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Garmin (GRMN) Down 1.9% 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 1.9% in that time frame, outperforming 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 drivers.

Garmin Surpasses Earnings & Revenue Estimates in Q1

Garmin Ltd. reported better-than-expected results in first-quarter 2019, with earnings and revenues surpassing the Zacks Consensus Estimate.

Quarterly earnings of 73 cents per share beat the consensus mark of 71 cents. The figure was down 28.4% sequentially but up 7.4% 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.

Revenues

Garmin’s first-quarter revenues of $766.1 million, which beat the Zacks Consensus Estimate of $721.9 million, decreased 17.8% sequentially but increased 7.8% from the prior-year level. 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 respective quarterly revenues of 20%, 24%, 17%, 17% and 22%. Seasonality resulted in considerable variations in the company’s quarterly revenues.

Outdoor revenues were down 39.5% sequentially but up 6.8% year over year. The year-over-year increase was mainly driven by robust demand from multiple product categories.

The Fitness segment’s revenues decreased 34.9% sequentially but increased 8.6% from the year-ago quarter, driven by strength in wearables.

Revenues from the Marine segment increased 41.5% sequentially and 18% year over year. The year-over-year growth was driven by strength in new products, namely chartplotters and Panoptix LiveScope sonars.

The Auto/Mobile segment’s revenues were down 13.9% sequentially and 10.1% on a year-over-year basis. The decrease was mainly due to shrinking of the personal navigation device (PND) market.

The Aviation segment’s revenues were up 7.9% sequentially and 17.2% from the prior-year quarter. The increase was mainly driven by aftermarket systems and OEM categories.

Revenues by Geography

While America generated 50% (down 14.4% sequentially but up 9.7% year over year) of its total revenues, EMEA and APAC contributed 34% (down 24.2% on a sequential basis but up 5.7% on a year-over-year basis) and 17% (down 13.2% sequentially but up 6.4% from the year-ago quarter), respectively.

Operating Results

Gross margin was 59%, down 100 basis points from the year-ago quarter.

Operating expenses of $300.3 million were up 5.6% from $284.3 million in the year-ago quarter.

GAAP net income was $140.2 million compared with $129.4 million a year ago.

Balance Sheet

Inventories were $598.4 million compared with $561.8 million in the fourth quarter. Cash and marketable securities were approximately $1.31 billion compared with $1.38 billion in the fourth quarter. The company had no long-term debt during the quarter.

At the end of the first quarter, the company generated cash flow of $164.6 million from operating activities. Free cash flow totaled $134.5 million.

2019 Guidance Reiterated

For full-year 2019, management has maintained revenue and pro-forma earnings expectation at $3.5 billion and $3.70 per share, respectively.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Garmin has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 C. 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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