Garmin Ltd. (NASDAQ: GRMN) has reported earnings and the numbers are going to be a disappointment to many hanger-on bulls who still want to see a return of growth.  The GPS and personal navigation device leader is showing how the declines are already in place.

Earnings per share fell 16% to $0.56 from $0.67 in second quarter 2010, but the ‘pro forma’ earnings came down by 26% to $0.63 EPS from $0.85 in the same quarter in 2010.  Revenue fell 8% to $674 million.  The $0.63 and $674 million compares to Thomson Reuters estimates of $0.66 EPS and $633.75 million.  Free cash flow generation was $196 million in the quarter.

The company has given guidance that is a disappointment as well for 2011: it sees earnings at $2.00 to $2.15 EPS and sees revenues in 2011 at $2.5 to $2.6 billion.  Thomson Reuters has estimates of $2.48 EPS and $2.52 billion in revenues.

The company’s core Automotive/Mobile segment revenue was down 19% to $363 million.  Its “other” 4 areas did grow but the issue is that they grew at a rate that still does not come close to offsetting the bleed-out in the auto segment with revenues as follows: Outdoor rose 1% to $81 million; Fitness rose 25% to $78 million; Aviation rose 13% to $73 million; and Marine rose 6% to $79 million.

If Garmin looks at the map, the North American market is tanking, with growth coming from elsewhere: North America revenue fell 21% to $358 million; Europe revenue rose 12% to $253 million, Asia revenue was up 31% to $63 million.  Garmin also noted a drop in units shipped by 6% year-over-year to 3.8 million units.

Gross margin rose sequentially but fell year-over-year to 48% (versus 47% in the first quarter and 54% in second quarter 2010).  Operating margin fell to 20% (versus 28% in Q2 and 15% a year ago).  Garmin also lowered its margin guidance: 45% to 46% for 2011 on a gross margin basis and 16% to 17% on an operating margin basis.

The improved revenue note for 2011 appears to be from acquisitions as well.  The company noted that the improvement in sales will be driven primarily by the acquisitions of Navigon and Tri-Tronics; the EPS drop is due to the accelerating deferral of high margin revenues and associated costs.  In short, the decline is happening at a rate that may even be faster than Wall Street is expecting.

Garmin may feel like a value stock to many of the hold-out bulls.  The problem is that with a core business decline coming faster than its other segments can possibly grow this is actually a value trap.  After closing at $31.53 on Tuesday, the pre-market is down close to $28.00 in very thin volume indications.  Analysts are already looking for lower numbers in 2012.

Trimble Navigation Limited (NASDAQ: TRMB) was actually higher after its earnings on Tuesday evening.  We have yet to see formal trading but the stock is indicated up above $35 this morning after closing at $33.08 yesterday.

Another business segment has been marginalized by the growth of smartphones and the GPS and PND features offered.  At some point, the company better go hire some of the cigarette executives to help manage the business through a period where the core business faces a secular decline.

JON C. OGG

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