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Zebra Technologies Corporation (NASDAQ:ZBRA)

Q4 2012 Earnings Call

February 12, 2013, 11:00 am ET

Executives

Anders Gustafsson - CEO

Mike Smiley - CFO

Mike Terzich - SVP, Global Sales & Marketing

Doug Fox - VP, Investor Relations

Analysts

Michael Kim - Imperial Capital

Tony Kure - KeyBanc Capital Markets

Stephen Stone - Sidoti & Company

Paul Coster - JPMorgan

Keith Housum - Northcoast Research

Andrew Spinola - Wells Fargo

Tavis McCourt - Raymond James

Brian Drab - William Blair

Jason Rogers - Great Lakes Review

Greg Halter - Great Lakes Review

Operator

Good morning and welcome to the Zebra Technologies’ 2012 Fourth Quarter Earnings Release Conference Call. Joining us from Zebra Technologies are Anders Gustafsson, CEO; Mike Smiley, CFO; Mike Terzich, Senior Vice President, Global Sales and Marketing and Doug Fox, Vice President, Investor Relations. All lines will be in a listen-only mode until after today’s presentation. Instructions will be given at that time in order to ask a question. At the request of Zebra Technologies, this conference call is being recorded. Should anyone have any objections, please disconnect at this time.

And at this time, I would like to introduce Mr. Doug Fox of Zebra Technologies. Sir, you may begin.

Doug Fox

Thank you. Good morning. Thank you for joining us today. Certain statements made on this call will relate to future events or circumstances and therefore will be forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Words such as expect, believe and anticipate are a few examples of words identifying a forward-looking statement. Forward-looking information is subject to various risks and uncertainties which could significantly affect expected results. Risk factors were noted in the news release issued this morning and are also described in Zebra’s 10-K for the year ended December 31, 2011, which is on file with the SEC.

Now let me turn the call over to Anders Gustafsson for some brief opening remarks.

Anders Gustafsson

Thank you, Doug, and good morning everyone. Today Zebra reported solid results for the fourth quarter of 2012 and the full-year. For the quarter, GAAP earnings from continuing operations totaled $0.68 per share including acquisition and restructuring charges that reduced earnings by $0.03 per share. Quarterly sales of $253 million were the second highest in company history. We achieved record sales in Latin America, along with a pick-up in business in EMEA and continued strength in North America.

The quarter was characterized by a consistent run rate business. Modest large deal activity was related to the ongoing challenges in Europe and Asia. We had record sales of desktop printers as well as of supplies and services. Sustained high profitability drove strong free cash flow of $43 million for the quarter. We returned $15 million to shareholders for the period with the repurchase of 400,000 shares.

Highlights for the 2012 full-year include record sales on four consecutive quarters of sequential sales growth. GAAP earnings from continuing operations of $2.35 per share included acquisition and restructuring costs and an impairment charge which reduced EPS by $0.23.

For the year, free cash flow totaled $188 million, with $54 million returned to shareholders in the form of stock buybacks. We also deployed $73 million for two acquisitions and other investments to enhance shareholder value. These investments supported the meaningful progress made throughout the year in advancing the following goals: Extend Zebra’s leadership in our core business; develop new sources of high growth revenue and take advantage of emerging technology trends as our customers strive to achieve greater visibility into their value chains.

Results for the quarter and full-year can be attributed to clearly defined and well executed strategies. We enhanced Zebra’s relevance to customers by meeting more of their extended supply chain visibility needs. A higher cadence of new product introductions led to a stronger compliment of innovative products and solutions. In addition, more effective sales and marketing programs enabled deeper engagements with customers in targeted industries such as manufacturing, healthcare and retail.

Zebra’s performance also continues to highlight the value of our diversity across geographies, products and industries. It demonstrates our increasing success to become a stronger, strategic partner with our customers and an even more formidable force against our competitors. Over the last 12 months, we have discussed how Zebra together with our partners is working to create a smarter, more connected global business community. We are pursuing this vision through five strategic pillars. First, intensify innovation. Second, expand into new markets. Third, maximize operational effectiveness. Fourth, penetrate existing markets further. And lastly, inspire our people and culture.

Supported by proven business strategy, our drive for innovation in products and across the organization is pushing Zebra further ahead of competition. Together with our increasing number of technology partners, our product development activities are delivering a rich range of products and solutions. This enhanced portfolio is meeting more of our customers value chain visibility needs. The adoption of Internet of Things solutions and other emerging technology trends are further enhancing Zebra’s opportunity for new revenue streams.

Let me now discuss some areas of notable progress. First, innovation and product development remained high throughout 2012. During the year, we introduced 14 new printer products including the three in the fourth quarter. These products include our latest generation of print engine which enables us to expand into new markets. Designed for reliable operations in the mission critical applications the ZE500 is particularly well suited for use in the food and beverage industries and other environments where dust and moisture can create printing challenges.

Second, during the quarter, we extended our offering in the emerging area of mobile point-of-sale or POS to build on our leadership in mobility. Mobile POS unfetters the checkout and payment systems from fixed [turnouts] and cash registers, showcased at the National Retail Federation Show in January Zebra’s Mobile POS offering provides retail customers a compelling integrated solution regardless of the retailers size or complexity.

Mobile POS is one of several areas in which retailers are making technology investments to enhance the in-store shopping experience and compete more affectively against online retailing. For Zebra, the mobile trend opens exciting opportunities; while we have a limited presents in fixed POS, mobiles in area where we have a strong right to play with our robust family of Mobility Solutions. In addition to Mobile POS, Zebra and its partners offer a wide range of retail solutions such as price management, consumer loyalty or by the inventory exquisite, lack of store receiving an inventory and self service kiosks.

Third, our regional performances also highlights the success of our strategies. In North America, we had a consistent run rate business throughout the quarter. We shipped a broad range of printers to meet needs of customers in small package delivery, retail and healthcare. Supplies were strong in the quarter with high demand for labels, wristbands and ribbons. This strength reflects our sharper focus on growing our annuity revenue streams and expanding into new markets such as hospitality and entertainment.

During the quarter, the success of our take share activities, strategic account focus and superior product line was evident. The large global athletic shoe and sportswear companies chose to standardize on Zebra across its organization with applications including the implementation of their mobile POS solution.

In EMEA, a strong finish to the quarter led to a $7.7 million sequential sales increase. A pick up in business in Italy complemented continued favorable trends in Turkey, Russia and the Middle East, all areas where we invested to expand Zebra’s presence. In addition, our EMEA supplies business performed well.

We experienced notable printer shipments into postal, car rental and retail applications, some of which included competitor product displacements. Going into 2013, we remain cautious on the near-term outlook for the EMEA region even though our results for the fourth quarter were quite encouraging.

In Asia Pacific, the ongoing softness in manufacturing contributed to the region’s modest sales decline. However, even in this environment, we had notable wins in several areas including mobile printers to customers in Malaysia and desktop printers to financial institutions in China.

We also experienced an improving business trend in Vietnam, the Philippines and Thailand where lower wages are attracting a new round of investment in manufacturing capacity. We were pleased with the sales performance of our line of printers specifically designed for emerging market needs.

In Latin America, we achieved record sales on the strength of business in Mexico and parts of South America. Initial shipments of desktop printers for Brazilian Ministry of Health award, the largest ever for the region also contributed to the quarterly record.

Our investments in more robust sales coverage also led to orders for a national ID project in Ecuador, mobile printers to several retail customers for shelf labeling and other applications and shipments of tabletop printers to leading auto manufacturers supporting a [plant] expansion.

Overall, fourth quarter results cap the year over material progress. This progress positions Zebra for accelerating growth and higher returns. The value of our business diversity combined with our culture of innovation, sound investments and outstanding execution continues to be a cornerstone to our long-term success.

Now, I will ask our CFO Mike Smiley to provide a detailed review of fourth quarter results and guidance for the first quarter of 2013. After Mike’s remarks, I will return for some brief closing comments.

Mike Smiley

Thank you, Anders. Let me highlight some of the key components of Zebra’s results for the fourth quarter. My comments will principally focus on year-over-year changes in the performance of Zebra’s operations.

First, continued strong sales in North America and record sales in Latin America offset declines in Europe and Asia Pacific and currency headwinds.

Second, gross margin was within our expected range and comparable with a year ago, and third, operating expenses were up largely at higher amortization, acquisition costs and a charge for exit and restructuring.

Let's review sales, for the quarter sales increased 2.4% from $247.3 million last year to $253.1 million this year. The impact of foreign exchange net of hedges reduced sales by $1.9 million or $0.03 per share.

On a constant currency basis, sales were up 3% year-over-year. Sales for North America up 7% increased $7 million. The region’s performance is characterized by ongoing strength in our run rate business. Supply sales had a record quarter in the region boosted by wristband sales as well as [day] improvement in other product lines.

In EMEA, sales declined 6%. Year-over-year, we experienced strong growth in Turkey, Russia and the Middle East as well as Italy. This improvement partially offset declines in Spain and other regions.

On a constant currency basis, EMEA sales declined 4%. Sequentially, EMEA sales were up 10% on improvements in nearly all sub-regions.

In Asia Pacific, sales were down $800,000 or 2.5% from a year ago, primarily related to the ongoing softness in manufacturing in China and South Korea.

Latin American sales were up 22% to a new record, benefited from improved representation in South America and Mexico. Improved coverage drove sales in Ecuador, Venezuela and Chile among other countries.

Looking at our product categories, a 3% decline in hardware sales is partially offset by a 25% in supply sales. On a year-over-year basis, average unit printer prices declined from $506 to $477, principally because of the mix.

Gross margin for the fourth quarter of 49.2% was up slightly from the 49.1% a year ago. Lower freight charges and overhead cost offset unfavorable movements in mix and foreign exchange.

Operating expenses increased only $945,000 from a year ago, including $2.6 million in higher amortization and acquisition cost and exit and restructuring charges. The core operating expenses, selling and marketing, R&D and G&A declined $1.6 million in year-over-year.

Exit and restructuring cost of $960,000 relate to actions taken to streamline our location solutions organization to improve efficiency and sales execution. Quarterly operating income of $44 million plus depreciation and amortization of $7.3 million totaled $51 million of cash earnings or $1 of cash EPS.

This effective income tax rate for the fourth quarter was 21% which brought the full year tax rate to 25.8%. Earnings from continuing operations totaled $0.68 per share including a reduction of $0.03 per share for the acquisition and exit and restructuring costs on 51.3 million average shares outstanding.

At the end of fourth quarter, we had 50.9 million shares outstanding. In the fourth quarter, we returned $15 million to shareholders with the purchase of 400,000 shares of Zebra stock. The weighted average price of the purchases was $36.69 per share.

For the full year, we returned $54 million to shareholders with the buyback of 1.5 million shares of Zebra stock. The day sales outstanding increased slightly from 49 days to 50 days. Inventories increased a slight $400,000 from third quarter. Free cash flow for the fourth quarter totaled $43 million. We ended the quarter with $394 million in cash and investments.

Now let’s look at the first quarter forecast. We are forecasting 2013 first quarter sales of $240 million to $262 million. The forecast reflects business seasonality in addition to the ongoing outlook for Europe. Earnings are expected at $0.55 to $0.65 per share. Our forecast assumes a consolidated gross margin in the range of 48.5% to 49.5%.

Operating expenses are forecasted between $80.5 million and $82.5 million. This range incorporates expected increases in employee related expenses which have a greater impact on the first half of the year. We estimate the effective income tax rate to be 21.5% which reflects the continuing benefit of last year’s restructuring of our foreign operations and expecting greater portion of Zebra’s income being generated in jurisdictions with lower effective tax rates.

That concludes my formal remarks, thank you for your attention. Now, here is Anders for some concluding comments.

Anders Gustafsson

Thank you, Mike. Zebra’s fourth quarter results demonstrate the value of strong execution, financial strength and innovation. While economic challenges have restricted near-term performance in some regions. Our well paced investments to extend the industry distributorship and generate higher returns, give us increased confidence in our business and Zebra’s future.

We continue to pursue our growth goals while at the same time; we are exercising effective control over operating expenses to maintain profitability in light of current global business conditions. We will take advantage of our financial resources to invest inorganic initiatives that will deliver the highest risk adjusted returns, in addition to making opportunistic stock buybacks and acquisitions for the long-term benefit of our shareholders with multiple competitive advantages including the industry’s broadest product line in thermal printing and strongest global go-to-market channels.

We are well positioned to capture opportunities in our core business. Our customers continue their drive for creating operating efficiency and asset visibility.

The growing middle class in China, Brazil and other developing countries are supporting attractive long-term growth. At the same time, we are encouraged by the emerging opportunities for new revenue streams. Investments in R&D with a greater focus on software combined with acquisitions and partnerships are resulting in incremental areas of growth which will develop in 2013. These areas build on our core strength and mobility RFID and demonstrate Zebra’s relevance to important technology trends and attractive vertical markets. Mobile, POS which I highlighted earlier represents one of those key opportunities. Active RFID is another growth area. Zebra’s Ultra Wideband RFID is attracting new attention with its unique capabilities for high precision location tracking. We are engaging with ISDs and system integrators to embed this technology in new inverted solutions.

Cloud based connectivity is the third area of opportunity. This emerging technology trend is well supported by Zebra’s Link-OS, an ecosystem enabled by Zebra’s printer architecture that we began building into new products last year. Link-OS makes Zebra printers significantly easier to integrate, manage and use in the company's operations with greater capabilities for customization with the development of specialized apps.

We look forward to providing you further details of our progress as 2013 unfolds. Clearly we are excited about Zebra’s future and opportunities for growth. Our investments in technologies, products and innovation are allowing Zebra to penetrate existing markets more deeply, and we are expanding our presence in new exciting areas of growth while positioning ourselves to benefit from important new trends. The tangible results of these developments is that Zebra will be able to serve more of our customers’ needs while building increasing value for our shareholders. This concludes our prepared remarks and I think thank you for your attention this morning. I would now like to turn the call back to Doug for Q&A.

Doug Fox

Thank you, Anders. Before we open the call to your questions let me ask that you limit yourself to one question and one follow-up. In addition Mike and I will be available after the call for any further discussions. Let's begin the Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question is from Michael Kim with Imperial Capital.

Michael Kim - Imperial Capital

Could you first maybe talk a little about the growth for location solutions, how does that compare to corporate average and if the margin profile was it accretive or there's still a significant amount of near term investment in that business.

Anders Gustafsson

So the trend line for our locations solution business I think is quite attractive. We have a number of new areas where we see the technology we used but first of course our core markets are still doing very well in automotive and industrial manufacturing. But we are seeing the technology getting embedded now in other third party solutions with all sorts of experimentation and new traditional ways of really using the technology. So we are seeing it in sports, in attracting cows in agriculture, in retail. So it’s getting much broader use than it had before. But its still is a small part of our business and we have pulled back on some of the investments, but we do believe that it has attractive opportunities for us this year.

Michael Kim - Imperial Capital

And then just following specifically on the retail opportunity, are you seeing an increase in deployments of item level tagging or additional retailer sort of following the lead of some of the larger players?

Anders Gustafsson

Yes, the passive RFID is primarily seeing growth in retail. With other industries following, but retail is kind of the big story for passive RFID. And if you went to NRF this year, you would have seen a lot of different solutions including RFID. I would say maybe the shift from a year ago there would be that, passive RFID was originally incorporated in to retail solutions, more to drive operational efficiencies but now more and more retailers are starting to use RFID in other technologies to really enhance the customer shopping experience as they have to compete against online retailers.

Operator

Our next question is from Tony Kure with KeyBanc Capital Markets.

Tony Kure - KeyBanc Capital Markets

I just wanted to talk about the new product introductions. You mentioned the 14 new printer products in 2012. Can you just maybe put that in the context and how that’s related to prior years?

Mike Smiley

Yes, so 14 new printer products this year was a record. I think we did 12 new printer products in 2011 and before them, I would say, roughly half of that. But I think our run rate prior to 2011, that was five, six, seven products per year. So we were really making our changes to our development processes and more platforming. We've been able to really amp up our cadence of new product introductions without the increase in the actual R&D investments.

Tony Kure - KeyBanc Capital Markets

Okay, and are those targeted, when you think about coming out of new products, are they targeted at geographies? Like you mentioned the one specific for Asia in your prepared remarks? So are they usually targeted geographies or do you think about in terms of industry application?

Anders Gustafsson

They are mostly targeted for virtual markets, but we have introduced in the last three years a number of products that were specifically aimed at emerging markets, because we felt that there is a different needs and requirements that our other portfolio didn’t really served as well and those products that are being aimed at the emerging markets that has performed very well, but other products we mentioned was ZE500 our print engine. That’s not really an emerging market products, that’s much more for beverage and food industries to do labeling of assembly type of packages.

Tony Kure - KeyBanc Capital Markets

Okay just want to sneak one more just the Yen has been weakening pretty substantially here. Just wondering if you are seeing any or do you expect to see any increased competition from may be some Japanese competitors exporting out of Japan?

Mike Smiley

Not really Japan has actually been a good market for us this year it’s been up quite a bit, but it’s still a modest sized market for us. But I think our Japanese competitors they have a lot of operations outside of Japan already, and I wouldn’t expect that the Yen will have a meaningful impact on their positions.

Operator

Our next question is from Stephen Stone with Sidoti & Company.

Stephen Stone - Sidoti & Company

Question on (inaudible) how much of the gross down there is due to the two large products you guys announced in the third quarter conference call and also how longer are we going to see this impact in the revenue?

Anders Gustafsson

Well the growth in Latin America is very broad based it really goes across the pretty much the entire geography, and there is lots of different types of projects. So the transportation logistics is certainly one of the main factors in Latin America, but we also had great wins in retail and in manufacturing. So it’s really a much broader story with a strong run rate business and Mike Terzich can also give some further details.

Mike Terzich

Okay, Steven to Anders point, I think the diversity of our business in Latin America is really strong right now. So we tend to break it up into three sub regions; we have Mexico, we have Brazil and then we have affectionately all the other geographies. And when you look at and you’ve change a part of the business we have strengthen all of those. Mexico is predominantly feeding a lot of manufacturing opportunities for us and the north and south of South America is pretty diverse mix of retail, its also quite a bit opportunity in the identification side of our business. With the rising middle class phenomena going on, there is a lot more push towards improvement in retail, loyalty cards, driver licenses, border cards etcetera. So it goes well beyond the large health opportunity that Anders highlighted that came out of Brazil.

Stephen Stone - Sidoti & Company

Okay, and then just one other question on the average selling price here. You guys have spoken in the past that the high end desktop printers have a lot of cyclicality in their sales there. They have been depressed kind in the past. With the record desktop printers that you sold here, are people trading down or is this just the average selling price getting moved on more because of the mobile printers?

Anders Gustafsson

First answer we said in previous calls, the price within product family’s tend to remain very steady. So when we see unit price will come down, it tends to be driven by the mix shift or FX or weaker euro, and I think that was true this quarter also that within each product family, the product pricing was very consistent, but we had obviously a very strong performance in our desktop portfolio and Mike Smiley might have some further detail.

Mike Smiley

And actually interestingly enough even though desktop printers sell for a lower price, we actually have very attractive margins for the desktop printers. So even though we have that mix its not always intuitive exactly how that affects our margins.

Operator

Our next question is from Paul Coster with JPMorgan.

Paul Coster - JPMorgan

So supplies revenues have grown quite significantly last couple of quarters, obviously significantly outpacing the hardware sales; what does this mean, does it mean the utilization rate’s going up, is it a lead indicator for pending upgrade or refresh cycle on the hardware side?

Anders Gustafsson

First, I would say its really is a result of a well defined strategy on our part to really grow our supplies business. We see that we have had much lower tax rates outside of the US and we focus hard on growing the tax rate in the US, but also outside of the US. And we have been able to see great return on those investments; you know, we had our traditional Zebra supplies business grow double digits in Q4 and that was augmented by the LaserBand acquisition that we did in Q3 which further accentuated that growth. So we've been very pleased with our strategy of focusing on driving a greater annuity attach rates in supplies and focusing on the high end of that market with better margin structures.

Mike Terzich

Paul let me add a little color to that as well. You know from our perspective our strategy has been really two fold, right; what we see is even in times of perhaps softer hardware demand I think in our prepared comments we said that our hardware sales were down a bit, you know manufacturers still need to label, as Anders pointed out we focus on specialties label, which is the higher value label, we stay away from the commodity paper business and Zebra by nature has been, has a master position in the marketplace, we are actually one of the larger global label converting companies around and we have that first line of opportunity with a lot of our end user customers who are specifically looking for specialty label. So our strategy is to increase our focus and then also increase our global presence by having more on the ground locations from which we can serve that customer base and that's really what you are seeing from a traction standpoint.

Paul Coster - JPMorgan

And my follow-up question is that as we start to see mobile point-of-sales introduced, it’s yielding an opportunity for new companies to enter that space, not necessarily in the printer space, but in the payment capture for instance. And it seems like the channels getting kind of turned up a bit and people are looking at new ways of getting to that end market especially some big businesses. Can you just describe what it is that Zebra might be doing differently to capitalize on the Mobile POS opportunity?

Anders Gustafsson

Yeah, first we are very excited about the overall opportunity that we see in Mobile point-of-sales, there's very attractive growth trends I think and I think you were at NRF and you saw probably lots of different solutions and I just wanted to kind of the big takeaways from the show this year. Mobile POS is a small part of our business today, but as I said it provides a great growth opportunity and based on our internal research, we expect the Mobile POS hardware site to have a growth CAGR of about 20% and the growth CAGR for Mobile POS transaction is probably more in the 60% range.

So we clearly believe this is an attractive area for us to invest in and we're getting a lot of interest from our customer base in retail about what it is we can do and we also mentioned one large new customer, athletic shoe and sportswear company that invested in our technology to grow Mobile POS solutions.

And we're having three different areas of our solutions. One is our traditional mobile printer that’s required to print out the receipt, but then we made a small acquisition of StepOne earlier in December, which really is focused on the interaction between the in-store sales person and the shopper to be able to provide much more detailed information about the basket. So it can be looking at having good understanding about the inventory position in that store or across the entire chain for something they are looking at. It can be comparable, share price comparison activities, it can be suggestive of sale opportunities. So it really provides a much broader software application that is more solutions oriented.

And then we have a relationship with Hybrid Paytech for the payment transaction processing which we also think is going to be a very attractive market for us to position us in and all of this together really creates a much broader, much more of a complete solution, which I think is one of the areas in which we're differentiating ourselves now.

Operator

(Operator Instructions) Our next question is from Keith Housum with Northcoast Research.

Keith Housum - Northcoast Research

Anders, can you remind me how much LaserBand provided for the quarter?

Anders Gustafsson

We don’t break out LaserBand as a individual product line; we haven’t done that since we acquired them. But to go back to what we said in July when we announced this, I think, we said the revenues in 2011, so basically two years back was $24 million for it, and LaserBand has since developed as per our expectation and is delivering what we expect.

Mike Smiley

And think the other thing, that I think the other part, we said no, is that the organic business has grown very strongly even without LaserBand.

Keith Housum - Northcoast Research

And then Anders I think in your prepared remarks you mentioned two acquisitions and obviously LaserBand being one of them and forgive me if I have just forgotten the second one, but can you describe what the second one was?

Anders Gustafsson

So the second one was this company StepOne that I mentioned in Mobile POS. This is a company that it really focuses on the software solution and the application around the basket in retail, so enabling the interaction between the in-store sales person and the customer.

Keith Housum - Northcoast Research

Okay. And do you have that on display at the NRF?

Anders Gustafsson

Yes we did; that was part of our booth.

Operator

Our next question is from Andrew Spinola with Wells Fargo.

Andrew Spinola - Wells Fargo

Thanks. I have a general question on your operating leverage and the model; some of your expense lines were sort of moving in opposite directions, your R&D down on an absolute basis and G&A up 100 bps year-over-year as a percent of revenue; I am just, over the mid-term so I am thinking about your model and the opportunity there; are there any potential areas of leverage or expense savings that we might be able to model?

Mike Smiley

There is a couple of things first of all, from quarter-to-quarter we have, I know you are doing by year-over-year look but from quarter-to-quarter we have a little bit of lumpiness more especially in the engineering side as we have sort of project expenses that come up as we have ramp up certain projects. So we have more projects concluding we'll more expense and so sometimes that goes up and goes down.

I would say in our G&A, we have a couple of things for us. One is we have made some meaningful investments in our ERP system which comes through as additional depreciation there, and as you ask about the ability to find operating leverage, I think one of the reasons we made that investment as the business grows we can scale up without having to scale up our spend in the G&A side.

So I do expect that our G&A will be a little bit, the growth rate that will be probably half the growth rate of rest of the G&A. And the other thing I'll also say is when we spend on for our ERP and other IT related expenses that basically is retained in our G&A line. We don't allocate that, some companies do one way, some do it the other, we keep that all in G&A so we can keep an eye on that.

So as we invest the sort of increased efficiencies maybe in sales and marketing or engineering that cost will stay in G&A and hopefully the benefit we see in engineering in selling and marketing.

Andrew Spinola - Wells Fargo

Got it, and then just follow-up on the tax rate, I don't know what restructuring you talked about that was here in Q1 but do you think you can feel lower tax rate for the year or is 35% still roughly the target?

Mike Smiley

The target that we announced for the quarter is the target you should expect for the full year pretty much and what happened was at the end of the third quarter last year, we did a restructuring of our legal entities overseas, it allows us to more efficiently capture working capital as such and be able to move it to where its needed. So we can use it overseas where we need to and I think that ends up benefiting our tax rate. Along with that, the profitability in the lower tax rate jurisdictions is increasing relative to North America. So when you look at it, we are looking at a 21.5% to 22% tax rate for the full year.

Operator

Our next question is from Tavis McCourt with Raymond James.

Tavis McCourt - Raymond James

First question is in relation to the Honeywell purchase, you know, Intermec, I was wondering if you could give us some thoughts on how you think that may impact the market Honeywell’s intention in terms of what they may do or not do without business and then secondly, just a quick one for Mike on the cash how much of that is domestic? Thanks.

Anders Gustafsson

So I'll take the first part here, well, I don't think that the Intermec-Honeywell combination is going to have a material impact on the industry. We have competed against Intermec for many, many years now and we know them well. We have plenty of other competitors that are strong. So from that perspective, I don't think that the competitiveness of the Intermec portfolio will change materially as it becomes part of Honeywell.

And I believe, this is an expectation of mine at least that Honeywell really bought Intermec for the handheld mobility solutions and let's expect they will put most of their effort into integrating those product lines and making those as competitive as possible. So we feel as good as we have ever been, about our overall competitive position and how we can compete in the market irrespective of individual competitors.

Mike Smiley

And then on your question about cash a little less than half of our cash is overseas, I will tell you though we have some interesting opportunities in people deployed at overseas for building some of the business and investing in some opportunities there.

Operator

Our next question is from Brian Drab with William Blair.

Brian Drab - William Blair

I know that FX can have a significant affect on you top line and also bottom line, can you talk a little bit about what the impact would be if the euro does stay around the 1.34 range compared with the $1.30 average in the fourth quarter, what that could do sequentially to specifically earnings really in the first quarter relative to fourth in terms of maybe how many cents of EPS?

Mike Smiley

Well, its so when you compare as we mentioned in the earnings call, our growth rate was 2.4% roughly before FX and was 3% again on revenue when you use a constant currency, and when you are looking at our forecast for the first quarter generally we are basically reflecting sort of a current spot rate in that.

However, if you look at sort of the impact of the change in the FX rate, you can see that we are about $0.04 in the euro on the fourth quarter that translated to about roughly about $8 million of revenue and $6 million of operating income impact. So you can just redo the math of $8 million to $0.04 sort of the math you can do to (inaudible) out where the rate changes. I will tell you there is also some offsetting things on hedges that we have which would mute some of that impact, so it’s not quite dollar for dollar.

Brian Drab - William Blair

Okay and the spot rate that you are incorporating into the guidance is?

Mike Smiley

It's roughly sort of the current market conditions.

Brian Drab - William Blair

Okay and then the $0.55 to $0.60 outlook it includes or does not include any acquisition and restructuring charges?

Mike Smiley

It does not.

Brian Drab - William Blair

And are you anticipating any, sorry if I missed this, are you anticipating any acquisition related or restructuring charges in the first quarter?

Mike Smiley

We will probably have some but we're still working through those plans in the first quarter.

Operator

Our next question is from Michael Kim with Imperial Capital.

Michael Kim - Imperial Capital

Just a quick follow-up. Can you comment on the contribution or overall contribution from emerging markets either for the quarter or for the year and you know, calling on any tailwinds or headwinds? It looks like Latin America; obviously strong with may be (inaudible) in Asia Pacific?

Anders Gustafsson

I'll start just giving you a sense of the performers across geographies in emerging markets. We had still nice growth overall in emerging markets but not as good as it had been in 2010 and 2011. We saw a definitely a slowdown in some of the larger markets that are particularly dependent on exports, manufacturing exports like Korea and China. And that also drove some, I think, softness in some of the markets that are particularly strong exporters to those markets like Brazil, Australia, but we did also see some continued nice growth in markets like Turkey, Brazil, Middle East very nice growth in those areas; Mexico was another one. I think Turkey was well over 20% growth; Russia was double-digit growth, Middle East also. So overall I think we felt very good about the investments we made in putting more sales resources into emerging markets really drive those markets and we expect, we believe we are well positioned to continue to expand our share and our position into those markets.

Michael Kim - Imperial Capital

And would you anticipate continue to expand Brazil’s resources at pace that you saw in 2012?

Anders Gustafsson

No, the biggest increases we did in resources in the emerging markets were in 2010 and 2011 and some into 2012. I think we would consider this year to be more normal year from our perspective.

Mike Terzich

Yeah Mike this is Mike Terzich. We are doing a little fine tuning of our expansion plans. So what we have settle now is some areas within those geographies where we can do a little incremental investment the kind of fill in some gaps in some other areas that are kind of looming into not too distant future as areas of some upside for us.

Operator

Our next question is from Jason Rogers with Great Lakes Review.

Jason Rogers - Great Lakes Review

Looking at new products, do you have a target in mind for the number of new products planned for 2013 and the areas that you are focused on there?

Anders Gustafsson

We have a target I guess, we have a roadmap, you can expect that to be similar to what we did in 2012, but we are also shifting some of our investments to more softer oriented products. So we talk a little bit about the Link-OS as the new you can say operating system for our printer products that will make them easier to connect into applications. We’ve also made substantial investments into our card portfolio, which we feel not it is very competitive, we believe it’s very competitive to the rest of the market and that portfolio is now we think quite complete. So we should see good returns on that now, we can pull back of that investments on the card side and move it over to smarter products.

Jason Rogers - Great Lakes Review

And then would you be able to lift your largest three customers as a percent of sales for 2012 and then your CapEx estimate for 2013, thanks?

Mike Smiley

Yeah, this is Mike Smiley. So for 2012 our largest customer was just over 20% of revenue, our second customer was about 11, and our third customer was just over 10. Those are all basically distributors. So they represent a lot of end customers they are pulling through for their, and the other question was CapEx. CapEx would probably be down a little bit from last year as I expect it to be. We did $26 million this year, we are probably closer to 20 or 22 something like that for the next year for this 2013.

Operator

Our next question is from Keith Housum with Northcoast Research.

Keith Housum - Northcoast Research

Michael, I look at the guidance going at 2013 at the lower end of the guidance, it tells me that perhaps you are looking for a decrease in the business of 3% to 4% and might take out what I assume will be LaserBand. I guess can you talk a little bit about what you see on the horizon that gives you guys just a more consecutive guidance.

Mike Smiley

Well, we will try all to speak up. First of all I just want to let you know seasonally the first quarter is always a little bit challenged. As you know in Asia we have, there exists the Chinese New Year. Then the other that happens in our business which is you get your budgets finalized and sort of half way through the quarter you sort of have your number, your game plan and we sort of see that in sort of the run rate business where people don't really start picking up until midway through February. So those are just natural things and then I think we would talk about the fact that Europe is also we see that economy being challenging. I think in the past couple of quarters we saw Asia-Pac being also affected because of Europe. I think we are seeing that maybe in a little bit better just normalized of course again we still have Chinese New Year in Asia-Pac. I don't know…

Anders Gustafsson

I think overall I would say we are very happy with our strategy and how we are executing today. So we feel we are doing quite well in the market and continuing to extend our leadership position in the market. Geographic and virtual diversification we have has served us very well in these uncertain times. But I think its fair to say also the environment continues to be somewhat difficult to forecast, more so than it was a few years back. So that's probably weighs into our forecast a bit also. But we are very confident in our ability to outperform the market and grow faster than the overall market trends, and for Q1 our guidance certainly includes some seasonality. You know you see that in particularly Latin America and Asia, but also figures in North America and Europe. But as we look into the rest of the year though I've got to say our pipeline looks quite good. We expect the year to strengthen as we go forward. We see good opportunity in manufacturing and retail and in transportation of logistics.

Keith Housum - Northcoast Research

And if I could follow up to that, as you look at yourself exiting in the quarter, in terms of the environment and large deals and deferring our invoices going ahead [ex Q1]. Has there been any change I guess in the last quarter versus the previous two quarters. We were seeing that some of the large deals were being deferred especially some of the largest distributors seeing that.

Mike Terzich

I think the large deal pattern as we exited the year remained pretty consistent to what we had articulated in the prior quarters, which was effectively deal sizes were more moderate, volume was more moderated, and what we were seeing particularly in some of our core markets in manufacturing was more tempered approach to those deals. So our largest end user accounts with certain level of uncertainty and some of the export manufacturing market were basically saying we are going to deploy, we are going to deploy in smaller lots and we are going to see how the year unfolds.

I don't think the story was any different in Q4. I think in this quarter somewhat consistent, although I will say based on our recent showing at the NRF, the retail outlook coming out of the holiday season globally was actually pretty strong. The level of optimism in retail was perhaps a little higher than those people expected and the feedback we got from the show was I think we will see an increase in those deal opportunities centered on retail both across the supply chain of retail as well as enhancing that customer experience. So we expect that those deal sizes will increase as the year progresses.

Operator

(Operator Instructions) Our next question is from Greg Halter with Great Lakes Review.

Greg Halter - Great Lakes Review

I wonder if you can provide, and maybe I have missed this, the yield on your cash investments in the quarter and annualize basis or wherever you may calculated?

Mike Smiley

You know, as you can imagine, our priorities for our investments are security and stability. So they are typically high rated corporate governments communities those guys thinks. So you can guess that the yield is pretty low. I don’t have it available. I don’t have it offhand right now, but it's fairly small.

Greg Halter - Great Lakes Review

Okay. And I applaud the buyback and what you have been doing in that regard. But despite the buyback, your cash is still up $25 million sequentially in the quarter, your stocks is at the highest levels since I think early in 2006. I just wondered did that give you any pause on the buyback and whether or not given the lower rate you’ve considered accelerating the buyback or paying a dividend or raising it annually, some kind of program like that as well.

Anders Gustafsson

You know, our philosophy is the same as it has been before. I am really looking to deploy our capital in to those opportunities that offer the highest risk adjusted returns, and we're exploring all of those options, highest on the list, I would say is funding growth, organic and inorganic. So we think that we have good opportunities to continue to drive the business and make sure we can generate good attractive long-term growth rates and nice margin expansion for that. We still believe that buybacks is the best vehicle to return capital to shareholders. It's the most flexible for us, we can step it up and when we feel there is opportunity and be opportunistic like we have said we would be all along or take a little cautious approach if the share price goes higher. We don’t want to chase it up. Our assessment is that most of our shareholders have been quite satisfied with that approach and that’s the path we are staying on.

Mike Smiley

Just to get back to the exact number it’s 0.7% is the annualized rate of return for the year.

Operator

Thank you ladies and gentlemen there are no further questions in queue so I will turn the call back over to Mr. Fox for closing remarks.

Doug Fox

Thank you everybody for joining us today. Just as a reminder Mike Smiley and I will be available after the call for any further discussions. Have a good day.

Operator

Thank you ladies and gentlemen. This concludes today’s webcast.

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