Zebra Technologies Lifts Outlook Amid Memory Headwinds

Zebra Technologies ((ZBRA)) has held its Q1 earnings call. Read on for the main highlights of the call.

Zebra Technologies’ latest earnings call struck a notably upbeat tone as management highlighted strong revenue and profit growth, wider margins, and robust cash generation, all capped by a raised full-year outlook. Executives also acknowledged a significant operational risk around volatile memory costs and supply, which could pressure margins and constrain volumes later in the year, leaving investors balancing strong execution against emerging headwinds.

Broad-Based Q1 Revenue Growth

Zebra reported nearly $1.5 billion in Q1 sales, representing 14.3% year-over-year growth on a reported basis and 4.3% growth organically in constant currency. Management emphasized that gains were broad-based across segments and geographies, signaling that demand recovery is not confined to a single product line or region.

Margin Expansion and Earnings Outperformance

Profitability improved meaningfully as adjusted gross margin expanded by 80 basis points to 50.4% and adjusted EBITDA margin reached 23.2%, roughly 90 basis points higher than a year ago. Non-GAAP diluted EPS climbed 18% year over year to $4.75, surpassing the high end of prior guidance and underscoring disciplined cost control alongside revenue growth.

Segment and Regional Strength

The Connected Frontline segment grew 20.6%, aided by the Elo acquisition, while still posting 3.8% organic growth, and Asset Visibility & Automation rose 4.8%. Regionally, Asia Pacific led with 11% growth, followed by Latin America at 10%, North America at 4%, and EMEA at 2%, reflecting a balanced recovery across Zebra’s global footprint.

Machine Vision and Manufacturing Momentum

Machine vision solutions posted strong double-digit growth, emerging as a standout contributor to the quarter’s performance. Manufacturing customers were a key driver, with their robust spending helping lift both overall sales and gross margins as automation projects continued to gain traction.

Integrating Elo Acquisition

The Elo Touch acquisition is already contributing meaningful top-line growth, and management expects mid-single-digit growth from Elo in 2026 as integration progresses. Early revenue and cost synergies are being realized, including new geographic wins such as initial successes in India that broaden Zebra’s addressable market.

Cash Generation and Shareholder Returns

Zebra generated $163 million of free cash flow in Q1, showcasing strong cash conversion even amid higher investment levels. The company has repurchased $500 million of stock year-to-date through early May and expects at least $900 million of free cash flow for the full year, implying roughly 100% conversion and a continued commitment to shareholder returns.

Raised Full-Year Outlook

Management raised its full-year sales growth outlook to a 10% to 14% range, increasing the midpoint by one point, and now targets an adjusted EBITDA margin of about 22%. Non-GAAP EPS guidance was lifted to a range of $18.30 to $18.70, signaling confidence that margin levers and demand trends can offset cost pressures and execution risks.

Memory Supply Mitigation and Productivity Gains

On the operational front, Zebra said it has clear visibility into required memory supply and is pursuing multiple mitigation levers, including supplier co-planning, alternative sourcing, and transitions to higher-density components. The company also pointed to restructuring efforts and improvements in software development efficiency as key drivers behind recent margin expansion and future productivity.

Memory Cost and Supply Risks

Despite mitigation plans, memory remains a dynamic headwind, with only modest impact in Q1 but a notable cost step-up expected in Q2 that management estimates could trim about 1.5 points from sequential EBITDA. Executives warned that constrained memory availability could weigh on second-half volumes, framing this as a key execution risk that investors should monitor closely.

Expected Q2 Margin Pressure

For the second quarter, Zebra guided to an adjusted EBITDA margin slightly above 21%, down from 23.2% in Q1, highlighting a near-term squeeze. Management attributed this sequential margin pressure primarily to higher memory costs and a normalization of deal mix after an unusually favorable combination of projects in the first quarter.

Acquisitions and FX Lift Growth

A significant portion of near-term growth stems from acquisitions and currency tailwinds, with management noting about 10.5 points of Q2 sales growth and 7 points for the full year tied to these factors. With organic growth at roughly 4.3% in Q1, some investors may question the sustainability of growth if deal-making or FX benefits fade.

Tariff and Trade Policy Uncertainty

Zebra also flagged evolving tariff and trade policy as a background risk, citing recent and potential policy changes that complicate planning. While the company currently expects only a minimal full-year impact on its income statement, it acknowledged that further policy shifts could require additional mitigation actions over time.

RFID Comparability and Mix Dynamics

The RFID business faced tough comparisons against a strong prior-year quarter, leading to a sequential decline that weighed on reported growth and mix. Management anticipates improvement in Q2 as comps ease, but the Q1 softness underscores how product mix shifts can influence both top-line momentum and profitability.

Freight Cost Inflation

Freight and logistics lanes saw price increases of roughly 20% to 30%, adding another layer of cost pressure in the short term. Zebra stressed that freight expenses are less than 2% of revenue and largely reflected in guidance, but they nonetheless required offset actions elsewhere to preserve margins.

Guidance and Outlook

Looking ahead, Zebra guided Q2 sales growth of 14% to 17% year over year, with roughly 10.5 points from acquisitions and FX, and an adjusted EBITDA margin slightly above 21% alongside non-GAAP EPS of $4.20 to $4.50. For 2026, the company expects 10% to 14% sales growth with a 7-point boost from acquisitions and FX, about a 22% adjusted EBITDA margin, non-GAAP EPS of $18.30 to $18.70, and at least $900 million of free cash flow, assuming full mitigation of a 2-point memory cost headwind.

Zebra’s earnings call painted the picture of a company executing well, expanding margins, and rewarding shareholders while simultaneously navigating cost inflation and supply risks. The raised outlook, strong cash generation, and momentum in key growth areas such as machine vision and manufacturing support a constructive view, though the memory supply situation and reliance on non-organic growth levers warrant ongoing scrutiny for investors.