Garmin finds new direction with fitness gadgets

(Reuters) - Garmin Ltd (GRMN.O) forecast a strong year ahead, signaling that increasing demand for its outdoor and fitness GPS products was offsetting declines at its traditional personal navigation device (PND) business.

Shares of the company jumped as much as 12 percent to a near four-year high of $49.93, before paring some gains to trade up 8 percent.

Garmin's PNDs, once must-have gadgets, have seen falling demand and prices for more than three years as consumers turned to GPS-enabled smartphones that offer turn-by-turn navigation.

The drop in the popularity of PNDs forced Garmin and its European rival TomTom (TOM2.AS) to look for new areas of growth. While Garmin focused more on its fitness and outdoor products and high-margin mapping services, TomTom invested in software and apps.

The No. 1 U.S. navigation device maker has been seeing particularly strong demand for its fitness products, as athletes and joggers spend more on watches with GPS sensors, golfing accessories with preloaded courses and fitness apps.

Along with the outdoor segment, which makes rugged hiking gadgets and dog trackers, the fitness business is expected to contribute nearly 30 percent of revenue in 2012, compared with 12 percent in 2008.

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Garmin expects its outdoor segment to grow 5 percent to 10 percent in 2012, and its fitness segment to grow 20 percent to 25 percent.

In contrast, the PND segment, is expected to decline 7 percent to 10 percent in 2012 and contribute just over half of the company's total revenue. It accounted for almost 80 percent of revenue four years ago.

"We continue to be positively biased on Garmin as we see better-than-expected growth in Fitness, decelerating declines in Auto/Mobile, and Lifetime Maps transitioning from a headwind to a tailwind," Wedbush Securities analysts said in a note to clients.

The full-year outlook, which came in well ahead of analysts' projections, also suggests that the company's strategy of bundling personal navigation devices with high-margin mapping services was beginning to pay off.

Last year, the company said this shift in strategy would help results, but warned the nature of the business did not allow for up-front revenue, and it would see rewards only in the latter half of 2012.

For 2012, Garmin expects a profit of $2.45 to $2.60 a share, excluding items, and revenue of $2.7 billion to $2.8 billion.

Analysts were looking for a profit of $2.41 a share, excluding items, and revenue of $2.55 billion, according to Thomson Reuters I/B/E/S.

4th-QTR TRIUMPH

Garmin's fourth-quarter results smashed expectations, as the company benefited from improved PND pricing and strong outdoor and fitness demand.

While the company continued to sell fewer PNDs in the fourth quarter, higher selling prices helped boost revenue at the segment by 4 percent. It accounted for 70 percent of total sales during the period.

Garmin's PND segment benefited as it grabbed market share from smaller competitors and expanded into the Asia-Pacific region, Wedbush analyst Scott Sutherland said.

"They also have a smaller but growing in-dash automobile unit. It's about 10 percent of the unit, but it's growing."

Revenue at the outdoor/fitness segment increased 35 percent to $121 million. The automotive/mobile segment revenue increased 4 percent to $579 million, compared with a 31 percent decline a year ago.

Excluding items, the Switzerland-based company earned 96 cents a share, while revenue rose 9 percent to $910 million.

Analysts had expected earnings of 66 cents a share, before one-time items, on revenue of $769.9 million.

(Reporting by Sayantani Ghosh and Sruthi Ramakrishnan in Bangalore; Editing by Saumyadeb Chakrabarty)