Why Is Garmin (GRMN) Up 10.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Garmin (GRMN). Shares have added about 10.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Garmin due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Garmin's Q4 Earnings & Sales Beat Estimates, Up Y/Y
Garmin reported fourth-quarter 2023 pro-forma earnings of $1.72 per share, beating the Zacks Consensus Estimate by 22.9%. The bottom line improved 27.4% on a year-over-year basis.
Net sales were $1.48 billion, which surpassed the Zacks Consensus Estimate by 5.6% and increased 13% from the year-ago quarter’s figure.
The year-over-year growth in the top line was attributed to strength in the Outdoor, Fitness and Marine segments. The growing Auto OEM segment contributed well.
Garmin’s strong focus on continued innovation, diversification and market expansion to explore opportunities across all business segments remains a major positive. Its strong product lines are expected to aid its performance in the near term.
Segmental Details
Outdoor (32.8% of net sales): The segment generated sales of $486.3 million in the reported quarter, increasing 7.7% year over year with growth across multiple categories led by adventure watches.
During the quarter, Garmin expanded its lineup of dive offerings with the introduction of the Descent G1 Solar – Ocean Edition, the company’s first-ever product made with recycled ocean-bound plastics. GRMN also launched the new Descent Mk3 watch-style dive computer and the Descent T2 transceiver with enhanced SubWave sonar technology.
Fitness (27.8%): The segment generated sales of $412.07 million, which increased 22.4% from the year-ago quarter’s level, owing to solid demand for the company’s advanced wearables.
Marine (16.2%): Garmin generated sales of $239.8 million from the segment, increasing 13.9% on a year-over-year basis due to contributions from the acquisition of JL Audio.
During the quarter, Garmin launched the ECHOMAP TM Ultra 2 chartplotter series designed with premium sonar, mapping and wireless networking capabilities for inland and nearshore anglers. GRMN also launched the GSD 28 sonar module with RapidReturn technology that offers six times faster updates than its predecessor.
Aviation (14.7%): The segment generated sales of $217.13 million, decreasing 3.6% on a year-over-year basis as growth in OEM categories was more than offset by decreases in aftermarket categories.
Auto OEM (8%): The segment generated sales of $127.02 million, up 54% from the prior-year quarter’s level, primarily due to increased shipments of domain controllers.
Operating Results
In the fourth quarter, the gross margin was 58.3%, which contracted 130 basis points (bps) from the year-ago period’s level.
Garmin’s operating expenses of $523.6 million were up 9.6% from the prior-year quarter’s level. As a percentage of revenues, the figure contracted 120 bps year over year to 35.3%.
The operating margin was 23% in the reported quarter, which expanded 250 bps year over year.
Balance Sheet & Cash Flow
As of Dec 30, 2023, cash, cash equivalents and marketable securities were $3.1 billion, up from $2.8 billion as of Oct 1, 2023.
In the fourth quarter of 2023, Garmin generated an operating cash flow of $466 million and a free cash flow of $417 million.
The company paid a quarterly dividend of approximately $140 million and repurchased approximately $19 million of the company’s shares within the quarter, completing the share repurchase program authorized through Dec 29, 2023.
2024 Guidance
GRMN expects 2024 revenues to be $5.75 billion, indicating growth of 10% year over year. The Zacks Consensus Estimate for 2024 net sales is pegged at $5.55 billion.
The company expects pro-forma earnings of $5.40 per share. The consensus mark for 2024 earnings is pegged at $5.50 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, Garmin has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Garmin has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Garmin is part of the Zacks Electronics - Miscellaneous Products industry. Over the past month, Trimble Navigation (TRMB), a stock from the same industry, has gained 5.4%. The company reported its results for the quarter ended December 2023 more than a month ago.
Trimble reported revenues of $932.4 million in the last reported quarter, representing a year-over-year change of +8.9%. EPS of $0.63 for the same period compares with $0.60 a year ago.
For the current quarter, Trimble is expected to post earnings of $0.59 per share, indicating a change of -18.1% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.4% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Trimble. Also, the stock has a VGM Score of F.
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