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Why Is Garmin (GRMN) Down 1.7% Since Last Earnings Report?

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Zacks Equity Research
·5 min read
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It has been about a month since the last earnings report for Garmin (GRMN). Shares have lost about 1.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Garmin due for a breakout? 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 drivers.

Garmin Q4 Earnings & Sales Beat Estimates, Up Y/Y

Garmin Ltd. reported fourth-quarter 2020 pro-forma earnings of $1.73 per share, beating the Zacks Consensus Estimate of $1.37. Moreover, the bottom line improved 34% on a year-over-year basis.

Net sales were $1.35 billion, which surpassed the Zacks Consensus Estimate of $1.17 billion. Further, the figure increased 23% from the year-ago quarter.

The top-line growth was driven by strong performance by the company’s marine, outdoor and fitness segments. Moreover, increasing demand for active lifestyle products remained a major positive.

However, sluggishness in its 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, strong product lines are expected to aid its performance for the current quarter.

Segmental Details

Fitness (34.8%): This segment generated sales of $470.8 million, which increased 26% from the year-ago quarter. This can be primarily attributed to its well-performing advanced wearables and cycling products.

Outdoor (30.5% of net sales): The segment generated sales of $411.9 million for the reported quarter, improving 40% year over year. The year-over-year increase was primarily driven by robust demand for Garmin’s adventure watches.

Aviation (11.6%): The segment generated sales of $157 million, declining 19% on a year-over-year basis. This was due to low contribution from ADS-B products. Also, weak shipments to OEM customers remained a headwind.

Marine (12.7%): Garmin generated sales of $171.6 million from this segment, which increased 48% on a year-over-year basis. The company witnessed solid momentum across chartplotters during the reported quarter, which, in turn, drove the segment’s revenues.

Auto (10.4%): This segment generated sales of $140.1 million, up 11% from the prior-year quarter. The increase was primarily driven by OEM programs and growth in consumer specialty categories.

Revenues by Geography

Americas: Garmin generated sales of $595.7 million from this region for the reported quarter, up 13% year over year.

EMEA: This region generated sales of $536.8 million for the fourth quarter, up 32% on a year-over-year basis.

APAC: The company generated sales of $218.9 million from this region, improving 32% from the year-ago quarter.

Operating Results

For the fourth quarter, gross margin was 58.5%, which expanded 50 basis points (bps) from the year-ago period.

The company’s operating expenses of $420 million were up 16% from the prior-year quarter. However, as a percentage of revenues, the figure contracted 190 bps year over year to 31%.

Operating margin of 27.5% for the reported quarter expanded 240 bps year over year.

Balance Sheet & Cash Flow

As of Dec 26, 2020, cash, cash equivalents and marketable securities came in at $1.85 billion, higher than $1.65 billion on Sep 26, 2020.

For the fourth quarter, inventories were $762.1 million compared with $821.4 million in the third quarter. We note that the company had no long-term debt for the reported quarter.

Further, it generated $435.8 million of cash from operations during the reported quarter compared with $274.3 million in the previous quarter.

Further, the company generated free cash flow of $387.5 million.

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

2021 Guidance

The company projects net sales of $4.6 billion, which is expected to be driven by growth in all segments. Year-over-year growth in fitness, outdoor, aviation, marine and auto is projected at 10%, 10%, 5%, 15% and 5%, respectively.

Further, Garmin expects gross margin and operating margin of 59.2% and 23.5%, respectively.

Also, it projects pro-forma earnings of $5.15 per share.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted -7.77% due to these changes.

VGM Scores

Currently, Garmin has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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.

Outlook

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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