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Zebra Technologies Trotted Right Through Wall Street's Estimates in Q3

Data capture specialist Zebra Technologies (NASDAQ: ZBRA) smashed the Street's estimates in Tuesday's third-quarter earnings report. The maker of data-tagging and tracking equipment such as barcode scanners and printers also set up bullish guidance targets for the next report and sketched out even stronger business trends for 2021 and beyond.

Zebra Technologies' third-quarter results by the numbers

Metric

Q3 2020

Q3 2019

Change

Analyst consensus

Revenue

$1.13 billion

$1.13 billion

0%

$1.07 billion

GAAP net income (loss)

$116 million

$136 million

(15%)

N/A

Adjusted earnings (loss) per diluted share

$3.27

$3.43

(5%)

$2.81

Data source: Zebra Technologies. GAAP = generally accepted accounting principles.

Zebra's profit margins were under pressure from a less lucrative business mix and significant premium shipping costs. The company is using commercial freight services on passenger flights in order to move finished products to customers around the world during the COVID-19 crisis, and these flights are few and far between due to coronavirus-related travel restrictions.

The pandemic isn't all bad news for Zebra, though. On a phone call with The Fool, CEO Anders Gustafsson highlighted how the global health crisis has increased the value proposition of using Zebra Technologies' data capture systems.

"Our products and solutions have become more critical than ever to our customers. That goes for all our verticals," Gustafsson said. "I think our deep understanding of workflows and how to manage data at the edge is particularly helpful now. So we see a lot of exciting long-return opportunities and new ones come along, driven by the acceleration of several megatrends that we have seen and talked about over the last five years."

In particular, Zebra's radio frequency identification (RFID) products were on a roll when the pandemic arrived. That innovative growth opportunity took a pause in 2020 but should be ready to roll again over the holidays.

"A lot of new RFID deployments require more on-site visits to tune the system and so forth. With the restrictions we have on visiting our customers' facilities, that has been moving slower," Gustafsson said. "We do see RFID starting to come back in Q4 and I think that in the longer term, the value proposition of RFID in retail has, if anything, increased. Solutions like omnichannel, buy online and pick up in-store, and so on are putting even more pressure on retailers to have a good handle on their in-store inventory."

Image source: Getty Images.

Getting back to significant growth

That's not the only paused growth engine in Zebra's stable that is champing at the bit as we speak.

"We are encouraged by the faster than expected recovery with small and mid-sized businesses and are beginning to realize the benefit of pent-up demand from many customers who have paused their spending earlier in the year," acting CFO Nathan Winters said in the earnings call. "Based on these trends, and our healthy channel inventory levels, we expect Q4 adjusted net sales to increase between 3% and 7%."

At the midpoints of Winters' guidance ranges, Zebra would see fourth-quarter sales of roughly $1.25 billion and adjusted earnings near $3.80 per diluted share. These targets are running far ahead of the current Street consensus, which is pointing at earnings in the neighborhood of $3.28 per share on sales in the vicinity of $1.16 billion.

Given these strong results, optimistic management comments, and rosy guidance targets, it was no surprise to see Zebra's shares reach new all-time highs in Tuesday's trading session. By the end of the day, the stock had gained 8.9% in a single day and 25% year-to-date.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Zebra Technologies. The Motley Fool has a disclosure policy.


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