Data management and asset-tracking expert Zebra Technologies (ZBRA -1.96%) reported earnings on Tuesday morning. The results edged out Wall Street's estimates and management's guidance, lifting Zebra's stock to a fresh tow-year high.
More importantly, this bellwether at the heart of America's [something] showed clear signs of an improving economy. CEO Bill Burns delivered several important insights on the earnings call, and a few more in an exclusive talk with The Fool.
Zebra's setup for success
Before diving into Zebra's commentary, let me remind you that the company was set up for success. Business was slow in the heart of the inflation panic, so the year-over-year comparisons in this week's report were made against some really lowball 2023 results.
That said, Zebra's business is back on track. Third-quarter sales rose 31% year over year and the bottom line swung from a net loss of $0.28 to positive earnings of $2.64 per diluted share. These improvements would not be possible in a permanently damaged economy.
With the exception of a slow recovery among manufacturing clients, most of Zebra's client sectors are ramping up their infrastructure spending due to stronger business prospects of their own.
Sales surged in Europe and the Americas, led by printing and mobile computing orders. Mobile artificial intelligence (AI) tools for retail and warehouse workers are in high demand and grocery stores are finally replacing their outdated asset-tracking systems with modern tools. I'm just scratching the surface of a broad economic recovery here.
Insights from Zebra CEO Bill Burns
"I would say that we saw a broadening recovery across all vertical markets, not just retail in Q3, which certainly was encouraging," Burns said on the earnings call. "As customers got more confidence in the macro environment around them and what they're seeing across their business, they increased capital spending."
When I got a few minutes with Bill Burns later that day, I had to know more about the market recovery. So I asked him for more detail on how Zebra's business is developing after the inflation crisis. Burns' answer was quite encouraging.
First, the logistics and transportation industry sees larger parcel-shipping volumes and that's a good sign for economic activity as a whole. The smaller healthcare business is becoming a growth leader with solid order growth, and retailers are ramping up their asset-tracking automation.
"Challenges like geopolitical concerns and the upcoming election are causing some caution among customers," Burns told me. "However, spending has increased as confidence has grown, leading to better-than-expected results in Q3 and Q4."
Image source: Getty Images.
Zebra's place in the broader market recovery
The market recovery is far from complete, of course. Zebra's guidance points to fourth-quarter revenue of roughly $1.3 billion, significantly below the record single-quarter sales of $1.5 billion at the end of 2022. But Zebra's business trends are pointing in the right direction, with bullish implications for the broader economy and stock market. Zebra's signals suggest that this bull market should have legs in 2025, where companies should have easier access to extra capital and restart their paused infrastructure upgrades.
And this inspiring report wasn't posted in a vacuum. Economists expect solid economic growth over the next three years, including a return to ideal inflation rates in 2025. Most reports in the current earnings season have included positive surprises on both the top and bottom lines, with particularly strong earnings improvements in communications services, according to FactSet data.
So I'm not drawing bullish conclusions from Zebra's results and commentary alone. Bill Burns and his team are part of a larger puzzle, and most of the pieces are starting to look good. The S&P 500 (^GSPC -1.11%) index has gained 23% in 2024 and it looks ready to run even higher.
