Garmin posted earnings for the first quarter that topped analysts' forecasts, rising by 7.0 percent to $99 million. The revenues of this supplier of tracking and GPS navigation devices inched up by 2.0 percent to $639 million, driven by the outdoor, marine and aviation segments, but offset this time by a decline in the fitness sector.
The outdoor segment grew by 20 percent to $115.9 million in the quarter, generating a 24 percent increase in operating income to $34.4 million. The segment was boosted by sales of wearable devices. Garmin recently announced its F?nix 5 series with three different designs, all featuring Garmin Elevate wrist heart-rate technology and the brand's QuickFit band replacement system.
The management said in a conference call that it recently hosted its first Connect IQ Developer Summit, bringing together application developers and business partners to participate in hands-on workshops and breakout sessions with its product managers and engineers. At the event, it announced new capabilities for Connect IQ, including the ability for app developers to implement a revenue model. It also announced new integration partners including SmartThings, which gives it a strong presence in the emerging home automation market. Garmin believes that the 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 fitness segment, which includes sales of Garmin's cycling products, fared less well. Sales declined by 3 percent to $137.8 million, although a higher gross margin led to an 11 percent improvement in operating income to $18.5 million. The company's chief executive, Cliff Pemble, said that the company faced lower demand for its activity trackers, particularly those without GPS capability. This was partially offset by growth in advanced wearables with GPS, for which the demand remains strong.
During the first quarter, Garmin launched the Forerunner 935, described as its most advanced multi-sport watch with performance monitoring tools. It also introduced the Vívosmart 3, an ultra-slim smart activity tracker with a wrist based heart rate monitor and innovative all-day stress tracking.
Meanwhile, Garmin's marine segment saw sales gain 26 percent on the back of a solid lineup of chart plotters, fish finder and entertainment products, while the aviation segment posted 16 percent higher revenues, thanks to growth in aftermarket products. The auto segment saw sales dip by 19 percent, as a result of the ongoing PND (Personal Navigation Device) market contraction.
Overall, Garmin's gross margin jumped by 3.8 percentage points to 58.3 percent, while the operating margin improved by 1.6 percentage point to 18.2 percent.
For the full year 2017, Garmin maintained it guidance, expecting revenues of about $3,020 million, with growth in outdoor, marine and aviation being offset by ongoing declines in the PND market. It anticipates the gross margin to remain flat. The management noted that, while it continues to see the market for basic activity trackers as having reached a stage of maturity, it also sees growth opportunities in advanced wearables with GPS functionalities.