Tuesday, May 3, 2011

Garmin Ltd. (NASDAQ: GRMN): Q1 Earnings Preview 2011

Garmin Ltd. (NASDAQ: GRMN) is scheduled to release its first quarter earnings before the opening bell on Wednesday, May 4, 2011. Analysts, on average, expect the company to report earnings of 33 cents per share on revenue of $413.09 million. In the year ago quarter, the company reported earnings of 38 cents per share on revenue of $431.07 million.

Garmin Ltd. and its subsidiaries design, develop, manufacture, and market global positioning system (GPS)-enabled products and other navigation, communication, and information products worldwide. It operates in four segments: Automotive/Mobile, Outdoor/Fitness, Marine, and Aviation. Garmin has about 55 percent to 60 percent of the U.S. market for navigation devices. TomTom NV is its main U.S. competitor. The company, being the largest GPS manufacturer in the world, benefits from economies of scale. This lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods. In addition, the company has over 400 patents and 250 trademark registrations.

In the preceding fourth-quarter, the Camana Bay, Cayman Islands-based company's net income was $132.91 million, or 68 cents per share, compared to $278.41 million, or $1.38 per share, in the year-ago quarter. On a pro forma basis, the company earned 83 cents per share in the third quarter. Revenue slipped 21 percent to $837.71 million from $1.06 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 88 cents per share on revenue of $864.06 million. 

At its last earnings call in February, the company said that it expects fiscal 2011 expects revenue of $2.4-2.5 billion, gross margin in the 50-51% range, operating income in the $500-560 million range, operating argin of 21-22% and pro forma earnings of $2.25 to $2.50 per share.. The company said it expects revenues to decline in 2011 as the growth in its outdoor, fitness, marine and aviation segments, as well as auto OEM opportunities, is offset by ongoing declines in the PND market.

Personal navigation device makers like Garmin have been facing increased pressure from GPS-equipped smartphones. Cannibalization was always expected and Garmin too expected it. It therefore launched its own version of a smartphone, called Garminfone and nuviphone.However, the company abandoned the smartphone business after failing to find its way in the highly competitive sector. Instead, Garmin decided to go along in the footsteps of archrival TomTom. In line with this strategy, the company is now making apps for the smartphone market. early in January, the company announced the availability of the Street Pilot app for iPhone.

PNDs are also reaching a saturation point in the developed markets of North America and Europe. Garmin has now decided to pursue growth in the emerging markets of Asia and South America, where the chances of success with a premium-priced product will be limited.

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