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Why Is Garmin (GRMN) Up 2.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Garmin (GRMN). Shares have added about 2.3% 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 its most recent earnings report in order to get a better handle on the important drivers.

Garmin's Q1 Earnings & Sales Down Y/Y

Garmin reported first-quarter 2023 pro-forma earnings of $1.02 per share, beating the Zacks Consensus Estimate by 2%. However, the bottom line declined 8% on a year-over-year basis.

Net sales were $1.15 billion, which surpassed the Zacks Consensus Estimate of $1.08 billion. The figure decreased by 2% from the year-ago quarter’s figure.

The year-over-year decline in the top line was attributed to sluggishness across the outdoor segments.

Nevertheless, GRMN witnessed strong momentum in the fitness, marine, aviation and auto segments in the first quarter.

Garmin’s strong focus on continued innovation, diversification and market expansion to explore opportunities across all business segments remains a major positive. Its strong product lines are expected to aid its performance in the near term.

Segmental Details

Outdoor (29% of net sales): The segment generated sales of $328.7 million in the reported quarter, decreasing 27% year over year due to a slowdown in the uptake of adventure watches.

Fitness (21%): The segment generated sales of $244.7 million, which increased 11% from the year-ago quarter’s level owing to solid demand for the company’s advanced wearables.

Aviation (19%): The segment generated sales of $213.6 million, increasing 22% on a year-over-year basis. This was driven by solid momentum across the aftermarket and OEM categories.

Marine (24%): Garmin generated sales of $278.9 million from the segment, increasing 10% on a year-over-year basis. This was attributed to the favorable timing of spring promotions.

Auto (7%): The segment generated sales of $81.5 million, up 11% from the prior-year quarter’s level. The growing shipment of domain controllers contributed well.

Operating Results

In the first quarter, the gross margin was 56.9%, which expanded 40 basis points (bps) from the year-ago period’s level.

Garmin’s operating expenses of $455.8 million were up 5% from the prior-year quarter’s level. As a percentage of revenues, the figure expanded 270 bps year over year to 39.7%.

The operating margin was 17.2% in the reported quarter, which contracted 230 bps year over year.

Balance Sheet & Cash Flow

As of Apr 1, 2023, cash, cash equivalents and marketable securities were $1.55 billion, up from $1.45 billion as of Dec 31, 2022.

In the first quarter, inventories were $1.48 billion compared with $1.51 billion in the previous quarter. We note that GRMN had no long-term debt for the reported quarter.

GRMN generated $279.2 million in cash from operations in the reported quarter compared with $368.7 million in the previous quarter.

Garmin generated a free cash flow of $232.4 million.

GRMN paid out dividends worth $140 million and repurchased shares worth $41 million in the reported quarter.

2023 Guidance

GRMN reaffirmed its guidance for 2023 revenues at $5 billion.

Garmin expects pro-forma earnings of $5.15 per share.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, 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 C on the value side, putting it in the middle 20% 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Garmin has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Garmin belongs to the Zacks Electronics - Miscellaneous Products industry. Another stock from the same industry, Carrier Global (CARR), has gained 1% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

Carrier Global reported revenues of $5.27 billion in the last reported quarter, representing a year-over-year change of +13.3%. EPS of $0.52 for the same period compares with $0.54 a year ago.

For the current quarter, Carrier Global is expected to post earnings of $0.76 per share, indicating a change of +10.1% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.2% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Carrier Global. Also, the stock has a VGM Score of B.

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