Garmin (GRMN) Q3 Earnings & Revenues Beat Expectations

Garmin Ltd. (NASDAQ:GRMN) reported better-than-expected third-quarter 2016 results with revenues and earnings surpassing the Zacks Consensus Estimate. Earnings of 75 cents per share surpassed the consensus mark by 41.5% while revenues of $722.3 million beat the same by 6.5%.

At the time of this writing, Garmin shares appreciated 5.84%.

Revenues

Garmin’s third-quarter revenues of $722.3 million were down 11% sequentially but up 6.3% year over year. Year over year, revenues were helped by higher demand across marine, outdoor, fitness and aviation segments.

Revenues by Segment

Garmin’s Auto/Mobile, Fitness, Outdoor, Aviation and Marine segments generated 30%, 26%, 19%, 15%, and 10% of quarterly revenues, respectively.

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

The Fitness segment decreased 11.1% sequentially but increased 32.1% year over year. The year-over-year growth was mainly attributable to sales of wrist heart rate wearable devices and cycling.

Aviation segment revenues were down 0.8% sequentially but up 14% year over year. The increase was mainly driven by higher sales of Original Equipment Manufacturer (OEM) products and Automatic Dependent Surveillance Broadcast (ADS-B) systems.

Outdoor revenues were up 5.9% sequentially and 22.3% year over year, driven mainly by strength in wearable devices.

The Marine segment decreased a massive 37.3% sequentially but increased 12.3% year over year. The year-over-year growth was driven by strength in chartplotter, fish finder and entertainment product lines.

The Auto/Mobile segment was down 12.7% sequentially and 18.9% on a year-over-year basis. The year-over-year decrease was due to the shrinking of the personal navigation device (PND) market and headwinds caused by additional revenue deferrals.

GARMIN LTD Price, Consensus and EPS Surprise

Revenues by Geography

While America generated 48% (down 14.3% sequentially but up 4.1% year over year) of total revenue, EMEA and APAC contributed 38% (down 11.3% sequentially but up 5% year over year) and 14% (up 4.2% sequentially and 19% year over year), respectively.

Operating Results

Gross margin was 56.2%, down 83 basis points (bps) sequentially but up 292 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 $246.4 million were up 4.1% from $236.7million in the year-ago quarter. Operating margin of 22.1% was up 364 bps year over year due to higher gross margin and expense control.

GAAP net income was $125.1 million or 66 cents per share compared with $119.3 million or 63 cents per share a year ago.

On a pro-forma basis, excluding foreign currency effects net of tax, Garmin reported net income of $141.3 million compared with the year-ago tally of $97.2 million.

Balance Sheet

Inventories were up 5.2% sequentially to $534.7 million. Cash and marketable securities were approximately $1.11 billion compared with $1.05 billion in the previous quarter.

The company has no long-term debt.

The company generated cash flow of $492.4 million from operating activities at the end of the third quarter of 2016. Moreover, in the reported quarter, Garmin spent about $96 million on dividends and approximately $20 million on share repurchases. The company has $103 million remaining under the share repurchase program authorized through Dec 31, 2016, and expects to repurchase as conditions warrant.

Guidance

The company has updated its 2016 guidance based on its performance in the first three quarters. Management expects revenues of $2.95 billion, gross margin of around 55%, operating income of roughly $580 million, pro-forma tax rate of nearly 18.5% and pro-forma earnings of $2.65 per share. Currently, the Zacks Consensus Estimate for revenues and earnings stands at $2.91 billion and $2.52 per share, respectively.

Conclusion

Garmin reported strong third-quarter results with both earnings and revenues surpassing the Zacks Consensus Estimate. The results were driven by solid performance in aviation, marine, outdoor and fitness segments. The auto segment however recorded revenue decline.

Product line expansion was a top priority for Garmin. In the quarter, the company started shipments of vívofit jr., the company’s first wearable and companion mobile application for kids; Forerunner 35 multi-sport-capable running watch featuring built-in wrist-based heart rate and GPS and fenix Chronos line of a luxury activity watches.

Garmin also launched the VIRB Ultra 30, an ultra HD 4K/30fps action camera. The company made the first delivery of the G5000TM integrated flight deck for the Beechjet 400A/Hawker 400XP aircraft.

Management focuses on continued innovation diversification and market expansion to explore growth opportunities in all business segments. However, the macroeconomic challenges remain part of the operating environment.

Zacks Rank and Stocks To Consider

Garmin currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the wider technology sector include Apple Inc. (NASDAQ:AAPL) , Veeco Instruments Inc. (NASDAQ:VECO) and Amazon.com (NASDAQ:AMZN) .

Amazon and Veeco sport a Zacks Rank #1 (Strong Buy) and have an Earnings ESP of +11.77% and +17.86%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Apple carries a Zacks Rank #2 (Buy). It beat estimates on both counts in the fourth quarter of fiscal 2016.

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