Garmin Earnings Down; Share Up 30+% on better than Expected Earnings
Maybe things are better than expected for the economy? Garmin's sales were off 30% vs. year ago, as it's key segments were all down in sales, and its earnings were down 32% to $0.81 per share.... so why the stock jump? Apparently Wall St. consensus was for earnings of $0.51 per share and that's a lot better than expected. The market is still tough, and I am sure that Garmin is working hard to make sure that the promotions go off well, the inventories are managed well and prices are as low as possible to keep the product moving. Wall St. rewarded the over delivery by moving the Garmin stock; it closed at about $27 before the news and opened above $33 after the news.
CEO Min Kao said:
"While the macroeconomic conditions continue to dampen consumer demand, we are encouraged by the 53% sequential improvement in revenues in the second quarter. We are also pleased with the solid margins and earnings in the quarter achieved by the various initiatives that we have taken to improve productivity, reduce expenses and utilize the strength of our balance sheet.
The automotive/mobile segment continued to show sell‐through growth on a unit basis in both the North American and Asian markets and Garmin maintained its strong global market leadership position. The sequential improvement in pricing and margins in the quarter were on target with our expectations entering the quarter. We intend to continue to position ourselves to take advantage of the ongoing demand for portable navigation devices by delivering innovative solutions to the consumer. Our recently introduced 1200, 1300 and 1400 nüvi®series which offer affordable navigation solutions in a sleek form factor with pedestrian capabilities have been well received, and we continue to expand the utility of in‐vehicle navigation through the introduction of our first product designed specifically for the trucking market.
TomTom announced some bad news today as they offered a loss and a write-down on the TeleAtlas acquisition. TomTom lost 989 Million Euros in the last quarter compared to a profit of 107 Million Euros a year earlier. This was on the back of a 17% loss in topline sales in the quarter, apparently in line with earnings estimates. They also wrote off about a billion Euros from teh value of the TeleAtlas acquisition, while admitting that they overpaid for the map maker.
As TomTom moves forward, they indicated that their HD launch has been going well, with about 25% of their HD Traffic customers renewing their subscriptions after a year's time. That is not bad, but I would have hoped for a higher rate. It all depends on what their financial models say, but once you have the purchase made, one would hope to keep that person as a customer. TomTom indicated that they are going to be working on more services sales this year, maybe they are thinking the same thing. Reportedly they have 130,000 customers.
TomTom also commented on the fact that they believe that they are going to comply with their loan agreements, but it sounds like if the market deteriorates more, they could see an issue moving forward with that debt load.
Garmin announced earnings and said that while their net was off 49%, and their topline sales down 14% on a 17% sales drop in the automotive segment. While that might sound terrible, it is pretty good considering the world is falling apart for some companies. The outdoor/fitness segment was off just 5% as was the aviation segment. The marine segment showed flat sales. While North America was off 9%, Asia was off 17% and Europe was off 26%.
CEO Min Kao said,"A significant highlight for 2008 is our gross margin performance of 44.5% which is down just 150 basis points from 2007. We also achieved a strong operating margin of 24.7% which exceeded our earlier expectations. Throughout 2008, we maintained our strong cash position with free cash flow generation of $743 million which was enhanced by the significant reduction in inventory during the quarter. This cash flow allowed us to fund our stock repurchase plan, pay a $0.75 per share dividend, and remain a debt‐free company. "
They also indicated that the bloated inventories present after the holidays in the retail channel, appear to be dropping which is a good thing for Garmin as they will start to move more GPS units into the stores for spring selling events.
the Specific Press Release can be found at the Garmin Website
Garmin dropped some good news and some not so good news this week. The Good news was that their earnings are still up despite the poor economy, and lackluster sales on a whole range of things at the stores these days. The bad news is that lowered expectations for the year citing macroeconomic issues.
The big winners were in a few segments:
Auto Revenue - up 24%
Outdoor/Fitness Revenue up 54% on the back of a successful Forerunner 405 and Edge 605/705 launch
North American Revenue up 27%
European Revenue up 19%
From CEO Min Kao:
"Despite the challenging macro economic conditions, Garmin experienced another quarter of growth in 2008 and continues to demonstrate our solid leadership position in the industry. Our strength in the automotive/mobile segment in the face of a slowing economy demonstrated that our products continue to be well-positioned to take advantage of the ongoing demand for portable navigation devices. The latest nüvi 2x5 products delivered during the second quarter provide yet more features for cost-conscious consumers including picture navigation and compatibility with MSN Direct's real time content service. We also delivered the high-end nüvi 800 series in the second quarter which offers industry-leading speech recognition in the personal navigation sector. Our nüvi product offerings continue to support our strategy of extensive market segmentation, drawing in customers with compelling, competitive features, and useful content integrated into easy-to-use products at many attractive price points. We believe this approach will continue to garner growing market share and drive strong results throughout the remainder of 2008. Although we continue to earn industry-leading market share, the sector is not growing as rapidly as earlier anticipated and consumers appear to be more cost-conscious than ever; therefore, we will be lowering our full year revenue growth expectations."
Full Press Release can be found here at the Garmin Site
These are some crazy times; Garmin's earnings were up against last year, but not up enough for the stock market to feel comfortable, and as a result, Garmin's stock lost a few bucks after teh earnings announcement. To be clear, the earnings were the best Garmin ever had, and sales are up 35% overall, with 43% increase in automotive sales, 30% in Marine sales, 19% increase in Aviation sales, and a 16% increase in Fitness/Outdoor sales. Garmin also cited their strategy of distributor acquisition in Europe as a main reason for gaining sales there.
The problems come when Wall Street expected more from them, and from the fact that operating margins shrank, meaning that prices are shrinking faster than costs versus a year ago.
CEO Min Kao said
"We are pleased with our performance in the first quarter, particularly given the general slowdown in the global economy. Demand for our automotive/mobile products continued beyond the traditionally strong fourth quarter holiday season, with another quarter of robust triple-digit growth. While the first quarter is typically our slowest quarter, we were
nonetheless able to achieve healthy growth in each of our business segments and each geographic area."
TomTom reported earnings for the first quarter of 2008, and it was not as good a quarter this year due to significant price pressure on the well known GPS maker. So, apparently TomTom didn't grow revenue this past quarter like they have in the past. Tough competition and the tough economy has to be impacting sales of consumer electronics like this, with discretionary spending under pressure. I guess if you can't afford a tank of gas, let alone a new widescreen GPS.
Overall revenue was 264M Euros vs. 296M Euros last year, while US revenue was up 133% to 85 Million Euros.
"Retailers in Europe slashed personal navigation device inventory during the first quarter," said Dresdner Kleinwort analyst Ulrich Rathe, "leading to a massive 30% decline in sales in that geography." For the company as a whole, sales fell 10.8% in the first quarter.
TomTom's average retail price was down 42.6% to about $185, from $324 a year earlier. A quick check back in my archives had the TomTom ONE selling for $290 in March 2007, while it is frequently seen for $139 - $149 these days, and the TomTom GO 910 was at $439, while the TomTom GO 920 is selling in the mid-to upper $300's today. The price drops are dramatic, and the effect is that the big guys aren't making as much money, but they are keeping the low cost competition at bay as they are having a tough time achieving critical mass.
GPS World Magazine has a good write-up on the GPS market, its developments and some of the critical numbers coming off the big fourth quarter in 2007 which saw cheap GPS deals at every major Black Friday player, and out of stocks online for days as people scrambled to get one of the hottest gifts of the year. While total year shipments jumped 148%, Q4 shipments jumped over 400%. While that's a lot, and there were 6.7 million sold in Q4, there's still plenty of people without one. A couple of key points below, check out the whole article for more information on the US market and the growth in the Asian Pacific markets as well.
Canalys estimates that around 6.7 million PNDs shipped in the United States in Q4, representing 55 percent of the total for the year. In Q4 2006 the figure was below 1.5 million, showing just how much the market has grown and the extent to which the United States, once tiny compared to the European market for such devices, has become a major arena for the many competitors in this industry, Canalys observed.
Looking at the market for all mobile GPS navigation devices (which includes smart phones that have integrated GPS and an activated on-board solution), Canalys puts market leader Garmin's share in the United States in Q4 at 47 percent, almost exactly where it was a year earlier. Garmin is followed by TomTom at 21 percent Magellan at 17 percent and then Mio Technology at 6 percent -- the top four hardware vendors have more than 90 percent of the market. A year earlier they had 80 percent between them.
TomTom reported earnings and as you would expect out of a GPS maker riding the wave of a surging category the sales were way up; up 123% in unit sales year over year for the quarter, with sales up 33%. Not bad, as they retained a high market share in Europe - 49% in the fourth quarter and achieved a 27% share in the US. All wrapped up in this is a declining average sales price, resulting in a market share push.
While the sales are way up, the investment community got spooked on the reports that margins are getting squeezed as the prices are dropped. With those lower prices, TomTom is expecting to see the GPS market at 38 million units, up from 25 million units in 2007; a 50% growth rate. I'll bet a lot of industries would love to have a 50% growth rate......
They also recently mentioned that hey are having a press conference at CeBit this coming week where they will undoubtedly announce new models.
Garmin's sales for the 4th quarter were up 99% versus year ago to $1.2Billion in the quarter. That's too bad, they were up 100% last year; missed it by that much...... Anyway, earnings were also up 70% to $1.39 per share. Things were up all over the place as sales grew significantly in their Automotive, outdoor/fitness, aviation and marine. Growth was seen in all geographies too.
Wall St hit them a bit after the announcement as the street is a little concerned over the decline in selling prices. I have noticed that Garmin used to carry a premium price over TomTom on many models, but are now undercutting them on some models. It is certainly a more aggressive market out there as people are fighting for their share of the explosive growth. Expect TomTom Earnings out in a few days...
Garmin also mentioned that they expect retail prices to drop by 20% this year; not sure if that means a drop across the board, or average price when you include the new high end units that have yet to hit the market. But to me a 20% drop on a $260 Nuvi 350 means a Nuvi 350 that is around $199 for the holidays.
Dr. Min Kao, Chairman and Chief Executive Officer said, "Garmin experienced an exciting fourth quarter, which brought a strong finish to fiscal 2007. The strong holiday season demand we experienced clearly demonstrated that our products are well-positioned to take advantage of the growing interest in portable navigation devices. Independent market research indicates we have maintained a strong leadership position in North America, and our market position in Europe continues to improve as well."
It appears that SiRF has run into pricing pressure. With prices dropping like a stone on the GPS front, and some GPS makers electing to go with other "High Sensitivity Receivers", that are pretty good in my opinion (think TomTom and Garmin). Anyway, SiRF's profits dropped 89%, and today their stock dropped by over 50%. Not good news.
NAVTEQ announced solid earnings growth related to the strong performance of GPS system growth. Sales were up 51% to $214.8 million, and net earnings were up 47% versus year ago. Big jumps for the map maker that supplies maps to Garmin and others. Recall that Nokia has announced plans to acquire NAVTEQ while Garmin and TomTom appear to be in a bidding war for the smaller and less profitable rival, TeleAtlas.
Garmin announced some impressive earnings on their business, with total sales up 79% and earnings up 59% over year ago. The sales growth was driven primarily by 118% growth in the automobile segment, which now accounts for 71% of total revenues (or about $517Million in the quarter). Sales grew in all regions, 71& in North America, 89% in Europe, and 109% in Asia.
Our retail orders are strong, and we look forward to a solid 2007 holiday season,” said Kevin Rauckman, chief financial officer of Garmin Ltd. Well there you go; hang on for a rocking holiday season at the GPSLodge.
TomTom released earnings this past week and things are looking good again at the GPS maker, as they beat earnings estimates. They sold 83% more units than the same period last year, and as a result, had 21% sales growth, resulting in a profit up 36% over last year. Not bad numbers, and TomTom upped their estimates for number of units sold from 8-9 million this year to 9-10 million units this year. The holiday season is only a few weeks away and has to be a test of how anyone is doing in the GPS market.
TomTom’s Chief Executive Officer, Harold Goddijn said, “TomTom delivered a strong set of results this quarter with record units shipped, record profits and record cash flow in a market that continues to grow rapidly.
Following successful tests of our real time traffic solution in the Netherlands we will launch our new service in November. Discussions with mobile phone operators in other European countries are progressing and we expect to make further announcements shortly.
Ahead of the fourth quarter we have launched important new products, which have been received positively by the market. The amount of customer feedback we have received since the introduction of Map Share™ is also encouraging. We are confident that with our strong product line-up, supported by advertising campaigns and promotional activity TomTom will be able to defend its market position in Europe and to grow market share in the US.”
Meanwhile, Jocelyn Vigreux, President of TomTom USA, and , Nelson Chan CEO of Magellan were elected to the board of the Consumer Electronics Association, or CEA. The CEA is a trade group that works on behalf of the consumer electronics industry to promote and grow business. To me, having two leaders of GPS companies on the board signals the importance of the GPS category in consumer electronics.
TomTom released earnings along with the news of their offer for TeleAtlas, and things were strong for the GPS navigation system maker. Revenue was up 37% over last year to €380 million (~$520 Mil) , driven by their 118% unit growth in navigation devices. Earnings was up 81% over last year, to €68 million (~$91 Mil).
“In the second quarter of 2007, TomTom again delivered good results with strong revenue and strong profitability. We continue to deliver high margins, demonstrating our ability to manage our growth and costs.
These results are underpinned by the quality of our products and services. We continue to provide innovation leadership in the personal navigation category which was once more demonstrated recently by the positive reaction of our partners to the launch of our new GO range and our revolutionary new Map ShareTM technology in early June.
We are especially excited about our second country contract to deliver superior real time traffic services. This will be made available to our customers in the UK in the first half of 2008. The launch of the Dutch service is expected in the second half of 2007.
For the second half of the year, we have a strong product line-up in place and market conditions in both Europe and North America continue to be very positive. We now expect to ship a higher number of PND units and to deliver stronger margins for the full year when compared to our guidance last quarter.
Garmin Earnings Down; Share Up 30+% on better than Expected Earnings
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