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Garmin profit tops estimates, trims revenue forecast
August 4, 2010 / 12:24 PM / in 7 years

Garmin profit tops estimates, trims revenue forecast

BANGALORE (Reuters) - Garmin Ltd’s (GRMN.O) quarterly profit topped market estimates as it benefited from revenue growth across all segments and regions, sending its shares up as much as 6 percent.

The results show that pricing pressure has been easing for the No. 1 U.S. portable navigation device (PND) maker and that it was gaining market share in an increasingly less competitive market.

But the company cut its revenue outlook range for the year, citing unfavorable foreign exchange movements and a slight decline at its PND segment. It maintained its earnings per share outlook.

Garmin and Dutch rival TomTom (TOM2.AS) have been selling fewer units since their high point in 2008, when PNDs were one of the hottest segments in consumer electronics.

Hurt by smartphones on one side and in-dash navigation devices on the other, the companies have been further under pressure ever since Google (GOOG.O) and Nokia NOK1V.HE started offering free turn-by-turn navigation on smartphones earlier this year.

In the second quarter, revenue from its key PND segment grew 2 percent. The outdoor/fitness unit grew 32 percent and the marine unit rose 23 percent.

PND pricing declined 6 percent year-over-year, but it was better than what analysts were expecting.

“There wasn’t a single operating segment or key operating metric in the second quarter that didn’t top expectations,” Oppenheimer analyst Yair Reiner said.

Garmin has been trying to offset the weakness in the PND segment with growth at its other segments and by launching its own line of smartphones.

Smartphones contributed $27 million to revenue in the quarter.

“That’s a very small number, maybe 60,000 phones,” Deutsche Bank analyst Jonathan Goldberg said. “To be a viable product, they need to sell a million units a year.”

The company acknowledged this was below its plan and said it was working aggressively with Deutsche Telekom (DTEGn.DE) unit T-Mobile and other carriers on the appropriate positioning and pricing of its handsets.

“There was a real disconnect this quarter between how Garmin’s stock was acting going into numbers -- which was poorly -- and the company’s fundamental performance, which was rock solid.”

The stock is down 22 percent in the last three months.

OUTLOOK CONSERVATIVE?

Net income fell to $134.8 million, or 67 cents a share, from $161.9 million, or 81 cents a share, a year earlier. Pro forma earnings were 85 cents a share.

Revenue rose 9 percent to $728.8 million.

Analysts expected earnings of 73 cents a share, excluding exceptional items, on revenue of $676.9 million, according to Thomson Reuters I/B/E/S.

Gross margins were 54 percent, compared with 53 percent a year ago.

“The margins were outstanding,” MKM Partners analyst Pablo Perez-Fernandez said.

For the year, the company forecast revenue of $2.8 billion to $3 billion. In February, it had projected revenue of $2.9 billion to $3.1 billion.

Analysts were looking for revenue of $2.88 billion.

The outlook was conservative, said Perez-Fernandez. “There is no indication, in my channel checks and otherwise, that the company will do less than the high end of the guidance for revenue.”

Oppenheimer analyst Reiner said the revised targets were in line with the consensus and seemed attainable “if not beatable.”

Shares of Garmin were up 7 cents at $29.42 Wednesday on Nasdaq. They touched a high of $31.03 earlier in the session.

Last month, TomTom reassured investors by keeping its 2010 outlook intact.

Reporting by S. John Tilak; Editing by Prem Udayabhanu

Our Standards:The Thomson Reuters Trust Principles.
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