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Garmin (GRMN) Up 5.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Garmin (GRMN - Free Report) . Shares have added about 5.5% in that time frame, underperforming 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's Q3 Earnings & Sales Down Y/Y

Garmin reported third-quarter 2022 pro-forma earnings of $1.24 per share, beating the Zacks Consensus Estimate by 12.7%. However, the bottom line declined 12% on a year-over-year basis.

Net sales were $1.14 billion, which lagged the Zacks Consensus Estimate of $1.18 million. The figure decreased 4% from the year-ago quarter’s figure.

The year-over-year decline in the top line was attributed to sluggishness across the fitness, marine and auto segments.

Nevertheless, GRMN witnessed growth in outdoor and aviation segments in the reported quarter.

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 (30% of net sales): The segment generated sales of $340.4 million in the reported quarter, increasing 5% year over year. This was driven by solid demand for Garmin’s adventure watches and the growing adoption of inReach devices and services.

Fitness (24.5%): The segment generated sales of $279.9 million, which decreased 18% from the year-ago quarter’s level due to declining sales of indoor cycling and advanced wellness products.

Aviation (16.5%): The segment generated sales of $188.04 million, increasing 4% on a year-over-year basis. This was driven by solid momentum across the aftermarket category.

Marine (17%): Garmin generated sales of $196.5 million from the segment, decreasing 5% on a year-over-year basis. This was attributed to seasonal factors.

Auto (12%): The segment generated sales of $135.6 million, down 2% from the prior-year quarter’s level. This was primarily due to the weak consumer auto products sales.

Operating Results

In the third quarter, the gross margin was 58.8%, which expanded 40 basis points (bps) from the year-ago period’s level.

Garmin’s operating expenses of $431.13 million were up 4.3% from the prior-year quarter’s level. As a percentage of revenues, the figure expanded 310 bps year over year to 37.8%.

The operating margin was 21% in the reported quarter, which contracted 270 bps year over year.

Balance Sheet & Cash Flow

As of Sep 24, 2022, cash, cash equivalents and marketable securities were $1.5 billion, lower than $1.6 billion as of Jun 25, 2022.

In the third quarter, inventories were $1.5 billion compared with $1.4 billion in the previous quarter. We note that GRMN had no long-term debt for the reported quarter.

GRMN generated $154.1 million of cash from operations in the reported quarter compared with $79.8 million in the previous quarter.

Garmin generated a free cash flow of $103.99 million.

GRMN paid out dividends worth $141 million and repurchased shares worth $83 million in the reported quarter.

2022 Guidance

GRMN lowered its revenue guidance from $5 billion to $4.85 billion.

Garmin raised its expectation for pro-forma earnings from $4.90 per share to $4.95.

Management anticipates gross and operating margins of 57.5% and 20.7% each. The previous guidance was 56.7% and 20%, respectively.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Garmin has a subpar Growth Score of D, however its Momentum Score is doing a bit better 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 D. 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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