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Garmin (GRMN) Down 5.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Garmin (GRMN - Free Report) . Shares have lost about 5.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Garmin's Q4 Earnings & Sales Down Y/Y

Garmin reported fourth-quarter 2022 pro-forma earnings of $1.35 per share, beating the Zacks Consensus Estimate by 18.4%. However, the bottom line declined 13% on a year-over-year basis.

Net sales were $1.31 billion, which surpassed the Zacks Consensus Estimate of $1.29 billion. The figure decreased by 6% from the year-ago quarter’s figure.

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

Nevertheless, GRMN witnessed strong momentum in the aviation segment in the fourth 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 (29.7% of net sales): The segment generated sales of $388.3 million in the reported quarter, increasing 3% year over year. This was driven by solid demand for Garmin’s handhelds and services.

Fitness (25.8%): The segment generated sales of $336.5 million, which decreased 28% from the year-ago quarter’s level due to sluggishness across all categories.

Aviation (17.2%): The segment generated sales of $225.2 million, increasing 27% on a year-over-year basis. This was driven by solid momentum across the aftermarket and OEM categories.

Marine (16.1%): Garmin generated sales of $210.6 million from the segment, increasing 7% on a year-over-year basis. This was attributed to the strong demand for the company’s sonar and chartplotters.

Auto (11.2%): The segment generated sales of $145.7 million, down 14% from the prior-year quarter’s level. This was primarily due to weak consumer auto product sales.

Operating Results

In the fourth quarter, the gross margin was 57%, which expanded 150 basis points (bps) from the year-ago period’s level.

Garmin’s operating expenses of $477.8 million were up 4.6% from the prior-year quarter’s level. As a percentage of revenues, the figure expanded 380 bps year over year to 36.6%.

The operating margin was 20.5% in the reported quarter, which contracted 210 bps year over year.

Balance Sheet & Cash Flow

As of Dec 31, 2022, cash, cash equivalents and marketable securities were $1.45 billion, lower than $1.46 billion as of Sep 24, 2022.

In the fourth quarter, inventories were $1.515 billion compared with $1.533 billion in the previous quarter. We note that GRMN had no long-term debt for the reported quarter.

GRMN generated $368.7 million in cash from operations in the reported quarter compared with $154.1 million in the previous quarter.

Garmin generated a free cash flow of $309.3 million.

GRMN paid out dividends worth $280 million and repurchased shares worth $93 million in the reported quarter.

2023 Guidance

GRMN projects 2023 revenues at $5 billion, which reflects a growth of 3% from 2022.

Garmin expects pro-forma earnings of $5.15 per share.

Management anticipates gross and operating margins of 57.5% and 20.3%, respectively.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

The consensus estimate has shifted 5.28% due to these changes.

VGM Scores

At this time, Garmin has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 D. 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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