Zebra's Q3 2025 Earnings Call: Contradictions Emerge on Elo's Market Share, U.S. Tax Legislation Impact, and Supply Chain Diversification

Date of Call: October 28, 2025

Financials Results

• Revenue: $1.3B, up 5% YOY
• EPS: $3.88 per diluted share, up 11% YOY
• Gross Margin: 48.2%, down 90 basis points YOY
• Operating Margin: Adjusted EBITDA margin 21.6%, up 20 basis points YOY

Guidance:

• Q4 sales growth expected 8%–11%, including ~850 bps contribution from Elo/Photoneo and favorable FX.
• Q4 adjusted EBITDA margin expected ~22%, assumes $6M net tariff impact in Q4.
• Q4 non‑GAAP diluted EPS expected $4.20–$4.40.
• Full‑year 2025 sales growth ~8%; full‑year adjusted EBITDA margin ~21.5%; full‑year non‑GAAP EPS ~$15.80.
• Expect ~$24M gross profit tariff impact for 2025 (after mitigation), $6M net in Q4; plan to substantially mitigate tariffs entering 2026.
• Committed $500M to share repurchases through Q3 2026.

Business Commentary:

* Revenue Growth and Regional Demand: - Zebra Technologies reported sales of $1.3 billion, a 5% increase from the prior year, driven by solid demand in regions like Asia Pacific, Latin America, and North America. - The growth was particularly strong in vertical markets such as retail and e-commerce, with significant contributions from printing, mobile computing, and RFID products.

• Segment Performance and Strategies:
• The Enterprise Visibility & Mobility segment grew 2%, driven by mobile computing, while the Asset Intelligence & Tracking segment grew 11%, led by RFID and printing.

• The strategic acquisition of Elo Touch Solutions is expected to enhance the connected frontline experience and increase the addressable market.

• Tariff Mitigation and Financial Outlook:

• Zebra expects to mitigate approximately $24 million in gross profit impact from U.S. import tariffs in 2025, with a $6 million net impact in Q4.

• The company anticipates between 8% and 11% sales growth in Q4, with an adjusted EBITDA margin of 22%, supported by strong performance in recent acquisitions.

• AI Integration and Future Growth:

• AI is seen as a catalyst for growth, with potential revenue anticipated in 2026, driven by next-generation mobile devices and wearable technology.
• The company is focused on advancing its AI capabilities, leveraging AI solutions to enhance the customer experience and drive operational efficiencies.

Sentiment Analysis:

Overall Tone: Positive

• "delivering results above our outlook" with sales of $1.3 billion (up 5%), adjusted EBITDA margin of 21.6% (up 20 bps) and non‑GAAP EPS $3.88 (up 11%); announced $500M buyback and strategic acquisitions (Elo, Photoneo) to drive growth.

Q&A:

• Question from Andrew Buscaglia (BNP Paribas Exane): So demand trends seem strong and -- are relatively strong in Q3. And I noticed your Q4 guidance implies organic growth somewhat decelerating. I know you're facing a tough comp, but I'm wondering if you can kind of walk through what you see demand-wise and just additional commentary by end market would be helpful.
  Response: Q3 demand was solid across North America, AsiaPac and Latin America led by retail/e‑commerce; some customers pulled orders earlier into Q3 for peak, so Q4 timing looks softer but H2 is unfolding as expected.

• Question from Andrew Buscaglia (BNP Paribas Exane): I see, helpful. And can you comment on EVM, the growth was rather modest in the quarter. What are you seeing specifically in that segment? And can we still expect that to grow exiting the year?
  Response: Mobile computing saw strong growth with large deals, but data capture/scanning declined on a difficult compare, producing modest overall EVM growth; mobile strength should support exiting‑year growth.

• Question from Piyush Avasthy (Citigroup Inc.): With the understanding that you're not providing 2026 guidance, but it would be helpful if you could provide some puts and takes on the construct itself, like how different or similar to 2026 be from your long-term financial targets? ...how would you characterize the demand outlook heading into '26 across your different verticals?
  Response: Customers remain cautious and demand is uneven (notably EMEA and manufacturing), but Zebra's solutions remain essential and management expects to drive sustainable profitable growth into 2026.

• Question from Piyush Avasthy (Citigroup Inc.): You mentioned digital AI features—how soon can these features become a catalyst for growth? Do you sense demand for software tied to refresh cycles?
  Response: Pilots are underway; first revenues likely in 2026 with ramp in 2027+, with AI driving both higher‑end hardware refreshes (higher ASPs) and new software revenue opportunities.

• Question from Damian Karas (UBS Investment Bank): I was wondering if you could maybe speak a little bit to the large project funnel, what you're seeing out there, what conversations you're having? Has there been any -- obviously, the fourth quarter, it doesn't appear you're expecting much large project activity. But just in terms of the funnel, is there any increase in customer conversations? And any hope that maybe you could see some of that stuff get awarded in the fourth quarter? Or are we likely going to be waiting sometime longer?
  Response: Project pipeline activity remains consistent with prior outlook; customers largely proceeding but some are spreading or delaying purchases due to macro and trade‑policy uncertainty, so limited acceleration into Q4.

• Question from Damian Karas (UBS Investment Bank): That makes sense. And Bill, on your point about some of this pull-forward demand, in the third quarter, -- any particular reason why you think some orders might have come in earlier in the second half? Anything to do with tariffs or sort of price optimization on the part of your customers? Just curious why that might be.
  Response: Timing drove earlier orders—customers needed product sooner to meet peak demand (particularly e‑commerce/retail), not a tariff‑driven pull‑in; underlying demand level is as expected.

• Question from Thomas Moll (Stephens Inc.): For the fourth quarter, I want to unpack the assumption around budget flush. Can you quantify what you're assuming for Elo from a top line perspective in Q4? And then if we back that out, what does the sequential quarter‑over‑quarter look like? What are you assuming for year‑end flush?
  Response: Elo is modeled at ~$100M in Q4 (consistent with the $400M annualized), combined M&A/FX contributes ~850 bps and pricing adds ~1 point; excluding those factors organic demand is roughly flat and year‑end spend is assumed similar to last year.

• Question from Thomas Moll (Stephens Inc.): Regarding RFID, are you able to comment if your business should benefit from recent high‑profile announcements, and what's the forward visibility on RFID? Is the pipeline suggesting continued elevated growth?
  Response: RFID remains a multi‑year double‑digit growth area with a broad pipeline across retail (including grocery/fresh), T&L, manufacturing and healthcare; existing customers are expanding use cases.

• Question from Keith Housum (Northcoast Research Partners): On AI, it sounds like opportunity is adding wearables and maybe accelerating refresh cycles—one, is that true? And two, will AI require higher‑end devices than customers use today?
  Response: Yes—AI will drive demand for higher‑performance mobile and wearable devices (faster processors, more memory), which should increase ASPs and help drive refresh cycles alongside new software offerings.

• Question from Keith Housum (Northcoast Research Partners): Retail and e‑commerce have been contributing to growth for multiple quarters—how sustainable is that and do these cycles transition to other verticals over time?
  Response: Retail/e‑commerce strength reflects secular e‑commerce growth and is sustainable, but verticals refresh on different timelines so growth will likely remain uneven across sectors rather than rotate cleanly from one vertical to another.

• Question from Jamie Cook (Truist Securities): The margin divergence between the two segments—Asset Intelligence & Tracking margins doing better this year—are tariffs hitting one segment more than the other? Any nuances on how tariffs will impact segments into 2026?
  Response: Segment margin differences are primarily mix‑driven (AIT benefits from higher‑margin printing and RFID volume); management expects to substantially mitigate tariffs in 2026 with modest Q1 impact and most benefit accruing to AIT.

• Question from Jamie Cook (Truist Securities): Elo contributes $100M in Q4; any thoughts on Elo as you think about 2026 given its 5%–7% through‑cycle growth profile?
  Response: Elo aligns with Zebra's growth profile and strategic positioning; integration and revenue/cost synergies are progressing as expected and Elo offers ongoing opportunities in POS, kiosks and QSR into 2026.

• Question from Mary (on for Meta / Morgan Stanley): First, on the pricing actions related to tariffs—what impact are you seeing on customer demand? Second, on the OBBBA tax impact—how will it affect your effective tax rate and cash taxes going forward?
  Response: Pricing actions are generating ~ $60M annual benefit with no material demand drop (competitive environment); OBBBA reduces cash taxes (~$50–$60M this year and >$200M over two years) while raising the modeled tax rate modestly to ~18% due to permanent effects and mix.

• Question from Joseph Giordano (TD Cowen): Last year you guided conservatively taking market risk largely out—this quarter are you similarly not baking in much beyond what you see? Also, what's the EPS accretion from Elo?
  Response: Guide assumes a conservative stance on year‑end spend similar to last year (convert pipeline in next 6–8 weeks); Elo contributes about $0.10 of EPS and guide uplift also from better tariffs and share/interest dynamics.

• Question from Joseph Giordano (TD Cowen): As you think into next year, why shouldn't 2026 be at least in the range of a typical cycle given the bounce off pandemic deployments?
  Response: Management won't provide 2026 guidance now but reiterates customers are cautious near‑term; Zebra expects sustainable profitable growth but will update guidance next year once visibility improves.

• Question from Robert Mason (Robert W. Baird): What did month‑to‑month or quarterly trends look like in EMEA as you entered Q4? And Asia Pac has been double‑digit—what's driving that strength and is it broadening?
  Response: EMEA was mixed—Northern Europe and some retail/T&L strength offset by weakness in Germany and manufacturing; AsiaPac growth is broad‑based (Japan, India, Australia/NZ) driven by focused go‑to‑market investments and specific large wins (e.g., postal).

• Question from Robert Mason (Robert W. Baird): Follow‑up—stock‑based comp ticked up; how should we think about that trend into 2026 and what's driving the increase?
  Response: The Q3 increase was driven by plan design/accounting changes and a performance‑share true‑up; this was an anomaly and expense is expected to normalize in Q4 and into next year.

• Question from Guy Drummond Hardwick (Barclays): You intend to take China to below 20% of U.S. imports—where do you think that goes long term and what will contract manufacturer footprint look like a year from now?
  Response: Expect China share to settle into the low‑teens as a baseline due to certain single‑source components, while continuing to diversify contract manufacturing globally to enhance resilience and flexibility.

• Question from Guy Drummond Hardwick (Barclays): At what point does technological obsolescence on installed base force customers to upgrade to benefit from agentic AI?
  Response: AI will be a multiyear catalyst for refresh as customers adopt on‑device models requiring faster processors/more memory; device health, longevity and cybersecurity also drive replacement.

• Question from Bradley Hewitt (Wolfe Research): On the $500M buyback—how dynamic is that number; is it a minimum; what's the cadence and why not execute as an ASR?
  Response: The $500M commitment is planned over the next four quarters and will be dynamically deployed in the open market to manage timing and volatility; open market execution gives more flexibility than an ASR.

• Question from Bradley Hewitt (Wolfe Research): Q4 implied incremental margins (~25%) look below typical 30%+—is that conservatism or are there factors limiting drop‑through?
  Response: The lower implied incrementals reflect Q4 mix (higher portion of large deals), not unusual timing or margin issues; no specific conservatism beyond mix effects.

• Question from Brian Drab (William Blair): Can you talk about the machine vision business and softness in manufacturing? Which other growth engines (RFID, etc.) are in double‑digit or high single‑digit growth?
  Response: Machine vision software grew but overall machine vision declined due to semiconductor and EV build slowdowns; RFID, tablets, and task‑management/AI software are highlighted as current growth engines.

• Question from Katie Fleischer (KeyBanc): For Q4 margins, should we expect segment margins to be different from this quarter or are they pretty steady?
  Response: Segment margins are expected to be pretty steady between Q3 and Q4 with no major quarter‑to‑quarter changes.

Contradiction Point 1

Elo's Market Share and Growth

It involves differing perspectives on Elo's market share and growth potential, which are crucial for understanding the strategic value of the acquisition and may impact investor trust and stock price volatility.

Why are margins higher in the Asset Intelligence & Tracking segment year-over-year? - Jamie Cook (Truist Securities, Inc., Research Division)

2025Q3: Being able to leverage the Elo brand, to be able to reach into other customer-facing areas of the retail and e-commerce industries, we think that's a big opportunity for us. - William Burns(CEO)

How does Elo's business cyclicality compare to yours, and what is their market share progress? - Damian Karas (UBS Investment Bank)

2025Q2: Their market share is in the high teens. And when you look at the competitors that they compete against, they are different from ours. So it's -- we do compete at the high-end, but we have -- they have a very broad portfolio of offerings. - William Burns(CEO)

Contradiction Point 2

Impact of U.S. Tax Legislation on Demand

It involves differing interpretations of the impact of U.S. tax legislation on customer demand, which can influence sales forecasts and strategic planning.

What is the demand outlook across verticals without 2026 guidance?Are there any new software investment opportunities? - Piyush Avasthy (Citigroup Inc., Research Division)

2025Q3: Customers remain cautious due to macro uncertainty. Solutions remain fundamental to operations. - William Burns(CEO)

Can your customers release budgets and proceed with projects? What assumptions are in your second-half guidance? - Joseph Craig Giordano (TD Cowen)

2025Q2: Demand has remained resilient, with customers maintaining capital spending levels. Some have spread spending over multiple quarters due to uncertainty. Our outlook is supported by backlog and pipeline. Customers remain cautious due to uncertain global trade policies and macroeconomic factors. U.S. tax legislation could provide benefits, but it's too early to assess demand impact. - William Burns(CEO)

Contradiction Point 3

Supply Chain Diversification and Manufacturing Strategy

It highlights a shift in the company's strategy regarding supply chain diversification and manufacturing locations, which could impact production costs and operational efficiency.

How are you planning to move production considering the U.S. administration's push to bring manufacturing back to the U.S.? - Brian Drab (William Blair)

2025Q3: We continuously assess the manufacturing footprint, considering geopolitical stability, capability in regions, and overall costs. Diversification of the supply base is a major effort, reducing exposure from China. Partnerships with global manufacturers provide flexibility. Mexico and Southeast Asia are emerging alternatives. - Nathan Winters(CFO)

Is the difference between AIT and EVM dynamics similar to 2024's, and can you elaborate? - Brian Drab (William Blair)

2024Q4: Continuing to diversify our manufacturing footprint, reduce our exposure to China, which is on course to be less than 20% of our business in 2025, which is up from around 10% in 2023. We're focused on geopolitical stability, cost and capability in a region and global partnerships that we have. - Nathan Winters(CFO)

Contradiction Point 4

AI Integration and Product Strategy

It suggests a differing approach to AI integration and its impact on product development and strategy, which could affect the introduction of new technologies and enhancements.

How will AI affect enterprise refresh cycles and device requirements? - Keith Housum (Northcoast Research Partners, LLC)

2025Q3: AI is a catalyst for growth, enabling production and creating demand for higher-end devices with faster processing and more memory. It drives technology refresh, creating demand for higher-end mobile devices. - William Burns(CEO)

How does AI offer opportunities in product development, and is there a risk due to increased competition? - Edward Magi (BNP Paribas)

2024Q4: AI is an area that we're incredibly excited about. It's a core enabler for our solutions and particularly our AI suite. It's the next generation of intelligence for the frontline worker to enable more efficiency, more information and more real-time decision-making. - William Burns(CEO)

Contradiction Point 5

Tariff Mitigation and Pricing Strategy

It involves the company's approach to tariff mitigation and pricing strategy, which could impact financial performance and competitive positioning in the market.

Are pricing actions affecting customer demand due to tariffs? - Joseph Giordano (TD Cowen, Research Division)

2025Q3: Our pricing actions have yielded about $60 million in benefits during the first 3 quarters of this year, and we continue to see our pricing strategy mitigate the impact of tariffs. - Nathan Winters(CFO)

What are your pricing strategies in response to announced tariffs, and what are the key factors in deciding to move manufacturing to the U.S.? - Damian Karas (UBS)

2024Q4: We are in the process of evaluating the potential impacts of the proposed tariffs on our business and have been working on plans to mitigate any such impacts, including pricing actions. - Nathan Winters(CFO)