This Tech Stock Just Cratered. It Isn’t Clear Why.

Zebra Technologies reported third-quarter earnings. (Dreamstime)

Key Points

• Zebra Technologies reported third-quarter earnings per share of $3.88 from sales of $1.3 billion, exceeding analyst expectations.
• Despite the earnings beat, Zebra’s stock fell 12%.
• The company forecasts fourth-quarter sales growth of 8% to 11%, but this includes an 8.5% boost from foreign currency translation and acquisitions.

The stock market can be humbling. Investors in Zebra Technologies likely felt that way early Tuesday, when shares of the automation equipment provider tumbled despite an earnings beat.

Tuesday morning, Zebra reported third-quarter earnings per share of $3.88 from sales of $1.3 billion. Wall Street analysts tracked by FactSet were looking for $3.75 from sales of $1.3 billion.

The stock lost 12%, closing at $274.31, while the S&P 500 and Dow Jones Industrial Average added 0.2% and 0.3%, respectively.

Maybe it was the outlook. Zebra expects fourth-quarter sales growth of 8% to 11%, implying quarterly sales of $1.5 billion. No problem there, but the outlook includes an 8.5% boost from foreign currency translation and acquisitions. Excluding that, sales would be closer to $1.3 billion.

Perhaps Wall Street, which was looking for an outlook that suggested quarterly sales of $1.4 billion, didn’t have the acquisition baked into estimates, creating the disappointment.

Still, the severity of the stock reaction looks a little puzzling. BNP Paribas analyst Andrew Buscaglia called results “solid” in a Tuesday report, though he was expecting growth, excluding the acquisition, to be about 2.5% year over year, above the 1.5% guided to by the company.

Weaker-than-expected organic growth seems to be the culprit for the big decline. That’s what CEO Bill Burns believes, although he expects more profitable growth in 2026.

Expectations didn’t appear to be too high, though. Coming into Tuesday trading, Zebra shares were down about 20% year to date.

Tuesday’s stock performance is yet another example of why calling a stock’s reaction to quarterly earnings is never easy. It isn’t only about what the company reports. It’s about the outlook, expectations, and what management says on quarterly conference calls.

Investors appear to have wanted more from Zebra. Sales are growing again, but haven’t eclipsed their 2022 peak, when business was better amid a post-Covid spending boom.

Zebra generated $5.8 billion in 2022 sales. It’s expected to generate closer to $5.4 billion in 2025.

Write to Al Root at allen.root@dowjones.com