firstquarter earnings on May 1.

Excluding the impact of iDEN (not being acquired by Zebra), enterprise revenue declined less than 1% in first quarter 2014, primarily driven by the delay of several deals late in the quarter, mostly in North America. On April 15, Motorola Solutions provided 2014 guidance, expecting revenue growth for the enterprise segment for the full year. Motorola Solutions did not provide an update to the enterprise segment’s outlook in the first-quarter earnings release or conference call. Earnings. Zebra’s adjusted EPS of $0.91 were up 83% year-over-year and above the consensus estimate of $0.90. The result was at the top end of management’s updated guidance range of $0.88-$0.91. Management’s initial guidance range (offered on the fourth quarter 2013 conference call) called for adjusted EPS of $0.77-$0.87. Adjusted EPS exclude $0.09 of acquisition, exit, and restructuring costs. GAAP EPS were $0.82. Adjusted EBITDA increased 78%, to $68 million, above the consensus estimate of $66 million.

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