Garmin’s auto GPS business is still challenging, but the company’s move to diversify into fitness and even dog tracking is paying off nicely.
Don’t look now, but Garmin has gotten up off the mat, delivered a better-than-expected quarter and has diversified its way out of what looked like a smartphone-powered train wreck.
A year ago, the storyline behind Garmin went like this:
Garmin makes GPS systems.
These GPS systems are increasingly found on your smartphone.
Standalone GPS systems are dead.
Garmin may be dead too over time.
Couple those moving parts with Garmin’s unfortunate move into smartphones with the now defunct Nuviphone and it you didn’t have to be a brain surgeon to figure out the GPS company was in trouble.
But a funny thing happened on the way to the GPS cemetery. Garmin started growing its fitness line and now is a staple for runners, biking enthusiasts and even golfers. Now the company is seeing strong demand for its Astro 320 dog tracking system (right, credit Garmin).
Garmin has crammed its GPS knowhow into every category it could find. And it appears to be working. Garmin’s auto/mobile products represented 58 percent of third quarter revenue, down from 64 percent a year ago amid growth from emerging categories such as fitness, outdoor and aviation.
The company’s third quarter results were still down from a year ago, but Wall Street analysts were way too pessimistic. Garmin reported third quarter earnings of $150.4 million, or 77 cents a share, on revenue of $667 million, down 4 percent from a year ago. Non-GAAP earnings were 71 cents a share.
Wall Street was looking for earnings of 50 cents a share on revenue of $618 million. Simply put, Garmin blew away estimates and even raised its outlook for 2011. Garmin projected pro forma earnings of $2.30 a share to $2.40 a share on revenue of $2.6 billion. Wall Street expected earnings of $2.09 a share on revenue of $2.56 billion.
How’d this happen? Garmin diversified well and has offset declining sales in automotive. Auto/mobile revenue fell 13 percent from a year ago to $384 million in the third quarter. However, fitness revenue jumped 29 percent from a year ago to $69 million. Aviation revenue was up 18 percent to $71 million. In addition, Garmin grew its third quarter revenue 19 percent in Europe, Middle East and Africa.
On a conference call with analysts, Garmin’s Clifton Premble, chief operating officer, said that the fitness market surged. Garmin also has a new cycling device called the Vector that will ship in March 2012. Premble said:
While we are aware of the large number of competitors that have recently entered the fitness market, we believe we have successfully demonstrated our leadership in the GPS-enabled fitness category. We intend to keep our position through continued innovation, a broad range of product offerings that appeal to a range of customers from the casual to elite athlete, and by offering our products through a well-developed distribution and retail network.
Garmin’s business may ride shotgun with a bevy of athletes. However, TomTom and Motorola are also targeting athletes now too. Garmin executives noted that the company has a good reputation with athletes as a go-to brand.