Garmin (NASDAQ:GRMN) may not have the hottest smartwatch on the market today, or even the single most popular fitness tracker. The company's legacy automotive segment is also rapidly shrinking as consumers rely on phones for their road-trip navigation needs. However, its portfolio of GPS devices is enjoying healthy demand growth heading into the holiday shopping season. That success wasn't a surprise, but it did lead the company to lift its earnings outlook for the second straight quarter.

More on that brightening profit forecast in a moment. First, here's how the headline results from this week's earnings report compared against the prior-year period:

Metric

Q3 2018

Q3 2017

Change (YOY)

Revenue

$810 million

$751 million

8%

Net income

$184 million

$151 million

22%

Earnings per share

$0.97

$0.80

21%

Data source: Garmin's financial filings. YOY = year over year.

What happened this quarter?

Sales growth sped up as the company's latest innovations found traction with customers across four of Garmin's five main product categories. Pricing and cost trends held up well, too, which allowed profitability to march higher.

A hiker interacts with her smartwatch.

Image source: Getty Images.

Key highlights of the quarter include:

  • Revenue growth doubled from last quarter's 4% pace to reach 8%. The company's automotive division continued to shrink on weak demand for stand-alone in-dash GPS units. Yet Garmin more than offset that slump with double-digit growth in each of its other categories of fitness, outdoor, aviation, and marine devices. The company's 8% increase compared well against rival Fitbit's flat sales result.
  • Gross profit margin improved by more than a full percentage point to reach 59.4% of sales. Fitbit's comparable figure, meanwhile, worsened to 40% of sales.
  • Operating profit grew 13% to $196 million, or 24.2% of sales, from $173 million, or 23.1% of sales a year ago.
  • The increasing margins combined with lower tax expenses to push net income higher by 22%.

What management had to say

CEO Cliff Pemble and his team focused their comments on Garmin's broad-based sales gains. "During the third quarter," Pemble said in a press release, "we continued our strong performance achieving double-digit revenue growth in four of our five segments and double-digit growth of consolidated operating income." Executives noted that profitability expanded despite significant investments in research and development and elevated costs associated with recent acquisitions.

Looking forward

Garmin executives left their 2018 sales outlook, which they hiked in the previous quarter, unchanged. That means revenue is still expected to rise 6% to $3.3 billion as growth across its hiking, fitness, marine, aviation, and smartwatch devices offsets losses in automotive sales. That forecast implies flat sales during the holiday season quarter.

Garmin left its gross profit margin forecast alone, too, and still expects that figure to march higher for the third straight year -- up to 58.5% in 2018. Meanwhile, the operating margin target now stands at 22%, up from 21.5% last quarter and 21% in the prior quarter.

That increase, plus a reduced tax rate, should ensure that profits reach roughly $3.45 per share. Garmin has become steadily more optimistic about that bottom-line result, which was $3.05 per share back in May and $3.30 per share just three months ago. That rising confidence reflects mounting evidence that Garmin can design and market across a wide range of electronics even during times of rapidly shifting consumer preferences.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool has a disclosure policy.