Zebra Raises 2026 Outlook as Q3 Sales Rise 22.3%

Zebra Technologies (NASDAQ: ZBRA) increased its full-year 2026 sales-growth and non-GAAP diluted earnings outlook after third-quarter revenue climbed 22.3%, supported by broad-based organic growth and a strong contribution from the Elo Touch business. Higher memory-component costs weighed on gross margin, but operating-expense leverage helped keep adjusted EBITDA margin unchanged and supported a 27.6% increase in non-GAAP diluted earnings per share.

Third-quarter net sales reached $1.61 billion, up from $1.32 billion a year earlier. Organic net sales, which exclude the effects of acquisitions, dispositions and foreign-currency translation, grew 11.3%.

Adjusted gross profit increased 16.7% to $742 million, while adjusted gross margin contracted 220 basis points to 46.0%. Adjusted operating expenses rose 12.2% to $413 million but declined as a share of sales to 25.6% from 27.9%.

Adjusted EBITDA advanced 22.5% to $349 million, leaving the adjusted EBITDA margin flat at 21.6%. Non-GAAP diluted EPS rose to $4.95 from $3.88.

Growth Across Segments and End Markets

Organic sales increased 15.0% in Zebra’s Connected Frontline segment and 7.0% in Asset Visibility & Automation. Growth was also positive across all reported regions, led by EMEA at 13% and North America at 11%. Latin America grew 9%, while Asia-Pacific increased 8%.

Transportation and logistics was Zebra’s fastest-growing primary end market, posting double-digit growth across postal and courier customers, third-party logistics providers and distribution centers. The company cited large deployments tied to warehouses, last-mile operations, data-center expansion and fleet modernization, alongside what it described as a robust multiyear pipeline.

Retail and e-commerce recorded high-single-digit growth, with e-commerce and specialty retail contributing to the increase. Zebra also reported continued growth from Elo Touch and momentum in its AI Suite solutions.

Manufacturing delivered high-single-digit growth as automation demand continued, with electronics and food and beverage among the stronger areas. Machine vision outperformed within the end market. Healthcare grew at a double-digit rate, driven by clinical mobility and continued demand for enterprise-grade mobile computing products used by caregivers.

Zebra said customers are using its AI-powered portfolio to improve frontline productivity, visibility and decision-making. Its strategy centers on combining real-time visibility, AI-driven execution and orchestration with continuous workflow improvement across a served market of more than $35 billion.

Memory Costs Remain a Margin Constraint

Zebra expects fiscal 2026 memory-component costs to rise by approximately $145 million from the prior year. Although product memory cost increases were roughly in line with its expectations, the aggregate effect has grown as sales volumes—particularly for mobile computers—have exceeded the company’s earlier expectations.

The company introduced another price increase in early October to help mitigate the pressure in 2027. It is also pursuing alternative suppliers, transitioning to memory types with greater availability and holding significantly more memory inventory to support growth into 2027. Zebra said suppliers were meeting their commitments and supporting current sales growth.

Full-Year Outlook Increased

For the fourth quarter, Zebra expects sales growth of 10% to 14%, including an approximately 150-basis-point benefit from foreign exchange. Adjusted EBITDA margin is projected at about 22%, with non-GAAP diluted EPS of $5.00 to $5.40. Management said the guidance reflects a strong start to the quarter and continued demand momentum.

Based on the midpoint of that forecast, Zebra now expects full-year sales growth of approximately 17%, including an aggregate benefit of about eight percentage points from acquisitions and foreign exchange. The company projects a full-year adjusted EBITDA margin of approximately 23.5% and non-GAAP diluted EPS of about $21.20. Those profit measures include $73 million of IEEPA tariff recoveries recorded in the second quarter.

Free cash flow is expected to be at least $1 billion in 2026, while planned capital expenditures are $75 million to $80 million. Zebra also forecasts a non-GAAP tax rate of approximately 19%.

Year-to-date free cash flow through the third quarter totaled $661 million, up $157 million from a year earlier. Zebra repurchased $643 million of shares during that period and $946 million from the fourth quarter of 2025 through the third quarter of 2026, including $75 million in the latest quarter.

At quarter-end, Zebra held $182 million in cash and cash equivalents and had $2.6 billion of balance-sheet debt. Net debt was 1.6 times adjusted EBITDA, and the company reported $1 billion of capacity under its revolving credit facility.

The outlook remains subject to risks including customer acceptance of Zebra’s products and software, global economic conditions, foreign-exchange movements, tariffs and trade-policy changes, component availability, manufacturing and supplier dependencies, acquisition integration, cybersecurity incidents, interest rates, regulatory changes, litigation and tax matters.