How Zebra Technologies Is Dodging Tariff Costs While Others Panic

Core Viewpoint - Zebra Technologies is strategically positioned to manage incoming tariff expenses due to lessons learned from the COVID-19 pandemic and subsequent supply chain challenges, leading to strong financial performance in the first quarter of 2024 [1][2]. Financial Performance - In the first quarter, Zebra reported an 11% year-over-year increase in revenues and a 42% rise in earnings, surpassing Wall Street's consensus estimates [1]. - The company anticipates direct tariff costs of approximately $30 million in Q2 2025 and$70 million for the entire fiscal year [4]. - Tariff expenses are expected to impact adjusted EBITDA, which was $292 million in Q2 and$1.05 billion for fiscal year 2024, representing roughly 10% of adjusted EBITDA profits in the next quarter and less than 7% for the full year [5]. Supply Chain Management - Zebra has diversified its supply chain, reducing shipments from China to the U.S. from 85% to an expected 30% by the end of Q2, enhancing supply chain resiliency [8]. - While most manufacturing can be relocated, some key components are still sourced from China, indicating that tariff costs will not be entirely avoidable [9][10]. Market Outlook - The demand for data-tracking services and supply chain analytics is expected to drive revenue growth and margin expansion for Zebra [11]. - Despite a 34% decline in stock price over the last three months, trading at 13 times free cash flows, the market's reaction may be overly pessimistic given Zebra's anticipated robust sales growth and manageable tariff impact [12]. - Investing in Zebra is seen as a strategic opportunity for long-term growth in data-driven sectors such as shipping, manufacturing, and retail [13].