Sometimes you beat the numbers, raise the guidance, and the market still throws a tantrum. That's the story for Zebra Technologies (ZBRA) on Tuesday, as the stock fell more than 7% despite a solid third-quarter report and an improved full-year outlook. The culprit? Rising memory component costs that are eating into gross margins.

Zebra reported adjusted earnings of $4.95 per share, beating the analyst estimate of $4.90. Revenue rose 22.3% year over year to $1.614 billion, topping Wall Street's estimate of $1.563 billion. Not too shabby.

Strong Sales Growth Meets Margin Pressure

Organic sales grew 11.3%, driven by a 15% increase in Connected Frontline (CF) and 7% growth in Asset Visibility & Automation (AVA).

CF revenue jumped 34.6% to $949 million, supported by strong demand for mobile computing solutions and the Elo Touch acquisition. AVA revenue rose 8.1% to $665 million, while organic sales increased 7%, supported by machine vision, printing and RFID.

But here's the rub: gross margin narrowed to 45.7% from 48% a year earlier. Higher memory costs and business mix weighed on profitability, partly offset by favorable currency movements. Adjusted EBITDA margin remained unchanged at 21.6%.

Regional organic growth was led by Europe, the Middle East and Africa at 13%, followed by North America at 11%, Latin America at 9% and Asia-Pacific at 8%.

CEO Bill Burns credited strong customer demand for frontline automation, solid execution and contributions from Elo Touch for the record quarterly performance. He said efforts to secure memory supplies, raise prices and improve efficiency helped support growth.

Cash Flow And Balance Sheet

Zebra ended Oct. 3 with $182 million in cash and cash equivalents and $2.58 billion in total debt. Year-to-date free cash flow reached $661 million, while share repurchases totaled $643 million.

Zebra Raises Outlook Despite Rising Memory Costs

Zebra raised its 2026 revenue forecast to $6.313 billion from its previous range of $6.151 billion to $6.259 billion. Analysts expect $6.212 billion. The company narrowed its adjusted earnings forecast to $21.20 per share from $20.75 to $21.25. Wall Street expects $20.89.

For the fourth quarter, Zebra forecast adjusted earnings of $5 to $5.40 per share, compared with the $5.18 consensus. Revenue is expected to reach $1.623 billion to $1.681 billion, above analysts' $1.605 billion estimate. Management expects an adjusted EBITDA margin of approximately 22%.

Growth drivers include mobile computing, Elo Touch synergies and AI-powered solutions. Zebra also expects strong demand from transportation, logistics, healthcare, retail and e-commerce customers.

Memory Costs Could Remain Elevated Into 2027

CFO Nathan Winters said the company increased its 2026 memory-cost estimate by $25 million to approximately $145 million, driven by stronger mobile computing sales and product mix. Component prices remained broadly in line with management's expectations.

The company plans to offset the impact through higher prices and other measures. Zebra introduced additional price increases in early October to help manage costs in 2027.

Winters warned that memory component prices will continue to rise through the first half of 2027 before easing in the second half. He said prices are still climbing, although at a slower pace than earlier this year. The company remains focused on raising prices and improving efficiency to protect profitability.

ZBRA Price Action: Zebra Technologies shares were down 7.29% at $334.81 at the time of publication on Tuesday, according to market data.