Garmin posted strong earnings and revenues for the fourth quarter that beat analysts' forecasts, largely driven by sales of wearable devices. Total sales rose by 10.0 percent to $861 million, beating the consensus estimate of $792.9 million reported by Thomson Reuters, with outdoor, fitness, marine and aviation collectively jumping by 25.0 percent over the prior year's quarter and contributing 74.0 percent of total revenues.
The sales increases were partly due to the fact that the quarter to Dec. 31 had 14 weeks in Garmin's accounts, versus the 13 weeks of the fourth quarter of 2015, which ended on Dec. 26. The quarterly net income went up by 3.2 percent over the year-ago quarter to $136.6 million, also topping the analysts' consensus estimates.
The outdoor segment's revenues grew by 46.0 percent to $175.4 million in the quarter, boosted by sales of wearable devices combined with growth in all other product categories and the contribution of the DeLorme line of products, following the acquisition of that brand last March. Garmin recently released its Fénix 5 series with three different designs all featuring Garmin Elevate wrist heart-rate technology and its QuickFit band replacement system.
The Swiss-based company sees further sales momentum going forward from its introduction in January of new models including the Fénix 5X, which features preloaded wrist-based mapping.
In the fitness segment, the Swiss-based company's sales grew by 20.0 percent to $228.7 million in the quarter, also driven by wearables, including Garmin Elevate wrist heart-rate technology. Garmin said that the recently launched Vívofit jr. was well received by retailers and customers during the holiday quarter. It anticipates that fitness will be its largest revenue contributor in 2017.
Meanwhile, the marine segment saw a sales gain of 19.0 percent on the back of a solid lineup of chart plotters and fish finders. Sales increased by 13.0 percent in the aviation segment, but they fell by 17.0 percent in the automotive sector, primarily due to the ongoing contraction of the PND (Personal Navigation Device) market.
Overall, the gross margin improved by 1.8 percentage points to 54.7 percent in the quarter, while the operating margin inched down by 0.1 percentage point to 18.6 percent. R&D expenses grew by 22 percent. Advertising expenses were boosted by 19 percent to support the launch of the new wearables in outdoor and fitness.
For the full year 2016, revenues rose by 7.0 percent over the prior year to $3,019 million, with outdoor, fitness, marine and aviation collectively growing by 21.0 percent and contributing 71.0 percent of total revenues. The gross margin gained 1.0 percentage point to 55.6 percent and the operating margin increased by 1.2 percentage points to 20.7 percent.
The management said in a conference call that its Connect IQ application platform has become an important differentiator for its smart wearables. It features over 2,500 apps, widgets and watch faces and has generated more than 24 million downloads since inception.
The company has shipped 16.8 million units in 2016, 4 percent more than in the previous year, indicating higher average prices and bringing the total deliveries up to 173 million pieces since Garmin started operating.
There will be hardly any growth this year, overall. For 2017, Garmin expects revenues of approximately $3,020 million, with growth in outdoor, fitness, marine and aviation being offset by ongoing declines in the PND market. It also anticipates the gross margin and the operating margin to remain flat or to go down slightly as compared to the prior year.
Garmin's shares climbed by more than seven percent immediately after the release of these results.