Zebra Technologies' stock rocked after revenue outlook slashed amid 'significant' drop in demand

By Tomi Kilgore

Barcode-scanner maker's stock paces the S&P 500's losers and closes at a new low for the year

Shares of Zebra Technologies Corp. traded deeply in the red Tuesday after the maker of barcode scanners slashed its revenue outlook, as weak demand trends have accelerated and are not expected to recover this year.

After seeing the start of a broad softening in demand in the first quarter, Chief Executive Bill Burns said on the post-earnings conference call with analysts that as those trends accelerated during the second quarter, "we saw more cautious spending behavior by our customers of all sizes across our vertical end markets and regions."

Burns said demand was weakest in retail and ecommerce and in transportation and logistics, as many customers are absorbing the capacity they built out during the COVID-19 pandemic.

The stock (ZBRA) tumbled 17.3% to $254.77, enough to pace the S&P 500's decliners and to suffer the biggest one-day selloff since it plunged 18.8% on Feb. 28, 2022. It closed at the lowest price since Dec.28, 2022.

The company said before Tuesday's open that it expects third-quarter sales to fall between 30% and 35% from a year ago, while the current FactSet sales consensus of $1.32 billion implies just a 4.1% drop.

"This outlook assumes double-digit [percentage] declines across each of our core product categories, with distributor destocking accounting for approximately one-third of the decline," Chief Financial Officer Nathan Winters said on the call, according to an AlphaSense transcript.

Those trends are expected to continue for the rest of the year.

For all of 2023, Zebra chopped its sales outlook down to a drop of between 20% and 23%, from guidance provided in early May of a decrease of between 2% and 6%.

Burns said the revised full-year outlook includes "a significant reduction in near-term demand in the mobile-computing market," as well as destocking by distributors.

"Given our limited visibility in this environment, we are cautious in our assumptions and not expecting a recovery in 2023," Burns said.

For the second quarter through July 1, the company swung to net income of $144 million, or $2.78 a share, from a loss of $98 million, or $1.87 a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share fell to $3.29 from $4.61 but topped the average analyst estimate of $3.27, according to FactSet.

Sales fell 17.3% to $1.21 billion, below the FactSet consensus of $1.31 billion.

The company was able to beat profit expectations even as sales missed, because the cost of sales fell more than sales, down 20.3% to $633 million, as gross margin improved to 47.9% from 45.9%.

Zebra's stock has shed 11.4% over the past three months, while the Technology Select Sector SPDR exchange-traded fund (XLK) has rallied 18.4% and the S&P 500 has gained 9.8%.

-Tomi Kilgore

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08-02-23 0756ET

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