Garmin's Head On Collision (GRMN)

Garmin Ltd. (NASDAQ: GRMN) looks a bit like a train wreck as the maker of mobile GPS systems and PND systems posted $0.25 non-GAAP EPS and $437 million in revenues vs. Thomson Reuters estimates of $0.42 EPS and $531.5 million in revenues.   If it sounds bad on the surface, it is that and worse.

These are both down substantially from last year. The earnings drop is atrocious with a drop of 64% to $0.24 from $0.67 in first quarter 2008; excluding foreign exchange, EPS decreased 64% to $0.25 from $0.69 in the same quarter in 2008.  That revenue number represents a drop of 34% from $664 million in first quarter 2008, and North America was the largest drop at 36%.

Gross margin increased sequentially to 44.9% for the first quarter 2009 from 41.1% in fourth quarter 2008; but it declined from 48.2% in first quarter 2008.  The company’s operating margin was 13.3%, compared to 26.0% in first quarter 2008 and 22.6% in fourth quarter 2008.

Garmin management called this the most challenging quarter since becoming a public company in December 2000.  As far as whether or not it has bottomed out, the company noted, “we believe that inventory levels have reached their low point and that sell-in to the channel will begin to more closely follow sell-through trends in coming quarters.”  It remains very cautious in Europe.

The other guidance is general on cost cutting: “We expect that these products, along with further steps to reduce costs, will help us to see improvement to our profitability levels in the second quarter. As always, we remain committed to taking appropriate steps to reduce costs while maintaining our aggressive approach to the development of new products and technology.”

So far we are seeing shares trade down close to $22.00 in the pre-market trading after closing at $25.66 yesterday.  Its 52-week range is $14.40 to $55.50 and this was north of $100.00 less than two years ago.

Jon C. Ogg