Garmin (GRMN) Up 2.6% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Garmin (GRMN). Shares have added about 2.6% 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 the most recent earnings report in order to get a better handle on the important drivers.

Garmin Beats Earnings & Revenue Estimates in Q4

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

Earnings of $1.02 per share beat the consensus mark of 79 cents. Moreover, the reported earnings were up 2% sequentially and 29% 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 fourth-quarter revenues of $932 million beat the Zacks Consensus Estimate of $889.7 million, increasing 15.1% sequentially and 3.9% 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 27%, 30%, 10%, 16% and 17%. Seasonality resulted in considerable variations in the company’s quarterly revenues.

Outdoor revenues were up 21.6% sequentially and 25.2% year over year. The year-over-year increase was mainly driven by robust demand for adventure watches.

The Fitness segment increased 45.7% sequentially and 0.3% from the year-ago quarter.

The Marine segment decreased 4.2% sequentially but increased 13.1% year over year. The year-over-year growth was driven by strength in new products, namely chartplotters, advanced sonars and cartography offerings.

The Auto/Mobile segment was down 10.7% sequentially and 27.8% on a year-over-year basis. The decrease was mainly due to shrinking of the personal navigation device (PND) market.

Aviation segment revenues were up 8.1% sequentially and 22% from the prior-year quarter. The increase was mainly driven by aftermarket systems and ADS-B solutions.

Revenues by Geography

While America generated 48% (up 19.8% sequentially and 4% year over year) of its total revenues, EMEA and APAC contributed 37% (up 11.6% on a sequential basis and 0.5% on a year-over-year basis) and 16% (up 9.9% sequentially and 20.5% from the year-ago quarter), respectively.

Operating Results

Gross margin was 58.9%, up 280 basis points from the year-ago quarter. Stronger demand across all its segments led to gross margin expansion on a year-over-year basis.

Operating expenses of $326.5 million were up 1.9% from $320.1 million in the year-ago quarter.

GAAP net income was $190.2 million compared with $142.6 million a year ago.

Balance Sheet

Inventories were $561.8 million compared with $556.6 million in the third quarter. Cash and marketable securities were approximately $1.38 billion compared with $1.23 billion in the third quarter. The company had no long-term debt during the quarter.

At the end of the fourth quarter, the company generated cash flow of $217.7 million from operating activities and free cash flow totaled $184.8 million.

2019 Guidance

For full-year 2019, management expects revenues to be $3.5 billion and pro-forma earnings are expected at $3.70 per share.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted 5.45% due to these changes.

VGM Scores

At this time, Garmin has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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