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Why Is Garmin (GRMN) Up 2.6% Since the Last Earnings Report?

It has been about a month since the last earnings report for Garmin Ltd. GRMN. Shares have added about 2.6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Garmin Q1 Earnings and Revenues Surpass Estimates

Garmin 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 the same by 0.8%.

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.

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.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.

Garmin Ltd. Price and Consensus

 

Garmin Ltd. Price and Consensus | Garmin Ltd. Quote

VGM Scores

At this time, the stock has an average Growth Score of 'C', while Momentum is lagging a bit with a 'D'. The stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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