Garmin Ltd. GRMN reported second-quarter 2020 pro-forma earnings of 91 cents per share, which beat the Zacks Consensus Estimate of 38 cents. Moreover, the bottom line declined 21.6% on a year-over-year basis but remained flat sequentially.
Net sales came in at $869.9 million, which surpassed the Zacks Consensus Estimate by 39.1%. However, the figure decreased 9% from the year-ago quarter. However, the top line increased 1.6% sequentially.
Strong performance of the company’s fitness and marine segments drove year-over-year revenues.
However, sluggishness in its aviation and auto segments remained a concern.
Nevertheless, Garmin’s strong focus on innovation, diversification and market expansion to explore opportunities across all business segments remains a major positive.
Garmin Ltd. Price, Consensus and EPS Surprise
Garmin Ltd. price-consensus-eps-surprise-chart | Garmin Ltd. Quote
Outdoor (24% of net sales): The segment generated sales of $206.2 million during the reported quarter, which declined 2% year over year. The decrease was due to weakness in handhelds. However, the demand for adventure watches remained strong in the quarter.
Fitness (34%): This segment generated sales of $294.6 million, which increased 17% from the year-ago quarter. This can be primarily attributed to its well-performing advanced wearables and cycling products.
Aviation (15%): The segment generated sales of $126.1 million, declining 31% on a year-over-year basis.
Marine (18%): Garmin generated sales of $157.8 million from this segment, which increased 4% on a year-over-year basis. The company witnessed solid momentum across chartplotters and advanced sonars during the reported quarter, which in turn drove the segment’s revenues.
Auto (9%): This segment generated sales of $85.1 million, down 46% from the prior-year quarter. The decline was due to the coronavirus pandemic, which in turn significantly impacted driving activity and production of new vehicles.
Revenues by Geography
Americas: Garmin generated sales of $423.1 million (49% of net sales) from this region during the reported quarter, down 10% year over year.
EMEA: This region generated second-quarter sales of $335.2 million (39% of net sales), down 1% on a year-over-year basis.
APAC: The company generated sales of $111.6 million (12% of net sales), which declined 23% from the year-ago quarter.
Second-quarter gross margin was 59.3%, which expanded 100 basis points (bps) from the year-ago period.
The company’s operating expenses of $329.5 million were up 2.4% from the prior-year quarter. However, as a percentage of revenues, the figure expanded 420 bps year over year to 37.6%.
Operating margin of 21.7% in the reported quarter declined 510 bps year over year.
Balance Sheet & Cash Flow
As of June 30, 2020, cash, cash equivalents and marketable securities came in at $1.74 billion, higher than $1.44 billion on Mar 28, 2020.
Inventories were $813.2 million compared with $790.2 million in the first quarter. We note that the company had no long-term debt in the reported quarter.
Further, it generated $199.2 million of cash from operations during the reported quarter and free cash flow of $142.3 million.
Zacks Rank & Stocks to Consider
Garmin currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Microchip Technology Incorporated MCHP, eBay EBAY and Advanced Micro Devices, Inc. AMD. While Microchip Technology and eBay sport a Zacks Rank #1 (Strong Buy), Advanced Micro carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth for Microchip Technology, eBay, and Advanced Micro is currently projected at 14.5%, 11.7% and 40.3%, respectively.
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