) reported strong third-quarter 2013 earnings of 69 cents per
share, exceeding the Zacks Consensus Estimate by 9 cents, helped
by strong growth in new products that are increasingly
diversifying its business.
Garmin's third-quarter revenues of $643.6 million was down
7.6% sequentially and 4.3% year over year. Volumes were down 8.3%
sequentially but grew 12.0% from the year-ago quarter. However,
the blended average selling price (ASP) grew 2.6% sequentially
and 8.2% year over year. The increase was driven by mix changes
and amortization of previously deferred revenues.
Garmin's Auto/Mobile, Outdoor, Aviation, Fitness and Marine
segments generated 50%, 16%, 13%, 13% and 8% of its 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 6.4% sequentially and 16.1% from the year-ago
quarter. The personal navigation device (PND) market weakness
continued in the last quarter. Garmin expects PND volumes to
decline 20% globally in 2014.
Garmin remains the number one supplier in the U.S. (with a
market share of more than 70%) and one of the major suppliers in
Europe (around 30% market share). The primary focus areas are
currently automotive original equipment manufacturers (OEMs) for
in-dash applications and emerging markets.
segment revenues were down 5.2% sequentially but up 14.6% 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 year-over-year growth.
New products, opportunities in the retrofit segment,
opportunities in the military and government markets, and share
gains in the helicopter market remain positives for 2014.
segment revenues were down 5.2 % sequentially and 4.0% year over
year due to tough year-ago comparisons. Garmin expects to see
success in this segment because of the many new products that are
gradually expanding its markets and enabling it to enter new
categories. During the quarter, management introduced VIRB and
VIRB Elite products in the camera market and believes further
expansion into new categories and new products will likely remain
an important driver of segment growth.
segment decreased 3.8% sequentially but increased 25.0% year over
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 the year.
segment decreased 24.0% sequentially but grew 23.5% from the
year-ago quarter to 8% of total revenue. The year-over-year
growth was driven by new products, some pent-up demand and
positive seasonality. Management expects new products to drive
sales this year.
Garmin is trying to build a solid product portfolio (including
through acquisitions) and the strengthening of strategic
relationships with marine OEMs.
The gross margin for the quarter was 54.8%, down 30 basis
points (bps) sequentially but up 140 bps year over year. Lower
volumes led to the sequential decrease. The year-over-year
increase was due to a favourable segment mix. Also, the
amortization of previously deferred revenues was positive for
The operating expenses of $201.1 million were up 1.1% from
$199.0 million in the year-ago quarter. The operating margin
shrank 80 bps sequentially and 20 bps year over year to 23.6% in
the last quarter. All, except advertising expenses, increased
sequentially as a percentage of sales.
On a pro-forma basis, Garmin reported a net income of $136.2
million compared to $145.8 million in the third quarter of last
year. Pro-forma earnings per share were 69 cents compared to 74
cents in the comparable prior-year quarter.
One-time adjustments in the quarter included currency-related
Inventories were up 8.7% sequentially to $416.7 million, with
inventory days increasing from 116 days to 124 days. Days sales
outstanding (DSOs) went up from 63 days to around 66 days. The
cash and short-term investments balance were approximately $1.20
billion versus $1.23 billion in the prior quarter, with the
company generating around $216.6 million from operations.
Garmin spent around $11.6 million on capex, yielding a free
cash flow of around $205.0 million. Garmin has no long-term
Garmin expects 2013 revenues of $2.5 billion-$2.6 billion
(reiterated), gross margin of 53%-54% (reiterated), operating
income of $530 million (previous $500 million), operating margin
of 21% (previous 20%), a tax rate of 16% (previous 15%) and
pro-forma earnings per share of $2.40 to $2.45 (previous
$2.30-$2.40). The Zacks Consensus Estimate for the year is $2.41,
which is at the lower end of the historical range.
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 last quarter, the traditional PND business shrank to
less than 50% of its total business, although Garmin remains the
market leader in the category. On the other hand, Garmin is
seeing good growth in its target markets, all of which carry
Though management expects the PND market to continue to impact
top and bottom line results, the forward guidance provided was
encouraging, indicating strong growth to continue in the upcoming
Garmin shares carry a Zacks Rank #1 (Strong Buy). Other stocks
that have been performing well and are worth a look include
Melco Crown Entertainment Ltd
). All these stocks carry a Zacks Rank #1.
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