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Why Is Garmin (GRMN) Down 2.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Garmin (GRMN - Free Report) . Shares have lost about 2.1% 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 Beats Earnings & Revenue Estimates in Q3

Garmin Ltd. reported better-than-expected results in the third quarter of 2018, with revenues and earnings both surpassing the Zacks Consensus Estimate.

Earnings of $1 per share beat the consensus mark of 75 cents per share. Earnings were up 1% sequentially and 33.3% 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.

Revenues

Garmin’s third-quarter revenues of $810 million beat the Zacks Consensus Estimate of $776 million, decreasing 9.4% sequentially but increasing 7.8% from the prior-year quarter. The year over year increase was backed by higher demand across fitness, outdoor, marine and aviation segments.

Segmental Revenues

Garmin’s Outdoor, Fitness, Marine, Auto/Mobile and Aviation segments generated 26%, 24%, 12%, 20% and 18% of quarterly revenues, respectively. Seasonality resulted in considerable variations in Garmin’s quarterly revenues.

Outdoor revenues were up 3.9% sequentially and 13.2% year over year. The year-over-year increase was driven mainly by robust demand for wearables.

The Fitness segment decreased 15.5% sequentially but increased 13.8% from the year-ago quarter. The year-over-year increase was driven by strength in advanced wearables and cycling.

The Marine segment decreased 26.6% sequentially but increased 27.8% year over year. The year-over-year growth was driven by strength in new products. Also, acquisitions added to the growth.

The Auto/Mobile segment was down 8.3% sequentially and 16.2% on a year-over-year basis. The decrease was mainly due to shrinking of the personal navigation device (PND) market.

Aviation segment revenues were down 4.3% sequentially but up 17.5% from the prior-year quarter. The increase was mainly driven by new product introductions.

Revenues by Geography

While America generated 46% (down 15.3% sequentially but up 6.9% year over year) of the total revenues, EMEA and APAC contributed 38% (down 0.7% on a sequential basis but up 5.3% on a year-over-year basis) and 16% (down 10.5% sequentially but up 17.1% from the year-ago quarter), respectively.

Operating Results

Gross margin was 59.4%, up 120 basis points from the year-ago quarter. Stronger demand across all segments led to gross margin expansion on a year-over-year basis.

Operating expenses of $284.8 million were up 7.9% from $263.9 million in the year-ago quarter.

GAAP net income was $184.2 million compared with $151.1 million a year ago.

Balance Sheet

Inventories were up 11% sequentially to $556.6 million. Cash and marketable securities were approximately $1.23 billion compared with $1.12 billion in the last reported quarter. The company has no long-term debt.

As the end of the third quarter, the company generated cash flow of $264 million from operating activities and free cash flow of $234 million.

2018 Guidance

For full-year 2018, management maintained its revenues to $3.3 billion but increased its pro-forma earnings to $3.45 per share versus earlier projection of $3.30.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -11.67% due to these changes.

VGM Scores

Currently, Garmin has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Garmin has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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