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Garmin's (GRMN) Q3 Earnings & Revenues Surpass Estimates

Zacks Equity Research

Garmin Ltd. GRMN reported third-quarter 2019 pro-forma earnings of $1.27 per share, beating the Zacks Consensus Estimate of 94 cents. Moreover, the figure improved 27% on a year-over-year basis and 9.5% sequentially.

Net sales came in $934.38 million, up 15% from the year-ago quarter but down 2.1% from the third quarter. The top line outpaced the Zacks Consensus Estimate of $863.92 million.

Strong performance of its fitness, outdoor, marine and aviation segments drove the year-over-year top-line growth.

Management is focused on continued innovation, diversification and market expansion to explore growth opportunities in all its business segments.

Segmental Revenues

Outdoor (28% of net sales): The segment generated third-quarter sales of $258.3 million, improving 23% year over year. The year-over-year increase was primarily driven by robust demand for Garmin’s adventure watches.

Fitness (26%): This segment generated sales of $243.1 million, which increased 28% from the year-ago quarter. This can be primarily attributed to its well-performing running wearables. Further, positive contributions from the Tacx buyout were positives.

Aviation (20%): The segment generated sales of $187.6 million, improving 28% on a year-over-year basis. This can be primarily attributed to the well-performing OEM and aftermarket systems. Further, the company’s solid momentum in the OEM category contributed to the impressive results.

Marine (12%): Garmin generated sales of $107.7 million from this segment, increasing 9% on a year-over-year basis. The company witnessed growing demand for chartplotters during the reported quarter ,in turn driving the segment’s topline.

Auto (14%): This segment generated sales of $137.7 million, down 17% from the prior-year quarter. The decline was mainly due to shrinking of the personal navigation device market.

Garmin Ltd. Price, Consensus and EPS Surprise


Garmin Ltd. Price, Consensus and EPS Surprise

Garmin Ltd. price-consensus-eps-surprise-chart | Garmin Ltd. Quote

Revenues by Geography

Americas: Garmin generated sales of $439.1 million (47% of net sales) from this region during the reported quarter, up 19% year over year.

EMEA:This region generated sales of $344.01 million (37%), up 12% on a year-over-year basis.

APAC:The company generated sales of $151.3 million (16%) from this region, increasing 14% from the year-ago quarter.

Operating Results

In the third quarter, gross margin was 60.7%, which expanded 130 basis points (bps) from the year-ago period.

The company’s operating expenses of $306 million were up 7.4% from the prior-year quarter. However, as a percentage of revenues, the figure contracted 240 bps year over year to 32.7%

Additionally, operating margin of 28% in the reported quarter expanded 380 bps year over year.

Balance Sheet & Cash Flow

At the end of the third quarter, cash, cash equivalents and marketable securities came in $1.28 billion, higher than $1.06 billion in the second quarter.

Inventories were $749.8 million compared with $648.1 million in the second quarter. We note that the company had no long-term debt in the reported quarter.

At the end of the third quarter, the company generated cash flow of $189 million from operating activities. Free cash flow totaled $158 million.

2019 Guidance

For 2019, Garmin has raised its guidance for pro-forma earnings from $3.90 to $4.15 per share. The Zacks Consensus Estimate for earnings is pegged at $3.90 per share.

Further, the company also upwardly revised its view for revenues from $3.6 billion to $3.65 billion. The Zacks Consensus Estimate for revenues is pegged at $3.60 billion.

This upward revisionis primarily attributed to rise in growth estimates for revenues in aviation, fitness and outdoor segments. For aviation, growth is now projected at 20%, higher than the previous estimate of 17%. Further, growth estimate for fitness jumped from 13% to 16%.

Additionally, the percentage of decline in the auto segment remains unchanged at 15%.

Further, the company expects gross and operating marginsto be 59.5% and 24.3%, respectively, for 2019.

Zacks Rank & Key Picks

Garmin currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Itron, Inc. ITRI, Booking Holdings Inc. BKNG and Ambarella, Inc. AMBA. While Itron sports a Zacks Rank #1 (Strong Buy), Booking Holdings and Ambarella carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Itron, Booking Holdings and Ambarella is currently projected at 25%, 13.08% and 11.18%, respectively.

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