Zebra Technologies announced results for the second quarter ended June 27, 2020.
Net sales were $956 million in the second quarter of 2020 compared to $1,097 million in the second quarter of 2019. The decline was primarily due to a recessionary global environment driven by the COVID-19 pandemic.
Second-quarter 2020 gross profit was $419 million compared to $520 million in the comparable prior year period.
"In Q2 our teams remained agile and executed very well through the global pandemic. It has been inspiring for me to see our employees rally to keep the business, and each other, moving forward. We delivered on our customer commitments and achieved sales and EPS above the midpoint of our outlook. Although freight costs were higher than expected, we thoughtfully managed discretionary costs across the company to preserve profitability and cash flow,” said Anders Gustafsson, CEO of Zebra Technologies.
“We entered Q3 with a solid order backlog and encouraging pipeline of large orders. With that said, we have clearly been in a recessionary enterprise spending environment which is having a disproportionate impact on smaller customers. We believe our sales bottomed in Q2 and second half trends will improve.”
Consolidated organic net sales growth for the second quarter decreased by 12%. Net sales in the Enterprise Visibility & Mobility (EVM) segment were $681 million in the second quarter of 2020 compared with $727 million in the second quarter of 2019. Asset Intelligence & Tracking (AIT) segment net sales were $275 million in the second quarter of 2020 compared to $370 million in the prior year period. Second-quarter year-over-year organic net sales decreased by 5.4% in the EVM segment and 24.9% in the AIT segment.
Gross margin decreased to 43.8% for the second quarter of 2020, compared to 47.4% in the prior year period. This decrease was primarily due to unfavorable business mix, especially deal size, $19 million of transitory costs including premium freight and other COVID-19 mitigation expenses, Chinese import tariffs and product sourcing diversification charges; all of which were partially offset by productivity gains within service and software offerings. The adjusted gross margin was 44.1% in the second quarter of 2020, compared to 47.7% in the prior year period.
Net income for the second quarter of 2020 was $100 million, or $1.85 per diluted share, compared to net income of $124 million, or $2.26 per diluted share, for the second quarter of 2019. Non-GAAP net income for the second quarter of 2020 decreased to $130 million, or $2.41 per diluted share, compared to $165 million, or $3.02 per diluted share, for the prior year period.
Adjusted EBITDA for the second quarter of 2020 decreased to $175 million, or 18.3% of adjusted net sales, compared to $233 million, or 21.2% of adjusted net sales, for the second quarter of 2019 primarily due to lower gross margin.
As of June 27, 2020, the company had cash and cash equivalents of $63 million and total debt of $1,227 million.
For the first six months of 2020, the company generated $355 million of operating cash flow and incurred capital expenditures of $33 million, resulting in free cash flow of $322 million.
For the first six months of 2020, the company made payments of long-term debt of $84 million and received proceeds from the issuance of long-term debt of $24 million, resulting in $60 million net debt payments.
The company continues to expect net sales, adjusted EBITDA margin, and free cash flow to be lower than last year. The company expects to see an improvement in sales trends in the second half of the year.