Garmin (GRMN – Analyst Report) is an original equipment manufacturer (OEM) of navigation and communication equipment that incorporate the global positioning system (GPS)-based technology. Their end product markets include marine, recreation, automotive and aviation. The company was incorporated in July 2000 and IPO'ed in December 2008.
In 2014, they had five reportable segments—Auto/Mobile (43% of revenue), Fitness (20%), Outdoor (15%), Aviation (13%) and Marine (9%).
Lackluster Results, Downgraded Guidance
The company reported Q2 earnings of $0.72 per share, meeting the Zacks Consensus Estimate, but down 29.6% from the same quarter last year. The decline was mainly due to the currency headwind and unfavorable product mix. Revenues of $773.8 million however missed the Zacks Consensus Estimate of $777.0 million.
For 2015, management expects revenues of $2.9 billion, gross margin of about 54%-55% (down from 56%), operating margin of about 20%-21% (down from 23%) and pro-forma earnings of $2.64 per share (down from $3.10 per share).
In the past Garmin derived a major part of business from Personal Navigation Device (PND) segment. However, this business is increasingly being hurt by smartphones. The management expects the overall PND market to decline 10-15% in 2015. While Garmin is developing new in-dash solutions that could be sold through OEMs, near-term revenue growth from these partnerships will not be able to offset the decline in the traditional business. The company also saw growth and margin decline in the highly competitive Fitness segment.
Falling Estimates
Analysts have slashed their estimates after Q2 results and downgraded guidance. Zacks Consensus Estimates for the current and next year are now $2.63 per share and $2.87 per share respectively, down from $3.05 and $3.14, 30 days ago.
The Bottom Line
While the company may see some growth in the Fitness segment, the overall growth outlook remains weak. Further with strong competition, product development and promotion costs remain high. Foreign currency headwinds will also continue to hurt the top-line in the near-term. In addition to a “Strong Sell” rank, the stock has earned poor scores on Zacks Styles too, with an “F” in Growth and “D” each in Value and Momemtum.
