Automotive Demand Drives Garmin
By: Andrew Farrell
Garmin earnings easily beat estimates because revenue nearly tripled at its automotive division, but as growth there slows the company is counting on its underperforming aviation line to pick up slack.
Garmin (nasdaq: GRMN - news - people ) announced Wednesday a fourth-quarter revenue of $611 million, up 92% from $319 million last year. Earnings per share increased 82 cents from 40 cents, well above the 58 cents predicted by analysts polled by Thomson Financial.
The company's stock was up $4.29, or 8.1%, to $57 by the close of trading Wednesday.
Garmin's automotive department deserves the credit for the strong earnings. Its fourth-quarter revenue of $445 million grew 173% from the previous year and accounted for more than two-thirds of the quarter's income.
The company cautioned, however, that its automotive revenue growth will slow, estimating a 50% increase in sales this year as margins tighten from a more diverse product mix and production transitions to mass market levels.
The company predicts increased growth elsewhere and anticipates the biggest jump in its aviation division, which has underperformed its outdoor, automotive and marine counterparts. Disappointing aviation sales made the company miss estimates last quarter and its annual revenue of $233 million was only a 2% increase over the year before. (See: "Garmin Shares Tumble On Weak Aviation Sales.")
Still, the company announced Wednesday it expects 2007 aviation revenue growth to jump to 20%. Jon Braatz, an analyst at Kansas City Capital, thinks that Garmin's hope of an aerial turnaround is not wishful thinking, saying that its aviation products aimed at small planes have big potential for this year and beyond.
While Garmin's old avionics panel could only be installed by original manufacturers, its new G600 can be retrofitted. A key difference, says Braatz, as recreational flyers, benefiting from a strong economy and stock market, will find the product an attractive upgrade. Braatz estimated as many as 50,000 or 60,000 could shell out $30,000 for the G600 in the coming years.
Garmin had hoped 2006 would be a big year for GPS units as consumer awareness and interest reached new highs. The Consumer Electronics Association predicted shipments of portable navigation units would increase by 88% last year.
The company positioned itself aggressively to ride that wave, announcing a string of partnerships with dealerships for Hyundai, BMW, and DaimlerChrysler (nyse: DCX - news - people ) and launched 70 new devices over the year, up from 40 the previous year. (See: "Garmin: Navigating Its Way To Holiday Profits.")
Garmin earnings easily beat estimates because revenue nearly tripled at its automotive division, but as growth there slows the company is counting on its underperforming aviation line to pick up slack.
Garmin (nasdaq: GRMN - news - people ) announced Wednesday a fourth-quarter revenue of $611 million, up 92% from $319 million last year. Earnings per share increased 82 cents from 40 cents, well above the 58 cents predicted by analysts polled by Thomson Financial.
The company's stock was up $4.29, or 8.1%, to $57 by the close of trading Wednesday.
Garmin's automotive department deserves the credit for the strong earnings. Its fourth-quarter revenue of $445 million grew 173% from the previous year and accounted for more than two-thirds of the quarter's income.
The company cautioned, however, that its automotive revenue growth will slow, estimating a 50% increase in sales this year as margins tighten from a more diverse product mix and production transitions to mass market levels.
The company predicts increased growth elsewhere and anticipates the biggest jump in its aviation division, which has underperformed its outdoor, automotive and marine counterparts. Disappointing aviation sales made the company miss estimates last quarter and its annual revenue of $233 million was only a 2% increase over the year before. (See: "Garmin Shares Tumble On Weak Aviation Sales.")
Still, the company announced Wednesday it expects 2007 aviation revenue growth to jump to 20%. Jon Braatz, an analyst at Kansas City Capital, thinks that Garmin's hope of an aerial turnaround is not wishful thinking, saying that its aviation products aimed at small planes have big potential for this year and beyond.
While Garmin's old avionics panel could only be installed by original manufacturers, its new G600 can be retrofitted. A key difference, says Braatz, as recreational flyers, benefiting from a strong economy and stock market, will find the product an attractive upgrade. Braatz estimated as many as 50,000 or 60,000 could shell out $30,000 for the G600 in the coming years.
Garmin had hoped 2006 would be a big year for GPS units as consumer awareness and interest reached new highs. The Consumer Electronics Association predicted shipments of portable navigation units would increase by 88% last year.
The company positioned itself aggressively to ride that wave, announcing a string of partnerships with dealerships for Hyundai, BMW, and DaimlerChrysler (nyse: DCX - news - people ) and launched 70 new devices over the year, up from 40 the previous year. (See: "Garmin: Navigating Its Way To Holiday Profits.")
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