Garmin Ltd. (NASDAQ: GRMN) is the GPS device market’s dominant player, at least here in the U.S.  Yet the stock and the company have been in trouble for some time.  This latest earnings report looks not quite as bad as it could have, but it still makes you wonder if the GPS devices are giving Garmin’s workers the wrong directions each morning on the way to work.

The company’s earnings were $0.93 EPS as revenue fell 13.9% t0 $1.05 billion.  Estimates had already been slashed, but this is till worse than the Thomson Reuters (First Call) estimates of $0.98 EPS and $1.12 billion in revenues.

The company’s Automotive and Mobile segment revenue fell by about 17% to $828 million.  Its Outdoor and Fitness segment increased  5% to $120 million.  Aviation fell by 5% to $67 million, while its Marine segment revenue managed to stay flat at $33 million.

Garmin also saw a drop in gross margin to 41.1%, down from 44.3% sequentially and decline of 41.8% year-over-year; Operating margin was 22.6%, down from 24.6% sequentially and down 25.7% year-over-year.

Understandably,  the company will not offer guidance for 2009 given the uncertainty about the economy.  What we are curious about is why there is not even any quarterly guidance.  We are actually almost two-thirds of the way through the quarter and even in a spotty economy that could at least be addressed.  Oh well, we think that more companies are going to refrain from sticking their necks out in this climate.

There was actually a little bit of positive news here.  The company generated $340 million of free cash flow in the fourth quarter, and ended the year with a cash and marketable securities balance of just over $973 million.  The company also achieved an inventory reduction from third quarter 2008 of $274 million, resulting in year-end 2008 inventory of $425 million.  This may still be high, but that is the cost of doing business.

Garmin repurchased 2.4 million shares during the quarter.  We’d like to see the company just stop buying back stock.  Hording cash is a better tool for investors right now than adding a day and a half’s worth of share trading volume.

Garmin’s business metrics are soft and it looks like the company is far from being out of the woods.  But the stock is also down over 75% from its 52-week highs.  At $15.17, that is also down almost 90% from the highs in 2007.  With a $3 billion market cap and with profitable operations, it is obvious that the worst is behind it.  Whether this new Nuvifone and its core business can reward investors is something the company will have to prove.

Again, it is hard to get overly excited here.  But the stock should have some of the uncertainty taken out of the equation for at least a few weeks now that earnings are behind it.

Jon C. Ogg
February 23, 2009

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