) reported strong first-quarter 2014 earnings of 55 cents per
share, comfortably beating the Zacks Consensus Estimate by 11
cents, on the back of strong growth in new products that are
increasingly diversifying its business.
Garmin's first-quarter revenues of $583.2 million were down
23.2% sequentially but up 9.6% year over year and above the Zacks
Consensus Estimate of $542.0 million. Volumes were down 44.4%
sequentially but flat year over year. However, the blended
average selling price (ASP) grew 38.5% sequentially and 9.8% year
over year to $234.0 per unit. The increase was driven by mix
changes and reduced revenue deferrals.
Garmin's Auto/Mobile, Outdoor, Aviation, Fitness and Marine
segments generated 42%, 14%, 16%, 17% and 11% of the quarterly
Seasonality typically makes for significant variations in
quarterly revenues, with the most significant increase in the
December quarter, followed by the most significant decline in the
segment was down 36.5% sequentially and 3.8% from the year-ago
quarter. The personal navigation device (PND) market weakness
continued in the last quarter, which was partially offset by
growth in original equipment manufacturers (OEM) and mobile
Garmin expects PND volumes to decline in 2014, in line with
the 2013 rates but believes that niche categories, like dash cams
and RV units, will help offset the decline, going forward. The
company expects the OEM market to continue to generate good
returns in the near future.
segment revenues were up 9.9% sequentially and 19.3% year over
year. The year-over-year increase was due to notable strength in
the OEM segment. The aviation market recovery appears to be
gathering momentum with three straight quarters of double-digit
New products, opportunities in the retrofit segment,
opportunities in the military and government markets, and share
gains in the helicopter market remain the positives for 2014.
segment revenues were down 33.7% sequentially but up 10.3% year
over year. The year-over-year increase was due to several product
introductions. Garmin expects to witness success in this segment
because of the new products that are gradually expanding its
markets and enabling it to enter new categories. The introduction
of VIRB action cameras, fenix 2 and PRO series of dog collar
products aided strong growth in the last quarter. Management
believes further expansion into new categories and products will
likely remain an important driver of segmental growth.
segment decreased 15.5% sequentially but increased 38.4% year
Management believes that the continued move toward
higher-margin products, especially in the running category, will
help segment margins in the near term. GPS-enabled running and
cycling products are gaining worldwide popularity, which is good
news for Garmin, the market leader. Management also has several
new products in the pipeline that are expected to drive growth in
the second half of 2014.
segment increased 34.6% sequentially and 19.3% from the year-ago
quarter. The year-over-year growth was driven by new products
including autopilot solutions, chartplotters and radars.
Management expects new products to drive sales in 2014.
Garmin is trying to build a solid product portfolio (including
acquisitions) and the strengthening of strategic relationships
with marine OEMs.
The gross margin for the quarter was 56.7%, up 480 basis
points (bps) sequentially as well as year over year. The increase
was due to a favourable segment mix. Also, the amortization of
previously deferred revenues aided margins.
The operating expenses of $210.5 million were up 7.3% from
$196.2 million in the year-ago quarter. The operating margin
shrank 2100 bps sequentially but was up 560 bps year over year to
20.6% in the quarter. Selling, general and administrative expense
decreased year over year as a percentage of sales, while
advertising and research and development expense remained
On a pro-forma basis, Garmin reported a net income of $108.1
million compared to $79.5 million in the first quarter of last
year. Pro-forma earnings per share were 55 cents compared to 40
cents in the comparable prior-year quarter.
One-time adjustments in the quarter included currency-related
Inventories were up 15.6% sequentially to $442.0 million. The
cash and short-term investments balance was approximately $1.30
billion versus $1.33 billion in the prior quarter, with
operations contributing around $71.2 million.
Garmin spent approximately $15.5 million on capex, yielding
free cash flow of around $56.0 million. The company has no
In the reported quarter, the company spent approximately $88
million on dividends and $33 million on share repurchases. The
company has $208 million remaining in the share repurchase
program authorized through Dec 31, 2014.
Garmin's results indicate that the company is successfully
diversifying its business away from the shrinking PND market.
This has been possible because of focused research and
development efforts that have resulted in a steady flow of
innovative higher-margin products. The company is also
increasingly collaborating with OEMs for product designing, which
is leading to greater volume, predictability and more stable
In the reported quarter, the traditional PND business shrank
to less than 50% of its total business, although Garmin remains
the market leader. On the other hand, Garmin is seeing good
growth in its target markets, all of which carry higher
Additionally, Garmin's partnership with Mercedes-Benz to
provide navigation software to the latter's upcoming models
beginning 2014 and all models by 2017 will improve its share in
the automotive market.
Garmin's shares carry a Zacks Rank #2 (Buy). Other stocks that
have been performing well and are worth a look include
GrafTech International Ltd.
IAC Interactive (
. While GrafTech International sports a Zacks Rank #1 (Strong
Buy) Siemens and IAC Interactive carry the same Zacks Rank as
GARMIN LTD (GRMN): Free Stock Analysis Report
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IAC/INTERACTIV (IACI): Free Stock Analysis
SIEMENS AG-ADR (SI): Free Stock Analysis
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