By every conceivable measure,
Garmin (Nasdaq: GRMN) reported a blowout
third quarter yesterday -- so why did the shares collapse?
More curious still, why are they reinflating this morning in
the face of a downgrade from Wall Street's
RBC Capital Markets? Let's review:
boost gross marginsmore than eight full percentage
points to 52.4%, and operating profit margins held on to
most of these gains -- up 570 basis points to 30.3%.
With the result that profits exploded upward to $1.07
per share, a 30% year-over-year jump.
Best of all, free cash flow comes to $813 million year
to date, more than
doublethe $402 million Garmin had generated by
this time last year.
What's bad about that?
Not a thing. And in fact, if you look at the trading
action, it becomes apparent that investors loved the
results. What they couldn't stand was the
guidance.
Post-earnings, you see, Garmin held its customary
conference call with the analysts. It was here that we
learned that the strong ASPs enjoyed in the third quarter
won't survive long into the fourth quarter:
Embraer (NYSE: ERJ) to
General Dynamics to
Textron (NYSE: TXT), we didn't really need
management to tell us that add-on equipment for planes
might suffer.)
All of which adds up to the following: Q3 was great, but
it won't repeat next quarter.
Foolish final thought
As if Garmin bulls didn't have enough to worry about
with the margin troubles, Chief Operating Officer Cliff
Pemble confirmed that Garmin's answer to smartphones from
Motorola (NYSE: MOT),
Research In Motion (Nasdaq: RIMM), and
Apple (Nasdaq: AAPL) -- the nuvifone -- is
enjoying "relatively slow" sales. So slow, in fact, that
Garmin's cutting the device's price to $199 when sold through
AT&T (NYSE: T).
Such a deep cut, so soon after the phone was
introduced,
confirms my thinkingback in September: Pricing nuvifone
so far above the competing iPhone (which can cost as little
as $99 with the same AT&T two-year contract) was
foolish-without-the-capital-F.
This article was originally published as
Time to Buy Garmin?on
Fool.com
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