Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=113929
Story Retrieval Date: 5/23/2013 9:46:38 PM CST
In anticipation of fourth quarter earnings which will be announced later this month, analysts and company executives remain positive that Vernon Hills-based Zebra Technologies Corp. is well positioned for growth when the economy recovers, pinned largely on continued hopes for the success of its radio frequency identification technology.
The company manufactures a range of printers and labels that incorporate these radio frequency identification, or RFID tags. The benefit of this system is that it provides real-time, wireless transmission of data, typically from a package or perhaps a person, without human intervention.
RFID technology is a major prospect for growth of the company. The market for RFID was drastically changed when Wal-Mart mandated in 2003 that its top 100 suppliers tag all cases and pallets. In 2007, the U.S. Department of Defense began shipping RFID tagged goods to DOD depots across the United States.
Many other retailers, including Best Buy Co. Inc. and Target Corp., have successfully implemented these tags to track inventory and shipments to improve supply-chain frequency.
RFID falls under the Enterprise Solutions group (ESG), and part of the group’s focus is to help propel Zebra to the forefront of the RFID market.
J.P. Morgan Chase and Co. analyst Paul Coster recently told investors in a note that Zebra "should emerge from the downturn well positioned owing to a strong franchise and balance sheet."Tim Dreyer, a spokesman for Zebra, said that the company will continue to make moves to capitalize on the growth in the RFID market, which he said has demonstrated a lot of progress.
The segment now represents about 10 percent of total revenue. In 2007 and early 2008, the company acquired WhereNet Corp., a wireless tracking technology provider, and software firm Navis Holdings LLC. The addition of these companies with Zebra’s current RFID group formed the ESG, which helped increase the company’s exposure to RFID and global positioning system identification and tracking markets.
However, performance at WhereNet has been weak, due in part to exposure to the struggling auto market.
“We hope to see that the company is continuing to invest in the enterprise solutions group, which we believe could drive significant long-term growth,” analyst Michael Holt continued in his note. “However, this segment [enterprise solutions group] is currently operating at a loss, Holt said, and we believe management must quickly build scale and turn this unit into a positive contributor.”
Although this market has been thought of as a key component of Zebra’s strategy, the unit has not yet reached profitability, partially due to high costs inhibiting wide-spread adaptation of the technology.
According to The New York Times, the electronic tags cost at least 30 cents apiece. Most experts think anything above 5 cents is too expensive to be widely used for individual packaged goods. The Times article entitled “A Radio Chip in Every Consumer Product," stated that prices would have to fall to “less than a penny for virtually everything in stores to be tagged.”
Management provided fourth-quarter guidance, with sales expected to be within a range of $225 million to $241 million, compared with actual fourth quarter sales of $244 million last year, and adjusted earnings per share expected to be within a range of 33 cents to 41 cents, compared with actual earnings of 39 cents per diluted share. Analysts’ consensus estimate is 32 cents per share.The stock has had a low of $16.18 and a high of $38.47 in the past 52 weeks. It closed at $17.42 on Wednesday.
Coster said that in the near term, the company's growth is likely to stall in 2009 as customers keep lean inventories and businesses put off upgrading printing equipment. He initiated coverage with a price target of $25.
For the immediate future, analysts have recently expressed concerns that sales will be begin to slip, reducing their 2009 earnings per share estimate to $1.51 on continued expectations for global economic deterioration.
Charles Murphy, at Sidoti & Co. LLC in New York, estimated 2009 adjusted earnings per share for Zebra of $1.27, well below the consensus estimate of $1.53. Actual earnings per diluted share were $1.20 in the period ended Sept. 27.
Although he said Zebra's well-established bar code printing business is a good cash generator for the next two to three years, Murphy said that 2009 will be a tough year no matter what.
Nine-month sales in the core specialty printing group, which makes up 90 percent of sales, increased 4 percent, with 6 percent growth in North America. Murphy said that both the European and Asian markets were performing well recently.