Garmin (GRMN) Q1 Earnings, Revenues Surpass Estimates

Garmin Ltd. (NASDAQ:GRMN) reported better-than-expected first-quarter 2017 results with revenues and earnings surpassing the Zacks Consensus Estimate.

Earnings of 52 cents per share beat the consensus mark by 15.6% while revenues of $638.5 million beat by 0.8%.

Year-over-year results were driven by solid performance in aviation, marine, outdoor and fitness segments. The auto segment, however, recorded a revenue decline.

Product line expansion remains the top priority for Garmin. In the quarter, the company started shipping fenix 5 series with three designs, G1000 NXi integrated flight deck, new touchscreen and keyed chartplotter combo offerings and inReach handhelds. Garmin also launched Forerunner 935 multisport watch, and introduced the vívosmart 3 with all-day stress tracking. The company received European Aviation Safety Agency certification of the GTX 345.

Management is upbeat about its strong product development pipeline and expects to continue with product launches through the year.

Management focuses on continued innovation, diversification and market expansion to explore growth opportunities in all business segments. However, macroeconomic challenges remain part of the operating environment. Shares of Garmin have underperformed the Zacks Electronics - Miscellaneous Products industry over the last year. While the industry gained 32.2%, the stock returned 19.3%.

Let’s check out the numbers.

Revenues

Garmin’s first-quarter revenues of $638.5 million were down 25.8% sequentially but up 2.3% year over year. The year-over-year increase was backed by higher demand across marine, outdoor, fitness and aviation segments.

Revenues by Segment

Garmin’s Auto/Mobile, Fitness, Aviation, Outdoor and Marine segments generated 25%, 22%, 19%, 18% and 16% of quarterly revenues, respectively.

Seasonality results in considerable variations in Garmin’s quarterly revenues.

The Fitness segment decreased 49.7% sequentially and 3.2% year over year. The year-over-year decline was due to lower volume in basic activity trackers, partially offset by an increase in advanced wearables with GPS.

Aviation segment revenues were up 4.8% sequentially and 15.6% year over year. The increase was mainly driven by higher sales of aftermarket products.

Outdoor revenues were down 33.9% sequentially but up 19.7% year over year, driven mainly by growth in wearable devices.

The Marine segment increased 54.8% sequentially and 26% year over year. The year-over-year growth was driven by strength in chartplotter, entertainment and fish finder products.

The Auto/Mobile segment was down 30.5% sequentially and 19.5% on a year-over-year basis. The year-over-year decrease was mainly due to the shrinking of the personal navigation device (PND) market partially offset by strength in Auto OEM product lines.

Revenues by Geography

While America generated 50% (down 28.5% sequentially but up 0.7% year over year) of total revenue, EMEA and APAC contributed 36% (up down 24.6% sequentially but up 0.5% year over year) and 14% (down 18.6% sequentially but up 13.9% year over year), respectively.

Garmin Ltd. Price, Consensus and EPS Surprise

Operating Results

Gross margin was 58.3%, up 358 basis points (bps) sequentially and 382 bps year over year. Stronger demand drove volumes across all segments except Auto, pulling up segment gross margins on a year-over-year basis.

Operating expenses of $255.8 million were up 8.4% from $236 million in the year-ago quarter. Operating margin of 18.2% was up 159 year over year due to a decrease in operating expenses.

GAAP net income was $237.8 million or $1.26 per share compared with $88.1 million or 46 cents per share a year ago.

On a pro-forma basis, excluding foreign currency effects net of tax, Garmin reported net income of $98.6 million compared with the year-ago figure of $92.1 million.

Balance Sheet

Inventories were up 10% sequentially to $533.2 million. Cash and marketable securities were approximately $1.09 billion compared with $1.12 billion in the previous quarter.

The company has no long-term debt.

In the reported quarter, the company generated cash flow of $120.4 million from operating activities. Moreover, it spent about $96 million on dividends and approximately $28 million on share repurchases. The company has $47 million remaining under the share repurchase program extended through Dec 31, 2017, and expects to repurchase as conditions warrant.

Guidance

For 2017, management expects revenues of $3.02 billion and pro-forma earnings of $2.65 per share. Currently, the Zacks Consensus Estimate for revenues and earnings is pegged at $3.01 billion and $2.65 per share, respectively.

Zacks Rank and Stocks to Consider

Garmin currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader technology sector include Alphabet Inc. (NASDAQ:GOOGL) , Monolithic Power Systems, Inc. (NASDAQ:MPWR) and Internap Corp. (NASDAQ:INAP) . While Alphabet and Monolithic Power sport a Zacks Rank #1 (Strong Buy), Internap carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share growth rates for Alphabet, Internap and Monolithic Power are 16.7%, 3% and 17%, respectively.

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