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Garmin's (GRMN) Q2 Earnings & Revenues Surpass Estimates

Zacks Equity Research

Garmin Ltd. GRMN delivered second-quarter 2019 pro-forma earnings of $1.16 per share, beating the Zacks Consensus Estimate by 16 cents. The figure improved 17.2% on a year-over-year basis and 58.9% sequentially.

Net sales came in $954.84 million, up 7% from the year-ago quarter and 24.6% from the previous quarter. Further, the figure outpaced the Zacks Consensus Estimate of $919.07 million.

Strong performance of its fitness, outdoor, marine and aviation segments drove 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 (22% of net sales): The company generated sales of $210.4 million from this segment in the second quarter, improving 4.3% year over year. The year-over-year increase was primarily driven by robust demand for Garmin’s golf wearables, Instinct adventure watch and inReach devices.

Fitness (26.3%): This segment generated sales of $251.65 million, advancing 12% from the year-ago quarter. This can primarily be attributed to its well-performing running wearables. Further, positive contributions from Tacx buyout were positives.

Marine (15.9%): Garmin generated sales of $151.41 million from this segment, increasing 13% on a year-over-year basis. The company witnessed growing demand for its chartplotters and Panoptix LiveScope sonars during the reported quarter which drove the segment’s top line.

Auto (16.5%): This segment generated sales of $157.41 million, down 12.6% from the prior-year quarter. The decline was mainly owing to shrinking of the personal navigation device (PND) market.

Aviation (19.3%): The segment generated sales of $183.96 million, surging 20.2% on a year-over-year basis. This can primarily be attributed to the well-performing aftermarket systems and ADS-B solutions. Further, the company’s solid momentum in OEM category contributed to the results.

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 $470.84 million from this region during the reported quarter (49.3% of net sales), up 8% year over year.

EMEA: This region generated sales of $338.59 million in the second quarter (35.5%), up 10% on a year-over-year basis.

APAC: The company generated sales of $145.4 million from this region (15.2%), declining 1.9% from the year-ago quarter.

Operating Results

In the second quarter, gross margin was 60.3%, expanded 180 bps from the year-ago quarter.

Further, the company’s operating expenses of $319.14 million went up 4.4% from the prior-year quarter. However, as a percentage of revenues, the figure contracted 80 bps year over year to 33.4%

Additionally, operating margin of 26.8% in the reported quarter expanded 250 bps year over year.

Balance Sheet & Cash Flow

As of Jun 29, 2019, cash, cash equivalents and marketable securities came in $1.06 billion, lower than $1.31 billion as of Mar 30, 2019.

Inventories were $648.1 million compared with $598.4 million in the first quarter. We note that the company had no long-term debt in the reported quarter.

At the end of the second quarter, the company generated cash flow of $110.6 million from operating activities. Free cash flow totaled $80.2 million.

Additionally, Garmin paid out dividend worth $108 million during the reported quarter.

2019 Guidance

For 2019, Garmin has raised guidance for pro-forma earnings from $3.70 to $3.90 per share. The Zacks Consensus Estimate for earnings is pegged at $3.75.

Further, the company also revised outlook for revenues upward from $3.5 billion to $3.6 billion. The Zacks Consensus Estimate for revenues is projected at $3.55 billion.

The upward revising in the sales outlook is primarily attributed to rise in growth estimates for revenues in aviation and marine segments. For aviation, growth is now pegged at 17%, higher than previous estimate of 10%. Further, growth estimate for marine jumped from 10% to 12%.

Additionally, percentage of decline in auto segment has fallen from 18% to 15%. Meanwhile, growth estimates in fitness and outdoor segment remain unchanged at 13% and 10%, respectively.

Further, the company expects gross margin and operating margin of 59.5% and 23.2%, respectively, for 2019.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the broader technology sector are Rosetta Stone RST, Tableau Software, Inc. DATA and Bruker Corporation BRKR. While Rosetta Stone sports a Zacks Rank #1 (Strong Buy), Tableau Software and Bruker carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Rosetta Stone, Tableau Software and Bruker is currently projected to be 12.5%, 18.5% and 12.61%, respectively.

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