Garmin raised its full-year guidance after posting earnings for the second quarter that exceeded its expectations, rising by 6.1 percent over the year-ago quarter to $171 million. On an adjusted basis - which excludes the impact of foreign currency gains and losses and certain income tax items - profits inched up by 0.5 percent to $166.4 million, topping Wall Street's consensus estimate.
The company's overall revenues grew by only 0.7 percent to $816.9 million, despite strong increases in the outdoor and aviation segments. The company said that the demand for advanced wearables was particularly strong, but was partially offset by negative trends in the activity tracker market.
The outdoor segment was the shining star, with sales jumping by 46.3 percent to $194.8 million and generating a 53.0 percent increase in operating income to $74.3 million. Outdoor represented 24.0 percent of total turnover, compared with 17.0 percent in the previous quarter. The gains were led by strong demand for the F?nix 5 watch series, featuring Garmin Elevate wrist heart-rate technology, and the QuickFit band replacement system. The gross margin in this segment improved by 2.0 percentage points to 66.0 percent, while the operating margin gained 1.5 percentage points to 38.0 percent.
The management said in a conference call that it continues to see solid growth for its new inReach devices and subscription based services. 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. During the latest quarter, the company launched the Approach S60, a premium watch for the golf enthusiasts.
The fitness segment, which includes sales of Garmin's cycling products, fared less well. Sales fell by 15.0 percent to $181 million, with the gross margin inching down by 0.3 percentage points to 56.0 percent and the operating margin losing 3.9 percentage points to 21.0 percent. Sales declined by 2.7 percent to $108.5 million in the marine segment and by 15.2 percent to $208.5 million in the automotive segment, primarily due to the ongoing PND (Personal Navigation Device) market contraction. In contrast, the aviation segment rose by 14.5 percent to $124.1 million.
Overall, Garmin's gross margin advanced by 1.5 percentage points to 58.5 percent, while the operating margin improved by 0.2 percentage point to 24.9 percent.
Based on its performance so far this year, Garmin now expects revenues of approximately $3,040 million in 2017, driven primarily by higher expectations for its Outdoor and Aviation segments, partially offset by lower expectations for the Fitness segment. Previously, Garmin had projected revenues of $3,020 million. In particular, the Outdoor segment is now expected to show growth of 25.0 percent this year versus 10.0 percent previously.
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