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Why Is Garmin (GRMN) Down 7.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Garmin (GRMN - Free Report) . Shares have lost about 7.4% 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 catalysts.

Garmin's Q1 Earnings Miss Estimates

Garmin has reported first-quarter 2022 pro-forma earnings of $1.11 per share, missing the Zacks Consensus Estimate by 3.5%. Further, the bottom line declined 6% on a year-over-year basis.

Net sales were $1.17 billion, which surpassed the Zacks Consensus Estimate of $1.14 million. The figure increased 39% from the year-ago quarter.

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

However, the company witnessed sluggishness in the fitness segment in the reported quarter.

Notably, 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 $384.6 million in the reported quarter, increasing 50% year over year. This was driven by solid demand for Garmin’s adventure watches.

Fitness (18.8%): The segment generated sales of $220.9 million, which decreased 28% from the year-ago quarter due to declining sales of cycling products, reflecting the normalization of demand from the pandemic-induced demand hike.

Aviation (14.9%): The segment generated sales of $174.8 million, increasing 1% on a year-over-year basis. This was driven by solid momentum across the OEM category.

Marine (21.7%): Garmin generated sales of $254.1 million from the segment, increasing 21% on a year-over-year basis. The company witnessed solid demand for chart plotters in the reported quarter, which, in turn, drove the segment’s revenues.

Auto (11.8%): The segment generated sales of $138.3 million, up 11% from the prior-year quarter. This was primarily driven by strengthening momentum across auto OEM programs and consumer auto products.

Operating Results

In the first quarter, the gross margin was 56.5%, which contracted 330 basis points (bps) from the year-ago period.

The company’s operating expenses of $433.9 million were up 10.7% from the prior-year quarter. As a percentage of revenues, the figure expanded 50 bps year over year to 37%.

The operating margin of 19.5% in the reported quarter contracted 380 bps year over year.

Balance Sheet & Cash Flow

As of Mar 26, 2022, cash, cash equivalents and marketable securities were $1.8 billion, higher than $1.5 billion as of Dec 25, 2021.

In the first quarter, inventories were $1.3 billion compared with $1.2 billion in the previous quarter. We note that the company had no long-term debt for the reported quarter.

It generated $185.6 million in cash from operations in the reported quarter compared with $168.9 million in the previous quarter.

Garmin generated a free cash flow of $125.9 million.

GRMN paid out dividends worth $129 million in the reported quarter.

2022 Guidance

The company projects revenues of $5.5 billion.

Garmin expects pro-forma earnings of $5.90 per share for 2022.

The company anticipates gross and operating margins to be 57.5% and 22.8%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -5.82% due to these changes.

VGM Scores

Currently, Garmin has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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