Navigation device maker Garmin Ltd. (GRMN) reported GAAP-based first-quarter profits that edged upward, in part from stronger margins, but adjusted earnings came up shy of analyst expectations as sales in its biggest segment continued to slide.
The Switzerland-based company recorded revenue in the January to March 2013 period of $532 million, down 4 percent from $557 million in the year prior quarter. Profits, including one-time tax benefits of $16.5 million, were $88.7 million, or 45 cents per diluted share, compared to $86.9 million, or 44 cents per diluted share, in the first quarter of 2012. Excluding the tax gains from the completion of audits, earnings per share were 40 cents, down from 45 cents last year.
Wall Street was expecting adjusted EPS of 41 cents on revenue of about $517 million.
Sales were stung by a 10 percent drop in revenue in Garmin’s automotive/mobile segment to $253 million in the quarter. The company’s outdoor (-1% to $76 million) and marine (-10% to $50 million) businesses also produced less revenue in the latest quarter, compared to the same period last year.
Helping offset those declines were increases in the fitness segment (+2% to $72 million) and the aviation segment (+10% to $81 million). The gains in the fitness segment were impressive given the fact that the year prior quarter featured the launch of the company’s Forerunner 910XT triathlon/multisport watch that added 26 percent growth in that quarter. Sales in the aviation segment exceeded $80 million for the first time since 2008.
Gross margins improved to 52 percent, besting last year’s quarter of 51 percent and the fourth quarter of 2012’s 49 percent.
“The first quarter of 2013 proved to be challenging, much as we had anticipated when providing guidance in February,” said Cliff Pemble, president and chief executive of Garmin. “Because we expected revenues to decline, we entered the year cognizant of the need to closely manage expenses which we accomplished,” he added.
Garmin trimmed advertising expense by 5.7 percent to $22.25 million. Selling, general and administrative expenses were lower by 4.3 percent at $86.27 million. R&D spending, however, was up by 10 percent to $87.69 million as the company invests in other means to supplement declining sales in its largest segment, automotive.
Sales at Garmin have been sliding since 2008 with the Great Recession and subsequent increase in smartphone applications providing consumers with many options for global navigation.
Shares of GRMN over the past year have reflected the declining sales, losing at one-quarter of their value. Shares closed Tuesday’s session at $35.08, down 0.5 percent for the day. There is little pre-market activity on Wednesday following the earnings report, but it’s looking like the stock is going to open modestly lower as investors mull the earnings miss, but topping of revenue predictions.
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