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Garmin Ltd. (GRMN) topped analysts' fourth-quarter earnings expectations this morning, but the GPS guru opened with a thud after warning that it expects both gross and operating margins to decline in fiscal 2010. "The margin declines will be primarily driven by an ongoing price decline of approximately 10 percent in the [personal navigation device] industry and increasing R&D investment across our segments," said the company in a statement.
Aside from that cautious note, Garmin's fourth-quarter results and forward-looking guidance were actually much more robust than Wall Street expected. The firm swung to a quarterly profit of $1.43 per share, excluding items, compared to analysts' consensus forecast of 95 cents per share. Gross margin ticked four percentage points higher to 46%, while revenue arrived at $1.06 billion.
Looking ahead, Garmin expects fiscal 2010 earnings of $2.75 to $3.15 per share, excluding items, with overall revenue growth pegged at up to 5%. The sales growth is expected to stem from segments other than the personal navigation device business, which is expected to net flat to slightly lower revenue for the fiscal year. Neverthless, both estimates topped Wall Street's consensus estimates, which called for a profit of just $2.69 per share.
GRMN plunged right out of the gate this morning as traders considered the ailing fortunes of its core GPS business, but the stock is perched near long-term support at its 32-week moving average. This trendline has contained all of GRMN's weekly closes since May 2009.
Additionally, short-covering activity could also help to create a floor for GRMN amid its post-earnings decline. Short interest rose by 3.4% during the past month, and now accounts for 18.3% of the stock's available float. If these bears are motivated to take profits in light of today's negative earnings reaction, the resulting buying pressure could help to stem the shares' slide.
Elizabeth Harrow is a senior equities analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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