Zebra Tech's stock soars as signs of a bottom emerge in order activity. Here's why that matters.

By Tomi Kilgore

Barcode-scanner maker's stock is leading S&P 500 gainers as it enjoys its biggest gain in four years

Shares of Zebra Technologies Corp. were galloping toward their best day in four years on Thursday, after the maker of barcode scanners and printers beat earnings expectations and said it was seeing some signs that business may be bottoming.

What Zebra sees could be important for the outlook for the broader economy, as its customers come from a number of key markets, including retail, manufacturing, banking, transportation, healthcare, hospitality and the public sector.

For the fourth quarter, the company (ZBRA) saw overall sales drop by one-third and saw double-digit percentage declines across each of its markets for the quarter and year, as customers absorb capacity built out during the pandemic to address the spike in e-commerce activity.

Full-year 2023 sales sank 25.5% year over year, after rising 2.7% in 2022 and jumping 26.5% in 2021.

But although first-quarter sales are expected to decline between 17% and 20%, that's an improvement from the fourth quarter, and sales are expected to keep improving from there to a full-year 2024 growth range of negative 1% to positive 3%.

"Although we are seeing some improvement in order activity, we are not yet seeing signs of a broad market recovery and remain cautious in our planning," Chief Executive Bill Burns said on the post-earnings call with analysts, according to an AlphaSense transcript.

And entering 2024, Burns said that "distributor inventories are aligned with current demand," which suggests customers no longer have excess capacity to absorb.

The stock shot up 11.5% in midday trading, enough to pace the S&P 500 index's SPX gainers and to put it on track for the highest close since July 31, 2023. It was also headed for the biggest one-day percentage gain since it soared 13.9% on March 13, 2020.

The company bumped up its expected cost savings from productivity and voluntary-retirement plans it implemented in 2022 by 20%, to $120 million from $100 million, with most of the actions already completed. The company also increased the total charges it expected to book from the plans to $130 million from $105 million.

Meanwhile, for the fourth quarter, the company reported net income of $17 million, or 31 cents a share, down from $186 million, or $3.57 a share, in the same period a year ago. Excluding nonrecurring items, earnings per share of $1.71 beat the FactSet consensus of $1.65.

Sales fell 32.9% to $1.01 billion but were above the FactSet consensus of $999 million, as tangible-product sales tumbled 39.3% to $780 million while services and software sales increased 5% to $229 million.

"As expected, our fourth-quarter results continued to be impacted by broad-based softness across our end markets and distributor destocking," Burns said. "We realized sequential improvement in sales, profitability and free cash flow through demand improvement, restructuring actions and inventory management initiatives."

The stock has run up 30% over the past three months but was still down 13.8% over the past 12 months. In comparison, the S&P 500 has rallied 20.9% over the past year.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

02-15-24 1242ET

Copyright (c) 2024 Dow Jones & Company, Inc.