A month has gone by since the last earnings report for Garmin Ltd. (GRMN - Free Report) . Shares have lost about 1.7% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is GRMN 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 Beats Earnings & Revenues Estimates in Q1
Garmin reported better-than-expected results in the first quarter of 2018 with revenues and earnings both surpassing the Zacks Consensus Estimate.
Earnings of 68 cents per share beat the consensus mark by 12 cents. Earnings were down 14% sequentially but up 31% year over year.
Management focuses on continued innovation, diversification and market expansion to explore growth opportunities in all its business segments. However, macroeconomic challenges remain part of the operating environment.
Let’s delve deeper into the numbers.
Garmin’s first-quarter revenues of $710.9 million beat the Zacks Consensus Estimate of $668.8 million, down 20% sequentially but up 10.8% from the prior-year quarter. The year-over-year increase was backed by higher demand across fitness, outdoor, marine and aviation segments.
Garmin’s Outdoor, Fitness, Marine, Auto/Mobile and Aviation segments generated 20%, 23%, 16%, 20% and 21% of quarterly revenues, respectively. Seasonality results in considerable variations in Garmin’s quarterly revenues.
Outdoor revenues were down 29% sequentially but up 24.5% year over year. The year-over-year increase was driven mainly by robust demand for wearables.
The Fitness segment decreased 39.9% sequentially but increased 20.5% from the year-ago quarter. The year-over-year increase was driven by GPS-enabled products.
The Marine segment increased 35.7% sequentially and 8.7% year over year. The year-over-year growth was driven by strength in chartplotter and fish finder products. Also, Navionics’ acquisition added to the growth.
The Auto/Mobile segment was down 27.7% sequentially and 11.9% on a year-over-year basis. The year-over-year decrease was mainly due to shrinking of the personal navigation device (PND) market, partially offset by OEM growth and strength in niche categories such as fleet, camera, truck and RV.
Aviation segment revenues were up 12.3% sequentially and 18.6% from the prior-year quarter. The increase was mainly driven by higher sales of aftermarket products and positive contributions from OEM products.
Revenues by Geography
While America generated 49% (down 18.9% sequentially but up 6.6% year over year) of the total revenues, EMEA and APAC contributed 35% (down 27.9% from the prior quarter but up 9.1% from the year-ago quarter) and 16% (down 1.7% sequentially but up 30% from the prior-year quarter), respectively.
Gross margin was 60%, up 190 basis points (bps) from the year-ago quarter. Stronger demand drove volumes across all its segments except Auto, pulling down segmental gross margins on a year-over-year basis.
Operating expenses of $284 million were up 11% from $255.8 million in the year-ago quarter.
GAAP net income was $129.4 million or 68 cents per share compared with $149.8 million or 79 cents per share a year ago.
Inventories were up 6% sequentially to $547.4 million. Cash and marketable securities were approximately $1.07 billion, compared with $1.05 billion in the last reported quarter. The company has no long-term debt.
As of Mar 31, the company generated cash flow of $214.2 million from operating activities and free cash flow of $187.9 million.
For full-year 2018, management maintained revenues of $3.2 billion and pro-forma earnings of $3.05 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.
At this time, GRMN has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. 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.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, GRMN has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.