Avoid Garmin (GRMN) as it goes down in flames

Posted Jul 30th 2008 1:02PM by Jonathan Berr
Filed under: Earnings Reports, Press Releases, Products and Services, Marketing and Advertising, Garmin Ltd (GRMN)

Garmin Ltd. (NASDAQ: GRMN) shares are tanking today after the maker of personal navigation devices said that its new nuvifone will be delayed by several months. I would avoid this fad stock for a while.

The device, which the company had originally hoped to be available for the fourth quarter holiday season, will not be launched until the first quarter, according to a statement from the Cayman Islands-based company. Of course, the company tried to put a positive spin one the announcement.

"While we had hoped to have carrier launches in the fourth quarter, we have found that meeting some of the carrier specific requirements will take longer than anticipated," Garmin said. "We remain pleased with carrier interest in the device and are working toward making necessary design changes to meet their requirements. We anticipate launching the product during the first half of 2009."

First half of 2009? Nothing like setting a vague target that can easily be changed. And the company's problems don't stop with new products. Fewer people are buying the old ones as well. Garmin expects 2008 revenue of $3.9 billion, down from a previous estimate of $4.5 billion. Earnings per share are seen at $4.13, below its previous forecast of $4.40.

While Garmin's automotive/mobile, outdoor/fitness and aviation segments are expected to see double-digit revenue growth, the company's marine segment will see flat sales growth this year. I wonder if this forecast, which has also been pared down, is too optimistic.

Even though the company reported a 20% rise in second quarter profit, storm clouds continue to gather. The company's SG&A expenses soared to $125 million in the second quarter from $95.3 million. Cost of goods sold hit $494.5 million from $367.8 million.

Investors are learning once again that fad stocks like Garmin eventually come crashing down to earth.

Tags: featured, garmin, gps, GRMN, inthenews, nuvifone

Print this

Reader Comments (Page 1 of 1)

7-30-2008 @ 4:01PM

Adam said...

how come you refer to this as a fad stock at PE multiples of 10 before earnings and low 9 high 8s currently? i could see a fad stock comment referenced for the $120 stock over the holidays, but the beating today seems unncessary. Expenses are bloated, but they should be for a completely new product in a nuviphone. those expenses have to occur before release

7-31-2008 @ 2:22PM

Jim E said...

Would you short GRMN at $36??

8-01-2008 @ 2:15PM

Tom said...

Labelling Garmin a "fad" shows real ignorance. Hula hoops and Crocs are a fad. In Garmin's diversified auto, aviation, marine, and outdoor sports markets, GPS is a "fad" no more than avionics in aircraft or a compass in ships. The GPS pie will grow worldwide, and Garmin will dominate GPS (plus general avionics) for years to come.

8-04-2008 @ 10:33PM

David said...

The author said cost of goods sold hit $494.5 million from $367.8 million when comparing the quarterly reports from 2008 to 2007. Is he implying this is a negative? I believe the cost of goods sold increased because net sales increased to $911,671 from $742,466. If you run that ratio Net Sales/COGS is actually increasing, which means a higher markup of goods sold.