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Why Is Garmin (GRMN) Up 2.7% Since Last Earnings Report?

It has been about a month since the last earnings report for Garmin (GRMN). Shares have added about 2.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Garmin Q1 Earnings & Sales Beat Estimates

Garmin has reported first-quarter 2021 pro-forma earnings of $1.18 per share, beating the Zacks Consensus Estimate by 34.1%. Further, the bottom line improved 30% on a year-over-year basis but declined 31.8% sequentially.

Net sales were $1.1 billion, which surpassed the Zacks Consensus Estimate of $931.8 million. Further, the figure increased 25% from the year-ago quarter but decreased 20.6% from the prior quarter.

Top-line growth was driven by strong performance delivered by the company’s marine, outdoor, auto and fitness segments.

However, sluggishness in the aviation segment was concerning.

Nevertheless, Garmin’s strong focus on continued innovation, diversification and market expansion to explore opportunities across all business segments remains a major positive. Further, its strong product lines are expected to aid its performance in the near term.

Segmental Details

Outdoor (23.9% of net sales): The segment generated sales of $256.5 million in the reported quarter, improving 46% year over year. The year-over-year increase was primarily driven by robust demand for Garmin’s adventure watches.

Fitness (28.7%): The segment generated sales of $308.1 million, which increased 38% from the year-ago quarter. This can be primarily attributed to its well-performing advanced wearables and cycling products.

Aviation (16.2%): The segment generated sales of $173.9 million, declining 8% on a year-over-year basis. This was due to sluggish contributions from ADS-B products.

Marine (19.6%): Garmin generated sales of $209.4 million from the segment, increasing 28% on a year-over-year basis. The company witnessed solid momentum across chartplotters and Panoptix Live Scope sonars in the reported quarter, which, in turn, drove the segment’s revenues.

Auto (11.6%): The segment generated sales of $124.5 million, up 18% from the prior-year quarter. This was primarilydriven by strengthening momentum across specialty categories and new OEM programs.

Revenues by Geography

Americas: Garmin generated sales of $503.7 million from this region in the reported quarter (47% of net sales), up 18% year over year.

EMEA: The region generated sales of $399.5 million in the first quarter (37%), up 33% on a year-over-year basis.

APAC: The company generated sales of $169.1 million from the region (16%), improving 31% from the year-ago quarter.

Operating Results

In the first quarter, gross margin was 59.8%, which expanded 60 basis points (bps) from the year-ago period.

The company’s operating expenses of $391.9 million were up 18.9% from the prior-year quarter.However, as a percentage of revenues, the figure contracted 200 bps year over year to 36.5%.

Operating margin of 23.3% in the reported quarter expanded 260 bps year over year.

Balance Sheet & Cash Flow

As of Mar 27, 2021, cash, cash equivalents and marketable securities were $1.94 billion, higher than $1.85 billion as of Dec 26, 2020.

In the first quarter, inventories were $837.9 million compared with $762.1 million in the fourth quarter. We note that the company had no long-term debt for the reported quarter.

Further, it generated $368.4 million of cash from operations in the reported quarter compared with $435.8 million in the previous quarter.

Further, the company generated free cash flow of $331 million.

Further, Garmin paid out dividends worth $117 million to shareholders in the first quarter.

2021 Guidance

The company projects net sales of $4.6 billion. Also, the company projects pro-forma earnings at $5.15 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 7.04% due to these changes.

VGM Scores

At this time, Garmin has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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 B. 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. Notably, Garmin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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