Garmin's stock soars toward best day in four years as fitness-tracker sales boom

By Ciara Linnane

Maker of navigation devices and trackers posts EPS that is 40% above consensus

Garmin Ltd.'s stock soared12% Wednesday to put it on track for its biggest one-day gain in more than four years, after the maker of navigation devices and fitness trackers swept past earnings estimates for the first quarter.

The stock (GRMN) was the second-biggest gainer on the S&P 500, has gained for seven of the last eight days and has gained about 25% in the year to date, outperforming the S&P 500's SPX 5% gain.

The Swiss company had net income of $275.9 million, or $1.43 a share, for the quarter, up from $202.3 million, or $1.05 a share, in the year-earlier period. That was a full 40% above the FactSet consensus of $1.01.

Sales rose 20% to $1.38 billion from $1.15 billion a year ago and were well ahead of the $1.25 billion FactSet consensus.

Gross margin expanded to 58.1% from 56.9% a year ago.

Chief Executive Cliff Pemble said four of the company's five segments saw double-digit growth, driven by robust demand trends and a strong product portfolio.

On a call with analysts, he said the numbers were "remarkable" considering a significant increase in Swiss tax rates. The company's tax rate roughly doubled to 15.6% from 8.8% a year ago, due to an increase in federal and cantonal statutory tax rates in response to global minimum tax requirements.

"We're off to a great start and we're very pleased with these results," Pemble said, according to a FactSet transcript. "At the same time, we are mindful that the first quarter is typically the lowest seasonal quarter of our financial year. And with this in mind, we're not updating the guidance we previously issued in February."

Revenue in the fitness segment rose 40% in the quarter, led by demand for advanced wearables. The company launched its Forerunner 165 Series in the period, offering runners a smartwatch with health, fitness and connected features.

The company also published a new edition of its Garmin Health Research Glimpse, which focused on sleep research initiatives, Pemble said.

Outdoor revenue rose 11%, driven by growth in wearables. Revenue from the aviation segment rose 2%, while revenue from the marine segment rose 17%. The marine segment includes sonar technology and electronics.

Revenue from automobile original equipment manufacturers rose 58% due to increased shipments of domain controllers to Germany's BMW (XE:BMW).

The remaining three quarters of the year will have tougher comparisons, mostly because of the timing of popular product launches in 2023, Pemble said.

"This year, [the first quarter] was still marked by a relatively easy comp, especially in fitness, with our new product introductions that happened last year towards the end of [the first quarter] into [the second quarter]," he said. "So definitely that will create a different dynamic in [the second quarter]."

Garmin is not being buffeted by the pressure on consumer spending that other companies have noted this earnings season.

"I would say generally, our customer base are in groups that are probably less affected by the overall sentiment that you hear broadly about," he said.

So while the company has products across all kinds of price ranges, most "tend to be products with high innovation and high desirability, and therefore their pricing is not necessarily at the bottom of the market," he said.

The company ended the quarter with $3.3 billion in cash and marketable securities. It generated $435 million of operating cash flow in the quarter and $402 million of free cash flow.

The cash will be used to fund share buybacks and dividends, with shareholders due to vote at the annual meeting on a new $3 annual dividend to be paid in four quarterly installments.

-Ciara Linnane

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05-01-24 1139ET

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