Zebra Technologies Corporation ZBRA is grappling with the adverse impacts of the increasing cost of sales, high debt levels and forex woes.

Headquartered in Lincolnshire, IL, ZBRA is the leading provider of enterprise asset intelligence solutions in the automatic identification and data capture solutions industry throughout the world. The company has a diversified portfolio of products and solutions that includes cloud-based subscriptions and a full range of services like maintenance, repair, technical support, as well as managed and professional services.

ZBRA currently carries a Zacks Rank #5 (Strong Sell). In the past three months, the stock has lost 26.5%, in line with the industry.

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Let’s discuss the factors that are likely to continue taking a toll on this company.

Rising Costs: ZBRA has been dealing with the adverse impacts of high costs and expenses. The company’s cost of sales increased 22.3% year over year in the fourth quarter of 2024 due to high raw material costs. Also, selling and administrative expenses rose 11% year over year. Escalating costs and expenses, if uncontrolled, may negatively impact profitability in the quarters ahead.

High Debt Level: High debt is a major roadblock for the company. ZBRA’s long-term debt in the last five years (2020-2024) witnessed a CAGR of 18.9%. At the end of the fourth quarter, the company’s long-term debt totaled $2.09 billion. Considering Zebra Technologies’ high debt level, its cash and cash equivalents of $901 million do not look impressive. Also, interest expenses in the fourth quarter remained high at $98 million. 

In the second quarter of 2024, the company completed the offering of $500 million senior notes due June 1, 2032, in a private placement. The senior notes have a fixed interest rate of 6.5%, which is payable semi-annually.  Although the current notes offering will help pay down a share of its loan, we believe it will also add to Zebra Technologies’ existing debt balance.

Forex Woes: The company operates across diverse regions (North America, EMEA, the Asia-Pacific and Latin America), exposing it to certain political, environmental and geopolitical issues. The ongoing conflicts between Russia & Ukraine and Israel & Iran may harm its business and operational results in the long run. Moreover, the company has considerable exposure to overseas markets. This brings social and environmental risks as well as forex woes. A stronger U.S. dollar might weigh on the company’s overseas business performance.

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This article originally published on Zacks Investment Research (zacks.com).

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