Garmin (GRMN 0.17%) just navigated its way through a tough fiscal year. While some parts of its business declined in 2020, its fourth-quarter earnings report showed strong overall sales and profit growth that trounced the projections that management had issued just three months ago.
A big finish to the fiscal year also put the GPS device giant in a position to notch its sixth consecutive year of rising sales in 2021.
Let's take a closer look.
Sales beat expectations
Sales for the 13-week period that ended Dec. 26 jumped 23% year over year with most of the portfolio logging head-turning growth. Garmin's fitness segment rose 26%. Its outdoor division, home to premium smartwatches, soared 40%. The company even grew sales in its auto category, which had previously been shrinking for years.
Image source: Getty Images.
Altogether, revenue rose 11% for fiscal 2020, surpassing the 6% uptick that management projected in late October. "In a year filled with unimaginable challenges, Garmin delivered record revenue and profits," CEO Cliff Pemble said in the earnings release. The company even outperformed its initial 2020 sales outlook despite massive COVID-19 disruptions that struck around this time last year.
Improving margins
The news was just as good on the bottom line where Garmin benefited from a steady drumbeat of product introductions in areas like marine GPS, fitness trackers, and smartwatches. Gross margin ticked higher as these launches boosted average selling prices. Expenses were restrained, too, leading to a rising operating margin over the holiday period.
Garmin's performance on this score outpaced management's forecast and allowed operating margin to hold steady in 2020. The company was warning as recently as late October about a one percentage point decline to about 24%.
Data by YCharts. TTM = trailing 12 months.
That's a big win considering COVID-19 pressure earlier in the year and declining sales in its highly profitable aviation segment. Garmin even ended up outperforming the margin forecast that executives issued before the pandemic struck. "Strong demand for active lifestyle products fueled our growth," Pemble said. The success showed up in Garmin's final earnings tally with operating income jumping to $1.05 billion this year, compared to $946 million in 2019.
Looking to 2021
The company sees those positive trends continuing to lift the business in fiscal 2021 as sales rise to approximately $4.6 billion. Garmin is expecting each of its five core divisions to grow this year with fitness, outdoor, and marine logging double-digit gains, while the aviation and auto segments clock slightly slower rates. Pricing should keep gross profit margin steady at near 60%, but Garmin is planning to spend more in areas like research and development, so that operating margin will dip to about 23.5% of sales, down from 25.2% this past year.
With $1.85 billion of cash on the books and gushing free cash flow, Garmin took the opportunity to hike its cash returns to investors. The dividend this year will be $2.68 per share, or 12% higher than 2020's $2.40 payout. That boost, along with a likely sixth consecutive year of rising sales and earnings, are good reasons for shareholders to continue holding this stock.
